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Vietnam Blockchain Law – Dawn of a New Era (13 Sep 2018)

Vietnam is in the process of preparing a regulatory framework for bitcoin and other cryptocurrencies. Rumor has it that the first draft will be released shortly, possibly this weekend. Major players are positioning themselves to enter one of the biggest markets for cryptos in Asia. Let’s take a look at the current situation and at what could potentially be – the dawn of a new era.

Plan to regulate

Last year in August the Prime Minister of Vietnam issued a decision to create a legal framework for virtual assets. The country’s Ministry of Justice is in charge of coordinating with other relevant authorities. I have met with the Minister to comment on international experiences. The plan is to have a cryptocurrency bill by the end of the year. Not much time, but they have a dedicated team working on this.

Regulatory sandbox

An official of the State Bank of Vietnam (SBV) recently announced that it will likely have a regulatory sandbox for fintech, also within 2018. Together with one of our blockchain clients, we had advocated for a blockchain sandbox as a first step for a year and a half. So, the outlook is generally positive. Although, we don’t know the details of the planned regulations yet, and delays are common in Vietnam.

Current obstacles

As it currently stands, Vietnam’s laws are hostile to cryptocurrencies. Issuing, providing and using bitcoin or other virtual currencies as payment method is prohibited in Vietnam, because cryptocurrencies are not listed in an SBV decree as one of the permitted non-cash payment methods. Vietnam also has strict capital controls and foreign exchange regulations. Offshore investments by Vietnam residents require licensing in Vietnam.

ICO and STOs are not regulated, although, the State Securities Commission notified securities companies, broker-dealers etc. to not get involved, pending new regulations. Significant fraud is being reported in connection with fake ICOs. Likewise, the SBV has directed financial institutions and intermediaries under its purview not to deal with any virtual currencies and related companies.

Data protection

Data privacy and other issues are not yet in the mainstream, but Vietnam has passed a new Cybersecurity Law that will come into effect in January 2019. It requires server localization and commercial presences for IT services provided in Vietnam.

The upside: R&D hub

Despite the difficult legal landscape, many in the industry say that Vietnam is great for blockchain technology R&D. Vietnam has many talented engineers eager to learn and strong tax incentives for high-tech companies. Intel, Samsung and others have major production hubs here.

Outlook

Vietnam has the potential to become the next blockchain hub. A number of larger blockchain R&D companies and projects have already sprung up here. The State is welcoming high-tech and is eager to prepare for the Fourth Industrial Revolution. Telegram groups on blockchain topics are active, and international projects are visiting to pitch on a daily basis. A conducive, practical legal framework for crypto assets could further ignite the boom.

Get involved

Vietnam’s ministries and other law-drafting bodies are often soliciting opinions from business and other stakeholders on new draft legislation. This is a great way to be involved in shaping upcoming laws. We expect that this will be true for the draft crypto-asset regulations as well, but time is very limited. Stakeholders should get ready to submit their comments on short notice – possibly within a few days.

We can help you understand the implications of upcoming regulations. We would be happy to collaborate and prepare comments to be submitted to the relevant authorities. We can assist in Vietnamese, English, Japanese, French and other languages.

For more information, please contact Manfred Otto at MOtto@duanemorris.com or any other lawyer at Duane Morris.

The firm’s disclaimer applies to this post.

 

EU-Vietnam FTA Finally To Come Into Force In Early 2019? Comments on Government Procurement

Image on "EU-Vietnam FTA" created by authorVietnam Investment Review reported that the European Union-Vietnam Free Trade Agreement (EVFTA) will likely be ratified in October or November 2018 and come into effect in early 2019:

“EU firms to bid on public contracts”

Besides quotations from our Co-General Director in Vietnam, my  comments on government procurement under the FTA were featured in the above article as follows:

“The government procurement provisions in the EU-Vietnam FTA are a big step for Vietnam. Vietnamese suppliers will have access to the EU’s US$500 billion public procurement market. For Vietnam and its people, the EVFTA’s government procurement provisions should, over time, improve access to high-quality goods and services from EU suppliers.

Improvements are especially expected in the healthcare and life sciences sectors, as Vietnam’s public procurement in these sectors takes up 67% of the total market value. Vietnam has committed to give EU suppliers the right to bid for up to 50% of the pharmaceutical purchases by the Ministry of Health and many of the hospitals under its control, as well as major research facilities. Even so, this is a very gradual process over a period of 15 years after the FTA comes into effect.

The right to participate in Vietnam’s public tenders will initially be limited to relatively high-value contracts – those worth at least SDR 1.5 million (currently, $2.1 million) or SDR 3 million ($4.2 million) depending on the procurement agency. For construction work, the initial thresholds are even higher at SDR 40 million ($56 million). This is probably meant to protect Vietnamese small and medium-sized businesses.

The EVFTA also contains specific transparency and other requirements to support the procurement process itself, including an independent administrative or judicial authority where suppliers can challenge awards.”

Besides public procurement in healthcare, the EVFTA also provides access to other important government contracts. EU suppliers will be able to bid for contracts from Electricity of Vietnam, the State-run power company, and those of other major infrastructure projects, including roads, railways, and airports.

For more information, please contact Manfred Otto at MOtto@duanemorris.com or any other lawyer at Duane Morris.

The firm’s disclaimer applies to this post.

Vietnam – Regulatory Framework for Fintech and Blockchain Applications Announced

In its 5th session that closed on 15 June 2018, Vietnam’s 14th National Assembly passed 7 bills, including the controversial Cybersecurity Law. When the laws are revised, it is game on for law firms, but crucial is  action before the laws are passed.

Vietnam’s bureaucrats who draft the laws are open to exchanging information with experts from the business community. Last week, I talked with the Minster of Justice and other officials in preparation for the coming legal framework for fintech, blockchain, cryptocurrencies, and ICOs. Ministry of Justice officials announced that new legislation on virtual assets is planned within the year. Likewise, the State Bank of Vietnam is preparing a fintech “regulatory sandbox” – an environment where generally strict banking laws and other compliance requirements are eased for start-ups and new R&D projects to conduct proof-of-concept work. The Ministry of Science and Technology and other authorities are also working hard on related regulations in their respective fields.

Vietnam is beyond the point of “if” and “when” to regulate blockchain technology and applications – it has entered the “how” phase. Balancing the Cybersecurity Law and other national security measures with the opportunity to become a leading hub of the 4th Industrial Revolution might not be easy, but while legislation is pending, businesses can play a part in shaping Vietnam’s blockchain law.

For more information, please contact Manfred Otto at  MOtto@duanemorris.com or any other lawyer you are regularly communicating with at Duane Morris.

 

[Vietnam Update] New PPP Decree to come into effect on 19 June

The Government of Vietnam issued the new Decree 63/2018/ND-CP on Investment in Form of Public-Private Partnerships (PPP) replacing the old PPP Decree 15/2015/ND-CP, which was viewed by many as nonfunctional.

The new Decree appears to remove the requirement for investors to obtain an investment registration certificate before establishing a PPP project company. It also contains procedures on converting existing public projects to PPP projects aside from other revised provisions. In tandem, the Investor Selection (Bidding) Decree is expected to be revised as well. Those who are engaged in infrastructure projects in Vietnam may want to review how to apply both new decrees in practice.

For more information, please contact Manfred Otto at  MOtto@duanemorris.com or any other lawyer you are regularly communicating with at Duane Morris.

Disclaimer: This post has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. Each case should be analyzed individually with the support of competent legal counsel. For more information, please see the firm’s full disclaimer.

ThaiBev’s Record $4.8 billion Vietnam M&A Deal Verifies Foreign Ownership Limit Work-Around

Pros and Cons of the ThaiBev-Sabeco Structure

ThaiBev affiliate’s legal status as a Vietnamese domestic investor enabled it to acquire a majority stake in Sabeco, despite a foreign ownership cap of 49%.

Vietnam’s Ministry of Industry and Trade (MOIT) auctioned off a majority stake in Saigon Beer – Alcohol – Beverage Joint Stock Company (Sabeco) on 18 December 2017. The former State-owned enterprise has a 40% share of the Vietnamese beer market. The Thai Beverage (ThaiBev) affiliate Vietnam Beverage acquired a 53.59% stake for VND 110 trillion (or roughly US$4.85 billion) – a record for Vietnam.

Sabeco's stock chart

No other companies – domestic or foreign – submitted bids despite much interest. One of the reasons could have been the high price. As seems to happen often in anticipation of such sales, within 6 months before the MOIT announced the auction, Sabeco’s share price had risen about 75%. Vietnam Beverage paid VND 320,000 per share – a 2017 P/E ratio of almost 47 times. The price fell quickly after the deal went through, and the shares have been trading within a narrow band around VND 255,000 for the past few weeks.

Besides the price, the other main reason for international investors holding back could have been a combination of Sabeco’s foreign ownership limit and the timing between the official announcement, bid registration, and auction date. Even ThaiBev admitted in its 22 December 2017 Singapore Exchange (SGX) filing that the timeline for the submission of bids was “extremely tight” and that they had to make compromises, including not obtaining official shareholder approval in advance and in terms of financing of the deal. While timing is very important, we will take a closer look at Sabeco’s foreign ownership limit and legal structure of ThaiBev’s investment here. Understanding the structure first can help investors to position themselves for future deals and meet tight deadlines.

The ThaiBev-Sabeco structure

We illustrated the legal structure of ThaiBev’s investment in Sabeco in the following chart based on publicly available information. We have suggested this structure since 2015, when Vietnam’s then-new Investment Law came into force. Our interpretation of Article 23 of the Investment Law is that subsidiaries of companies registered in Vietnam with a foreign ownership of less than 51% can conduct investment activities under the same conditions as domestic investors. The Sabeco deal confirms the validity of this structure in practice, even for bigger deals, and that foreign ownership limitations do not apply to such subsidiaries.

ThaiBev-Sabeco structure chart

Here, Vietnam Beverage is a wholly-owned subsidiary of Vietnam F&B Alliance Investment Joint Stock Company (Vietnam F&B). ThaiBev’s indirectly wholly-owned subsidiary BeerCo Limited, a Hong Kong company, owns 49% in Vietnam F&B. Because BeerCo’s stake in Vietnam F&B is less than 51%, Vietnam F&B’s subsidiary Vietnam Beverage is not subject to investment conditions that apply to foreign investors. Therefore, Vietnam F&B could buy Sabeco shares as a domestic investor.

Sabeco’s foreign ownership limit

ThaiBev announced that it chose the above domestic-company structure to acquire a majority stake in Sabeco, because of Sabeco’s foreign ownership cap. Under Vietnamese securities regulations, foreign investors can only own up to 49% (in aggregate) of a public company where the company has registered so-called “conditional” business lines (unless otherwise provided by international treaties or domestic law).

A conditional business line is an activity that is subject to additional requirements, such as a special business license. Like many Vietnamese domestic companies, Sabeco had a long list of registered business lines, including conditional activities, e.g. – distribution and real estate trading. (By law, a company in Vietnam must register all its business activities.) Without substantially restructuring its business, Sabeco’s sale to foreign buyers was limited. Considering the 49% cap and that foreign investors had already owned 10.4% of Sabeco (including Heineken’s 5%), less than 39% of the total 54% for sale in this round were available to foreign buyers. But as a domestic investor, ThaiBev’s affiliate Vietnam Beverage could buy a majority stake.

To what extent does ThaiBev control Sabeco?

The 4.8 billion-dollar question is ThaiBev’s level of control over Sabeco. Although, Vietnam Beverage has a 54% majority stake in Sabeco, Vietnam Beverage is wholly owned by Vietnam F&B, where ThaiBev’s wholly-owned subsidiary BeerCo owns only a minority stake.

Politics and other levers aside, from a pure legal perspective, the general meeting of shareholders (GMS) can pass ordinary resolutions with approval of attending shareholders representing at least 51% of the votes. Special resolutions require at least 65%. Likewise, decision in the board of management (akin to a board of directors in some other jurisdictions) require a simple majority of all attending board members. Although, Vietnam’s Enterprise Law permits that companies stipulate higher voting thresholds in their charters, Sabeco’s most recent publicly available charter sets out the same default 51% and 65% ratios for the GMS and 51% for its 7-member board. Therefore, Vietnam Beverage can now unilaterally control ordinary resolutions of Sabeco’s GMS (except for related party transactions) and can vote its nominees to the board.

However, ThaiBev may not fully control Vietnam Beverage, because it only has 49% minority stake in Vietnam F&B. Two Vietnamese individual shareholders own 51%. According to ThaiBev’s 22 December 2017 SGX filing, “One of the Vietnamese investors in Vietnam F&B is a business person [who] is in the same group as the Company’s distributor of alcohol beverages in Vietnam. The other Vietnamese investor is the Company’s local business consultant [who advised] the Company in relation to the [Sabeco acquisition].

This raises a number of questions similar to those that arise in nominee companies in Vietnam: How much control can ThaiBev/BeerCo exert over the two Vietnamese shareholders in Vietnam F&B?

  • Did BeerCo and the Vietnamese shareholders enter into a properly drafted shareholders’ agreement and approve a charter for Vietnam F&B with reserved matters and other guards to give BeerCo more control? (NB: Vietnam’s Enterprise Law permits voting preference shares only with Government approval and only to founding shareholders for maximum three years.)
  • What happens with the dividends from Sabeco/Vietnam Beverage – will the two Vietnamese shareholders get 51%? (Dividend preference shareholders have no voting rights, so that wouldn’t be in BeerCo’s interest.)
  • Can ThaiBev buyout those Vietnamese shareholders? How much will it cost? (The market value of Vietnam F&B should be sky high now.)
  • What if they sell their stakes to a competitor?
  • Will the courts enforce the shareholders’ arrangements when contested (less than 30% of Vietnamese court judgments are enforced in Vietnam; let alone foreign arbitral awards)?

We do not know for sure, as Vietnam F&B’s documents are not public, but those are a few of the potential risks of the ThaiBev-Sabeco structure.

New Investment Law and management committee for SOE equitization

It is important to note that Vietnam is in the process of amending its Investment Law (again, after less than three years in force). The first published draft has revised provisions that affect M&A activities – including the dreaded pre-M&A approval requirement. The ThaiBev structure may or may not work in the future. At the earliest, we expect the new law to come into force in 2019. So, upcoming SOE divestments including Habeco, PV Power, PV Oil as well as the sale of the MOIT’s remaining 35% of Sabeco might still be in time to apply the above structure if they close in 2018.

In addition, the Government plans to establish a new State capital management committee to coordinate divestments of all State-owned assets taking over powers from the various ministries and State Capital Investment Corporation (SCIC).

Pros and cons of the ThaiBev-Sabeco structure

+ Allows foreign investors to participate in investments under the same conditions as domestic investors.

– No full ownership and limited control over those investments.

For more information, please contact Manfred Otto at  MOtto@duanemorris.com or any other lawyer you are regularly communicating with at Duane Morris.

Disclaimer: This post has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. Each case should be analyzed individually with the support of competent legal counsel. For more information, please see the firm’s full disclaimer.

Vietnam Logistics Law – New Decree 163 – Nothing to See Here?

Despite media reports to the contrary, Vietnam’s new logistics regulation does not further open up the market to foreign investment but newly requires compliance with e-commerce regulations.

On 20 February 2018, Government Decree No. 163/2017/ND-CP on logistics services will replace the old Decree 140/2007/ND-CP. Many foreign investors had hoped for further clarification and market access in the logistics sector. The new Decree 163 does not grant new rights to foreign investors, at least on paper, and may even introduce new uncertainties in practice. While the most interesting new provision could turn out to affect the digitalization of logistics processes.

Issued in 2007, just when Vietnam acceded to the WTO, Decree 140 is ancient for Vietnamese law standards. The law has moved on since then, as Vietnam opened most service sectors to foreign investors, including many (but not all) business activities in the logistics sector. A few points on Decree 163 are outlined below.

I. “Logistics” redefined

Foreign investors (and Vietnamese businesses seeking foreign investment) must closely review each business activity they plan to conduct in Vietnam to see if foreign ownership limitations and other conditions apply. The old Decree 140 defined “logistics” with reference to Article 233 of the Commercial Law 2005. Article 3 of the new Decree 163 defines and regulates the following “logistics services”:

Logistics services under Article 3 of Decree 163

  1. Container handling services, except for provision of such services at airports.
  2. Container warehousing services as part of maritime transport support services.
  3. Warehousing services as part of support services for all modes of transport.
  4. Delivery services.
  5. Freight transport agency services.
  6. Customs brokerage services (including customs clearance services).
  7. Other services including the following activities: bill of lading inspection, freight brokerage services, cargo inspection, sampling and weighing services; goods receipt and acceptance services; and transport documentation preparation services.
  8. Wholesaling support services and retailing support services including activities being management of goods in storage, collection, sorting and classification of goods, and goods delivery.
  9. Freight transport services as part of maritime transport services.
  10. Freight transport services as part of inland waterway transport services.
  11. Freight transport services as part of rail transport services.
  12. Freight transport services as part of road transport services.
  13. Air transport services.
  14. Multimodal transport services.
  15. Technical analysis and testing services.
  16. Other transport support services.
  17. Other services provided by logistics service providers and as agreed with their clients in accordance with the basic principles of the Commercial Law.

“Delivery services” and “other transport services” are not further defined in Article 3. The lawmakers probably intended that one refer to the Vietnam Standard Industrial Classification System (VSIC), which is comparable to the United Nation’s Central Product Classification (CPC) codes used in Vietnam’s WTO Service Sector Commitments (WTOSSC) . For example, “delivery services” under VSIC 5230 include delivery of mail and parcels not covered by “freight transportation services.” VSIC 5320 is similar to WTOSSC’s “courier services” (CPC 7512), which includes “express delivery services.” There is no foreign ownership limit in Decree 163 for “delivery services,” nor for “courier services” under the WTOSSC – that’s good news for foreign courier services providers.

II. No changes to foreign ownership limitations (FOL)

WTOSSC and Decree 140 already defined FOL and their respective schedules. Decree 163 does not change anything. Decree 163 addresses FOL of various freight related services but is silent on passenger transportation services.

The below chart summarizes the main foreign ownership caps in the logistics sector. It is a simplified chart, and additional conditions apply to those business lines. Further conditions apply to foreign investors. For example, maritime freight transport companies with up to 49% foreign ownership may register ships in Vietnam and fly the Vietnamese flag, but only up to one third of the crew members may be non-Vietnamese; the captain and the first officer must be Vietnamese citizens. Like other conditions in Decree 163, this is nothing new and was already set forth in the WTOSSC.

Vietnam: Foreign Ownership Limitations (FOL) in the Logistics Sector

WTOSSC Decree 163
CPC Service Description FOL FOL
742 Storage and Warehouse 100%
748 Freight transport agency (incl. freight forwarding services) 100%
749 Bill auditing; freight brokerage; freight inspection, weighing and sampling; freight receiving and acceptance; transportation document preparation on behalf of cargo owners 99% 99%
7211 Maritime transport (Passengers; less cabotage) 49%
7212 (a) Maritime transport (Freight; less cabotage) – joint-venture fleet flying Vietnamese flag 49% 49%
7212 (b) Maritime transport (Freight; less cabotage) – foreign fleet 100% 100%
7221 Internal waterways transport (Passengers) 49%
7222 Internal waterways transport (Freight) 49% 49%
7111 Rail transport (Passengers) Unbound
7112 Rail transport (Freight) 49%
7121 + 7122 Road transport (Passengers) 49%
7123 Road transport (Freight) 51% 51%
No CPC Custom clearance 99%
No CPC Container station and depot 100%
7411 Container handling (except at airports) 50% 50%
621, 61111, 6113, 6121, 622, 631 + 632 Distribution (import/export, commission agents, wholesale, retail) 100%

III. New e-commerce provision – digitalization of logistics services

One thing that is new in Decree 163 is its express requirement to comply with Vietnam’s e-commerce regulations. Article 4.2 provides that a logistics business conducting part of or its entire business electronically over the Internet, mobile or other “open networks” must comply with e-commerce regulations. Vietnam’s main e-commerce regulation is Decree 52/2013/ND-CP. Decree 52 requires e-commerce service providers to either notify or register with the Ministry of Industry and Trade. E-commerce providers must also protect personal information and consumer interest in accordance with Decree 52 and other laws and regulations. Arguably, though, these e-commerce requirements were already applicable to logistics services that conducted e-commerce activities before Decree 163.

Article 4.2 is very broad and could obviously apply to any business communications over e-mail, messaging apps, web-conferencing, company websites, and social networking sites – just to name few. The question is whether Article 4.2 will also apply to new internal, digital enterprise processes, such as digital supply chain and smart warehousing technologies that utilize “open networks.” Vietnamese law does not define “open networks,” and various literature about the topic is inconclusive as to what it actually means. For instance, one tech article concludes that today “open network” means “user choice” – which is not very helpful from a legal perspective. If IT specialists disagree on the meaning of “open networks,” the various Vietnamese authorities involved in regulating and licensing logistics activities are likely to be confused as well and could interpret Article 4.2 in various, uncertain ways.

Bottom line: The new Decree 163 does not expand market access rights of foreign investors in Vietnam’s logistics sector, but it introduces an explicit requirement to comply with e-commerce regulations.

For more information , please contact Manfred Otto at MOtto@duanemorris.com or any other lawyer you are regularly communicating with at Duane Morris.

Disclaimer: This post has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. Each case should be analyzed individually with the support of competent legal counsel. For more information, please see the firm’s full disclaimer.

“RegTech in Asia – Opportunities & Challenges” – 23 Nov 2017 Presentation

Slides from my recent presentation in Ho Chi Minh City on “RegTech in Asia – Opportunities & Challenges” on 23 November 2017 organized by QRC HK & Infinity Blockchain Labs:

171123 RegTech in Asia-Otto-EN

Main topics:

  • AML/KYC (anti-money laundering and “know your customer”)
  • Compliance costs in Asia
  • e-Government (e-Customs, e-Courts, e-Tax)

Statutory KYC Requirements in Vietnam

For more information , please contact Manfred Otto at MOtto@duanemorris.com or any other lawyer you are regularly communicating with at Duane Morris.

Disclaimer: This post has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. Each case should be analyzed individually with the support of competent legal counsel. For more information, please see the firm’s full disclaimer.

『ベトナム国有企業M&A~コーポレートガバナンス』2017年11月16日プレゼン資料

2017年11月16日に日本アセアンセンターが開催した「ベトナム政府との対話~国有企業の株式化とM&A~in 東京」と題したセミナーの私のプレゼン資料です。

トピック

「ベトナム国有企業M&A~コーポレートガバナンス」

  1. 機関設計
    株主総会、取締役会、社長など
  2. 少数株主の権利保護
    株式譲渡制限に関する定款・契約条項

ダウンロードリンクは以下です。

171116 Vietnam SOE and M&A-ASEAN Centre-Otto-JP.pdf

ご質問等ございましたら、オットー(MOtto@duanemorris.com)または弊所で通常連絡を取っている担当弁護士までご連絡ください。

Organization Chart of a Vietnamese SOE

〈ご注意〉こちらの記事は皆様に情報をお届けする目的でのみ作成・掲載しておりますので、法的なアドバイスとして提供・構成することを目的としておりません。詳細につきましては、当事務所の注意書きをご一読下さい。

***

Slides from my recent presentation in Tokyo on “Vietnam State-Owned Enterprises and M&A – Corporate Governance” organized by ASEAN-JAPAN Centre on 16 November 2017.

171116 Vietnam SOE and M&A-ASEAN Centre-Otto-JP.pdf

For more information , please contact Manfred Otto at MOtto@duanemorris.com or any other lawyer you are regularly communicating with at Duane Morris.

Disclaimer: This post has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. Each case should be analyzed individually with the support of competent legal counsel. For more information, please see the firm’s full disclaimer.

Vietnam’s State-Owned Enterprises Equitisation and M&A – 6 July 2017 Presentation Slides

Slides from our recent presentation in Singapore on “SOE Equitisation and M&A – Recent Trends and Corporate Governance”.

Vietnam SOE Equitization and M&A-6 July 2017-Otto-ENG

For more information , please contact Manfred Otto at MOtto@duanemorris.com or any other lawyer you are regularly communicating with at Duane Morris.

*   *   *

先日シンガポールで開催した「ベトナム国有企業の株式化とM&A~最近の動向とコーポレートガバナンス」についての日本語版プレゼン資料です。

Vietnam SOE Equitization and M&A-6 July 2017-Otto-JP

ご質問等ございましたら、オットー(MOtto@duanemorris.com)または弊所で通常連絡を取っている担当弁護士までご連絡ください。

 

More Clarity on Foreign Investment and M&A in Logistics Companies in Vietnam

Foreign investors can now proceed with more certainty when setting up logistic companies or acquiring stakes from Vietnamese partners. Logistics is an area where discrepancies between international treaties and domestic law implementation have caused many headaches. However, Vietnam’s Ministry of Industry and Trade (MOIT) has recently provided more clarity through a guiding regulation (Circular No. 9911/BCT-KH) and a number of official letters, including responses to the Ho Chi Minh City People’s Committee and the Vietnam Business Forum. At the same time, a few Japanese logistics companies have established 100% foreign-invested subsidiaries in Vietnam.

International treaties should supersede national law, and official comments from MOIT have restated that view. So, we initially refer to Vietnam’s WTO service sector commitments (WTOSSC) in most cases. Accordingly, some sectors are open to 100% foreign investment (e.g., warehousing and freight forwarding), while some still require Vietnamese equity participation (e.g., container handling).

Foreign Ownership Limitations in the Logistics Sector (WTOSSC)
CPC Service Description Max. Foreign Ownership
742 Storage and Warehouse 100%
748 Freight transport agency (incl. freight forwarding services) 100%
749 (partially) Bill auditing; freight brokerage; freight inspection, weighing and sampling; freight receiving and acceptance; transportation document preparation on behalf of cargo owners 99%
7211 Maritime transport (Passengers; less cabotage) 49%
7212 Maritime transport (Freight; less cabotage) 51%
7221 Internal waterways transport (Passengers) 49%
7222 Internal waterways transport (Freight) 49%
7111 Rail transport (Passengers) Unbound
7112 Rail transport (Freight) 49%
7121 + 7122 Road transport (Passengers) 49%
7123 Road transport (Freight) 51%
No CPC Custom clearance 99%
No CPC Container station and depot 100%
7411 Container handling (except at airports) 50%
7512 Courier (express delivery) 100%
621, 61111, 6113, 6121, 622, 631 + 632 Distribution (import/export, commission agents, wholesale, retail) 100%

As a foreign buyer in an M&A case, besides the purchases price and other conditions, we recommend to consider and differentiate between absolutely essential and optional business lines as well as the best case and acceptable levels of ownership in the target.

Yamato Logistics and Sagawa Express have established 100% foreign-invested subsidiaries in Vietnam. This is possible through strategically limiting business lines to those that are open to 100% foreign investment.

For further information, please  contact Giles Cooper (gtcooper@duanemorris.com), Manfred Otto (motto@duanemorris.com) or any other lawyer you are regularly communicating with at Duane Morris.