shares – Duane Morris Vietnam

October 6, 2016 by Dr. Oliver Massmann

Vietnam – Building better Investor Protection Framework – What you must know:

Vietnam stock exchange already gained significant milestones in developments, but why it still does not attract big domestic companies to list so far?

Tightened monetary policies leading to limited capital inflow to the securities market, its low liquidity and significant decrease in stock price partly contribute to the low attractiveness of Vietnam’s stock exchange. In addition, although Decree No. 60 loosens foreign ownership in public companies, detailed foreign ownership applicable for conditional business sectors has not been issued. This makes Decree No. 60, which is said to be rather promising to the market, invalid in whole or in part.

Another reason is Vietnam’s stock exchange lacks good stocks. In other words, the number of listed state owned enterprises seems to outweigh private entities. It is the fact state owned enterprises still do not attract foreign / private investment due to their history of bad performance. Meanwhile, successful private entities have not been listed. It seems like a vicious circle, when not many companies want to be listed due to low attractiveness of the securities market and unlikely increase in price of stocks after being listed.

Finally, investors and owners are held back to list at the Stock Exchange in Vietnam as Vietnam has not adopted international Corporate Governance Standard and effective means of implementation and enforcement of those. But latest in mid-2017 Vietnam is obliged to adopt these rules.

Vietnam is currently working with the IFC/World Bank on establishing Corporate Governance standards for investors interests. Thus we believe the situation will improve within the next year once Vietnam has fulfilled this task.

What benefits for companies if they list on Singapore or Hong Kong? But how high is the cost they would endure to comply with stricter regulations?

Singapore and Hong Kong are large capital markets where companies in Vietnam could find it much easier to call for capital. Investors in these countries already have certain knowledge about investment in Vietnam and the companies themselves, so if successfully listed, these companies will become more attractive to the investors there.

However, the cost to comply with very strict listing requirements is relatively high, especially when the Vietnam’s companies have never implemented similar requirements in Vietnam. The barriers are, among others, international standard audited financial statements, detailed foreign ownership, proven record of corporate management and complex tax rules. Considering that the cost could be as high as up to USD 1 million, it is recommended that only big companies with high financial capacity list their stocks on Singapore or Hong Kong stock exchange.

But at the moment, we don’t see any Vietnam firms listed successfully abroad. May be the procedure is a huge obstacle for them to move abroad? What do Vietnam companies need to do for completing listing on Singapore stock exchange?

Procedure and strict requirements as mentioned in Point 2 are huge obstacles for companies who want to list abroad. The first and foremost condition is Vietnam companies must understand very well structure of Singapore stock exchange. Next, be prepared for complying with requirements on financial capacity, assets, corporate management, number of shareholders, etc. It is highly advisable that Vietnam companies seek advice of international lawyer with good local legal knowledge so that Vietnam companies could implement their plans successfully.

Please do not hesitate to contact Oliver Massmann under omassmann@duanemorris.com if you have any questions or want to know more details on the above. Oliver Massmann is the General Director of Duane Morris Vietnam LLC. THANK YOU !

November 24, 2015 by Dr. Oliver Massmann

Lawyer in Vietnam Oliver Massmann PUBLIC MERGERS AND ACQUISITIONS IN VIETNAM: MARKET ANALYSIS OVERVIEW

Largest / most noteworthy public M&A transactions in the past 12 months
IT and electronic equipment
In June 2014, Vietnam’s leading IT corporation, FPT Software, acquired RWE IT Slovakia, a subsidiary of the RWE Group (one of Europe’s leading utility companies). Therefore, RWE IT Slovakia will be 100% owned by FPT Software and be renamed FPT Slovakia. This deal is also the first M&A transaction of FPT and first M&A deal by a Vietnam ICT company outside Vietnam. However, the deal value has not been disclosed.
Oil gas and chemicals
In November 2014, SapuraKencana Petroleum Berhad (Malaysia) acquired the entire interest of Malaysia’s national oil company Petroliam Nasional Berhad (Petronas) in three blocks offshore from southern Vietnam for US$400 million after an international bidding process.
Financial
Noteworthy public M&A transactions include the following:
• In December 2014, Vietnam National Financial Switching JSC (Banknetvn) merged with Smartlink Card JSC (Smartlink). Banknetvn then became the only card switching company on the market in which the central bank holds 25% of the total shares.
• In May 2015, Sai Gon Thuong Tin Commercial Joint Stock Bank (more commonly known as Sacombank) merged with Southern Commercial Joint Stock Bank. Following the merger, Southern Bank shareholders obtained a 0.75 Sacombank share for each share they held. The merged entity, to be called Sacombank, will have a charter capital of more than VND18.85 trillion (US$856 million) and total assets of over VND290.86 trillion (US$13.2 billion). Sacombank’s shareholders agreed to the merger by a 93.7% vote.
• In May 2015, the merger between the Mekong Housing Bank and the Bank for Investment and Development of Vietnam was completed.
• In April 2015, Credit Saison spent about JPY5 billion to take a 49% stake in HDFinance, Vietnam’s third largest consumer finance business.
• In August 2015, the Mekong Development Bank (MDB) was set to merge with the Vietnam Maritime Commercial Bank (Maritime Bank) to form an institution that would be among the country’s five largest banks in terms of charter capital. Currently, Maritime Bank’s charter capital is US$373.8 million and MDB’s is US$175.23 million, meaning that the new banking institution would have a charter capital of US$549 million and total assets of US$5.28 billion.
• The Vietnam Bank for Industry and Trade (Vietinbank) will merge with Petrolimex Group Commercial Joint Stock Bank (PG Bank). The change rate for PG Bank shares to Vietinbank shares is 1:0.9, which means Vietinbank will exchange 270 million of its shares for 300 million of PG Bank shares. The merger will increase Vietinbank’s total assets by VND25 trillion (US$1.19 billion) to VND685 trillion (US$31.7 billion), and its chartered capital by VND3 trillion (US$142.86 million) to more than VND40 trillion (US$1.85 billion).
Mining, metals and engineering
In 2014, Vietnam Coal and Minerals Group (Vinacomin) sold 100% of its charter capital in Vietnam Coal – Mineral Single Member Financial Limited Company to Vietnam Prosperity Bank (VP Bank). The deal value has not been disclosed.
Pharmaceuticals, biotechnology and healthcare
In September 2014, Standard Chartered Private Equity successfully acquired a significant minority stake in An Giang Plant Protection JSC, a market leader in the Vietnam agricultural sector for US$90 million.
Other
Retail. Noteworthy public M&A deals include the following:
• In August 2014, Thailand’s Berli Jucker Public Company Limited (BJC) bought Metro Cash & Carry Vietnam in a deal valued at EUR655 million.
• Thailand’s Central Group completed the acquisition of 49% of the total shares in NKT New Technology and Solution Investment and Development Corporation, the owner of Nguyen Kim Trading Company. The deal value has not been disclosed.
• Vingroup bought 70% of the total shares in Ocean Retail Company, a member of Ocean Group that owns the OceanMart retail system in northern Vietnam, and renamed it VinMart Retail Group. The deal value is US$26 million.
Food. Noteworthy deals include the following:
• In April 2015, Masan Group announced the acquisition of stakes in two companies. It acquired 52% of the total shares in Vietnam French Cattle Feed JSC (Proconco) and 70% of the total shares in Agro Nutrition Company JSC (Anco). The acquisition occurred when the group bought 99.99% of the total shares in Sam Kim Limited Liability Company and renamed it Masan Nutri-Science Company.
• In May 2015, Filipino firm Pilmico Foods Corporation acquired some feed companies in Vietnam in an expansion bid. Pilmico, a subsidiary of the Aboitiz Group, had bought 70% of the total shares in Vinh Hoan 1 Feed JSC (VHF) at US$28 million in 2014.
• F&N Dairy Investments Pte Ltd holds 110.4 million shares of Vietnam Dairy Products Joint Stock Company (Vinamilk), equivalent to 11.04% of its charter capital. It is now the second largest shareholder of Vinamilk after the State Capital Investment Corporation (SCIC).
• Mondelēz International completed the acquisition of 80% of the total shares in Kinh Do Corporation, a popular snack business in Vietnam, for about US$370 million
Real estate. Noteworthy deals include the following:
• In January 2014, the Hong Kong-based Tung Shing Group acquired 53% of the total shares in Mövenpick Saigon Hotel in Phu Nhuan District, for approximately US$16 million.
• In March 2015, Lotte Group acquired 70% of the Diamond Plaza project. The building had benefited from an initial investment of about US$60 million. However, Lotte Group did not reveal the amount of money spent on the deal.
• In November 2014, Ho Chi Minh City-based property company, Novaland Joint Stock Company, bought some stalled projects, including Icon 56 and Galaxy 9 in District 4 and Lexington Residence in District 2, which had benefited from investments of about VND3 trillion (US$142.5 million).
• In June 2015, Gaw Capital Partners (GCP), the Hong Kong-based private equity firm, acquired an existing portfolio of real estate projects in Vietnam. The portfolio was purchased for US$106 million and is comprised of four of the remaining projects originally held under Indochina Land Holdings 2 Ltd.
• In early July 2015, Gamuda Land Vietnam, a division of Malaysian property developer Gamuda Berhad acquired Celadon City from the Saigon Thuong Tin Real Estate JSC (Sacomreal) and the Thanh Thanh Cong JSC (TTC) for an estimated VND1.4 trillion (US$64.1 million). The estimated original investment is VND24.8 trillion (US$1.1 billion).
• In 2015, Vingroup has become a dominant local M&A acquirer with a long list of transactions in the real estate, retail and logistics sectors. Its most notable additions include:
o Masteri Thao Dien for US$75 million;
o 30% stake ownership in Vinatex for US$26 million;
o 90% stake ownership in Giang Vo Trade Show Center for US$69 million; and
o 30% stake ownership in Hop Nhat Express for US$52 million.
• In November 2014, the US-based Global Emerging Markets Fund (GEM) agreed to acquire 10% of Hoang Anh Gia Lai, a Vietnamese plantation and real estate company, for US$80 million. GEM will obtain a board seat and will support the company potential listing on the international markets in the future.
Insurance. In April 2015, Canada-headquartered Fairfax Financial Holdings, through its subsidiary Fairfax Asia Limited, acquired about 35% of the total shares of the Bank for Investment and Development of Vietnam Insurance Joint Stock Corporation for US$50 million, therefore becoming a strategic investor in the firm.
The major trends in the structuring of public M&A transactions
In Vietnam, M&A transactions usually take the form of either share or asset acquisitions, with share acquisition transactions outnumbering asset acquisition transactions.
Share acquisitions by foreign purchasers are commonly structured as offshore direct investments. The new investor can:
• Acquire shares or capital contributions from an existing shareholder in the target (for example, a joint stock company, limited liability company, and so on).
• Subscribe for newly issued shares of the target (for a joint stock company).
• Make further capital contributions to the target (for a limited liability company).
In the case of an asset deal, a foreign purchaser must generally establish a new subsidiary in Vietnam.
In addition, M&A transactions can also take the form of a merger. One or more companies of the same type can be merged into another company by transferring all assets, rights, obligations and interests to the merged company, terminating the existence of the merging company.
The 2014 Enterprise Law sets out the types of business structuring that can be used by investors as a result of M&A transactions. In addition, the 2014 Investment Law is the first law that regulates M&A transactions and clearly provides that such transactions do not require an investment certificate. This change will hopefully end years of uncertainty and frustration faced by foreign investors seeking entry into the Vietnam market or expansion through M&A transactions. However, it is still early to assess the effectiveness of these laws, as they have only been implemented since July 2015, and their guiding documents have not been issued yet. This has left enterprise registration and licence amendments in limbo, particularly for enterprises that have obtained licences under the former Enterprise Law and Investment Law. This situation has a direct impact on M&A transactions.
The level/extent of private equity-backed bids in the past 12 months
Investment in the form of M&A transactions is still the most popular form compared with private equity investment. In recent months, private equity funds have been following the securities market in Vietnam, especially companies carrying out value chain operations. Consumer goods and infrastructure are the sectors that attract the most attention. However, due to limited publicly available information, it is not possible to fully assess the level of private equity-backed bids.
The approach of the competition regulator(s) in the past 12 months
The Vietnam Competition Authority under the Ministry of Industry and Trade (VCA) must be notified of the transaction if participating companies have a combined market share in the relevant market of 30% up to 50%. The VCA will then examine whether the calculation of the combined market share is correct and whether the transaction is prohibited (that is, whether the combined market share exceeds 50%, except in certain cases). The transaction can be conducted when the VCA issues a written confirmation that the transaction is not prohibited under competition law.
For more information on the VCA, see www.vca.gov.vn/Default.aspx?lg=2.
Main factors affecting the public M&A market over the next 12 months
The country’s deeper and wider integration into the world’s economy is offering new opportunities for M&A activities.
Another factor is the government’s target to equitise state-owned enterprises (SoEs). The Prime Minister approved the plan to turn 432 SoEs into joint stock companies in the 2014-2015 period. To date, 176 of such companies have been equitised. Initial public offerings by major SoEs have been creating new, attractive supplies to the M&A market. The restructuring of commercial banks and divestments from non-core business by SoEs have made the M&A market more attractive.
Encouraging signs for foreign investment include:
• Economic recovery.
• Reformed policies to allow wider access to foreign investors.
• The conclusion of free trade agreements (FTAs) and the Trans-Pacific Partnership (TPP).
• The bouncing back of the stock market.
• New regulations that increase the authorised levels of foreign investment in public listed companies.
The introduction of the new Investment Law, Enterprise Law and other laws and policies are creating an improved legal environment for investment and trade in general, and the M&A market in particular. However, the following factors also affect M&A transactions:
• Divergent interpretations and implementations by local licensing authorities of international treaties such as Vietnam’s WTO Commitments.
• Different licensing procedures applied to different types of transactions (for example, for foreign invested companies and domestic companies, public companies and private companies, and for buying state-owned shares or private shares).
Although legal and governance barriers, along with macro instability and the lack of market transparency are still the greatest concerns for investors, M&A deals in Vietnam are still expected to be one of the key, effective channels for market entry.
The major expected trends in the Vietnam M&A market include:
• Bank restructurings.
• Acquisitions and anti-acquisitions.
• Growing Japanese investment in Vietnam through M&A transactions.
• Reform of SoEs.
The derivatives market is expected to open in 2016, which will help in preventing risks, boosting the growth of the stock market and in promoting M&A deals.

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November 24, 2015 by Dr. Oliver Massmann

Lawyer in Vietnam Oliver Massmann Public Merger and Acquisitions in Vietnam

There has been a steady growth in M&A activities in Vietnam since Vietnam officially became a member of the World Trade Organization (WTO) in 2007. The first M&A wave in Vietnam occurred during the period between 2008 and 2013, with a reported total value of US$15 billion. Japanese investors made about US$1.2 billion worth of deals in 2012. Japan is the leading country for M&A deals in Vietnam in terms of both quantity and value. This helped the M&A market in Vietnam to reach a peak of US$5.1 billion in 2012. Fast-moving consumer goods are considered to be the most attractive sector, with a total value of M&A transactions up to US$1 billion, accounting for 25% of the total M&A value in Vietnam. The retail and real property sectors are also very active, with high value M&A deals. Vietnam’s M&A market experienced a strong recovery in 2014, with six deals being reportedly made every week. There were a total of 313 M&A deals in 2014, with a value of US$2.5 billion, a 15% increase compared with the previous year.
How to obtain control of a public company
The most common means of obtaining control over a public company are as follows:
The acquisition of shares/charter capital through:
buying shares/charter capital from the existing shareholders of the company;
buying shares/charter capital of a listed company on the stock exchange; and
public share purchase offer.
Through a merger. The 2014 Law on Enterprises sets out the procedures for company mergers by way of a transfer of all lawful assets, rights, obligations and interests to the merged company, and for the simultaneous termination of the merging companies.
Through the acquisition of assets.
There are restrictions on the purchase of shares/charter capital of local companies by foreign investors. In addition, the law does not yet allow merger or assets acquisition transactions where a foreign investor is a party.
Securities of public companies must be registered and deposited at the Vietnam Securities Depository Centre before being traded.
Depending on the numbers of shares purchased, an investor can become a controlling shareholder. Under the Vietnam Law on Securities, a shareholder that directly or indirectly owns 5% or more of the voting shares of an issuing organisation is a major shareholder. Any transactions that result in more than 10% ownership of the paid-up charter capital of the securities company must seek approval of the State Securities Commission (SSC).
What a bidder generally questions before making a bid
Before officially contacting the potential target, the bidder conducts a preliminary assessment based on publicly available information. The bidder then contacts the target, expresses its intention of buying shares/subscribing for its shares and the parties sign a confidentiality agreement before the due diligence process. The confidentiality agreement basically includes confidentiality obligations in performing the transaction. The enforcement of confidentiality agreements by courts in Vietnam remains untested.
A bidder’s legal due diligence usually covers the following matters:
Corporate details of the target and its subsidiaries, affiliates and other companies that form part of the target.
Contingent liabilities (from past or pending litigation).
Employment matters.
Contractual agreements of the target.
Statutory approvals and permits regarding the business activities of the target.
Insurance, tax, intellectual property, debts, and land-related issues.
Anti-trust, corruption and other regulatory issues.
Restrictions on shares transfer of key shareholders
Founding shareholders can only transfer their shares to other founding shareholders of the company within three years from the issuance of the Enterprise Registration Certificate. After then, the shares can be transferred freely. An internal approval of the general meeting of shareholders is always required if:
The company increases its capital by issuing new shares.
There is any share transfer of the founding shareholders within the above three-year period.
If the sale and purchase is a direct agreement between the company and the seller in relation to an issuance of shares, the selling price must be lower than the market price at the time of selling, or in the absence of a market price, the book value of the shares at the time of the approval plan to sell the shares. In addition, the selling price to foreign and domestic buyers must be the same.
When a tender offer is required
A tender offer is required in the following cases:
Purchase of a company’s circulating shares that results in a purchaser, with no shareholding or less than a 25% shareholding, acquiring a 25% shareholding or more.
Purchase of a company’s circulating shares that results in a purchaser (and affiliated persons of the purchaser), with a 25% or more shareholding, acquiring a further 10% or more of circulating shares of the company.
Purchase of a company’s circulating shares that results in a purchaser (and affiliated persons of the purchaser), with a 25% shareholding or more, acquiring a further 5% up to 10% of currently circulating shares of the company within less than one year from the date of completion of a previous offer.
There is no guidance on building a stake by using derivatives. In addition, the bidder cannot purchase shares or share purchase rights outside the offer process during the tender offer period.
The bidder must publicly announce the tender offer in three consecutive editions of one electronic newspaper or one written newspaper and (for a listed company only) on the relevant stock exchange within seven days from the receipt of the State Securities Commission’s (SSC’s) opinion regarding the registration of the tender offer. The tender offer can only be implemented after the SSC has provided its opinion, and following the public announcement by the bidder.
Making the bid public
The offer timetable is as follows:
The bidder prepares registration documents for its public bid to purchase shares.
The bidder sends the bid registration documents to the SSC for approval and, at the same time, sends the registration documents to the target.
The SSC reviews the tender documents within seven days.
The board of the target must send its opinions regarding the offer to the SSC and the shareholders of the target within 14 days from receipt of the tender documents.
The bid is announced in the mass media (although this is not a legal requirement).
The length of the offer period is between 30 and 60 days.
The bidder reports the results of the tender to the SSC within 10 days of completion.
Companies operating in specific sectors (such as banking, insurance, and so on) can be subject to a different timetable.
Form of consideration and minimum level of consideration
Under Vietnamese law, shares can be purchased by offering cash, gold, land use rights, intellectual property rights, technology, technical know-how or other assets. In practice, acquisitions are most commonly made for cash consideration.
In cases of full acquisition of state-owned enterprises, the first payment for the share purchase must not be less than 70% of the value of such shares, with the remaining amount being paid within 12 months.
In transactions involving auctions of shares by state-owned enterprises, the purchaser must make a deposit of 10% of the value of the shares registered for subscription based on the reserve price at least five working days before the auction date included in the target company’s rule. Additionally, the purchaser must transfer the entire consideration for the shares into the bank account of the body conducting the auction within ten working days of the announcement of the auction results.
In the case of a public tender offer, the payment and transfer of shares via a securities agent company appointed to act as an agent for the public tender offer must comply with Decree 58/2012/ND-CP.
Delisting a company
If a company seeks voluntarily de-listing, it must submit an application for de-listing that includes the following documents:
A request for de-listing.
For a joint stock company:
the shareholders’ general meeting approval of de-listing of the stock;
the board of directors’ approval of de-listing of bonds; and
the shareholders’ general meeting approval of de-listing of convertible bonds.
The members’ council (for a multi-member limited liability company) or the company’s owner (for a single member limited liability company) approval of de-listing of bonds.
For a securities investment fund, the investors’ congress approval of de-listing of the fund’s certificate.
For a public securities investment company, the shareholders’ general meeting approval of stock de-listing.
A listed company can only de-list its securities if de-listing is approved by a decision of the general meeting of shareholders passed by more than 50% of the voting shareholders who are not major shareholders.
If a company voluntarily de-lists from the Hanoi Stock Exchange or Ho Chi Minh Stock Exchange, the application for de-listing must also include a plan to deal with the interests of shareholders and investors. The Hanoi Stock Exchange or Ho Chi Minh Stock Exchange must consider the request for de-listing within ten and 15 days from the receipt of a valid application, respectively.
Transfer duties payable on the sale of shares in a company
Depending on whether the seller is an individual or a corporate entity, the following taxes will apply:
Capital gains tax. Capital gains tax is a form of income tax that is payable on any premium on the original investor’s actual contribution to capital or its costs to purchase such capital. Foreign companies and local corporate entities are subject to a corporate income tax of 22% (20% from 1 January 2016). However, if the assets transferred are securities, a foreign corporate seller is subject to corporate income tax of 0.1% on the gross transfer price.
Personal income tax. If the seller is an individual resident, personal income tax will be imposed at the rate of 20% of the gains made, and 0.1% on the sales price if the transferred assets are securities. An individual tax resident is defined as a person who:
stays in Vietnam for 183 days or longer within a calendar year;
stays in Vietnam for a period of 12 consecutive months from his arrival in Vietnam;
has a registered permanent residence in Vietnam; or
rents a house in Vietnam under a lease contract of a term of at least 90 days in a tax year.
If the seller is an individual non-resident, he is subject to personal income tax at 0.1% on the gross transfer price, regardless of whether there is any capital gain.
Payment of the above transfer taxes is mandatory in Vietnam.
Restrictions on repatriation of profits and/ or foreign exchange rules for foreign companies
If the target company in Vietnam already has an investment certificate, it must open a direct investment capital account at a licensed bank in Vietnam. Payment for a share purchase by a foreign investor must be conducted through this account. The account can be denominated in Vietnamese dong or a foreign currency. In addition, if the foreign investor is an offshore investor, it will also need to open a capital account at a commercial bank operating in Vietnam to carry out the payment on the seller’s account and receive profits.
If the target company in Vietnam does not have an investment certificate, the foreign investor will need to open an indirect investment capital account for payment to the seller and remittance of profits.

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Please do not hesitate to contact Oliver Massmann under omassmann@duanemorris.com if you have any questions or want to know more details on the above. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.