Vietnam has remained an attractive destination for foreign investors. In 2017, the total FDI capital to Vietnam is USD35.88 billion, an increase of 44.4% compared to last year. Out of USD35.88 billion FDI, USD6.19 billion came from 5,002 M&A deals, up 45.1% against last year.
\nReal estate continues being a very attractive sector, with USD1.5 billion being poured into the market via M&A, setting the record this year. Residential remains one of the most attractive segments and more interest is also put on commercial segment, especially Grade A offices. Main investors still come from Japan, Korea, Singapore, and China. The retail, consumer goods, and industrial goods are also very active, and investors tend to focus on leading companies as they have a big market share and strong brand value.
\nMain drivers of Vietnam\u2019s M&A market are:
\n\u2022\tPrivatization of state-owned enterprises. It is forecast that there will be around 8-10 big privatization deals in 2018, including the sale of 24.86% shares of Petrolimex, 20% shares of Aviation Corporation of Vietnam, 53.48% state shares in Vietnam Textile Group, 57.92% state shares in Vietnam Steel Corporation and 49% of PV Oil. Hanel, Viglacera, Lilama are also in the list for privatization.
\n\u2022\tTrade liberalization as a result of CPTPP, EU- Vietnam FTA, etc.
\n\u2022\tResolution No. 42 on pilot program of handling bad debts of credit institutions is also the main driving force of M&A in real estate sector as bad debts in real estate sectors accounts for a high percentage of the total bad debts in Vietnam\u2019s market.
\nNotable deals in 2017 include the following:
\n\u2022\tThe market in 2017 sees several M&A deals in state-owned enterprises where the privatization is pushed hard by the Government. Vietnam Beverage \u2013 a company of a Thai billionaire managing ThaiBev buying more than 53% shares in Sabeco \u2013 a company owned by the Ministry of Industry and Trade at USD 5 billion, is the most notable and successful privatization deal this year.
\n\u2022\tIn December 2017, Shinhan Bank Vietnam Ltd. (\u201cShinhan Bank Vietnam\u201d) acquired ANZ Bank (Vietnam) Limited\u2019s retail business. This successful transaction has been considered as a big step for Shinhan Bank Vietnam\u2019s development in Vietnam market, as well as a rapid growth for Vietnam retail banking in the upcoming time.
\n\u2022\tIn mid- November 2017, Jardine Cycle & Carriage Limited (JC&C), via Platinum Victory Pte. Ltd bought 5.53% shares of Vinamilk at USD616.6 million.
\n\u2022\tIn June 2017, Alibaba Group additionally bought shares of Lazada at USD1 billion, thus increasing its shares in Lazada to 83%
\n\u2022\tIn July 2017, Sea Limited (Singapore) bought 82% shares of Foody Corporation at USD64 million
\n\u2022\tIn November 2017, JD.com bought shares in Tiki JSC at USD 44 million
\n\u2022\tIn January 2018, Creador (a private Kula Lumpur-based investment fund) bought 35% shares of Mobile World Investment JSC at USD43 million.
\n\u2022\tSynnex Technology International bought 30% shares of FPT Retail and 47% shares of FPT Trading from FPT Corporation at around USD 41 million.
\n\u2022\tShinhan cooperated with Vinacapital to invest USD100 million in Novaland.
\nHow to obtain control of a public company
\nThe most common means of obtaining control over a public company are as follows:
\no\tThe acquisition of shares\/charter capital through:
\no\tbuying shares\/charter capital from the existing shareholders of the company;
\no\tbuying shares\/charter capital of a listed company on the stock exchange; and
\no\tpublic share purchase offer.
\no\tThrough 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.
\no\tThrough the acquisition of assets.
\nThere are restrictions on the purchase of shares\/charter capital of local companies by foreign investors in certain sensitive sectors. In addition, the law is silent on merger or assets acquisition (e.g., business spin-off) transactions where a foreign investor is a party. Regarding other assets acquisition transactions, if the asset is a real property, foreign ownership right will be restricted according to real estate laws.
\nSecurities of public companies must be registered and deposited at the Vietnam Securities Depository Centre before being traded.
\nDepending 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 organization 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).
\nWhat a bidder generally questions before making a bid
\nBefore 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.
\nA bidder’s legal due diligence usually covers the following matters:
\n\u2022\tCorporate details of the target and its subsidiaries, affiliates and other companies that form part of the target.
\n\u2022\tContingent liabilities (from past or pending litigation).
\n\u2022\tEmployment matters.
\n\u2022\tContractual agreements of the target.
\n\u2022\tStatutory approvals and permits regarding the business activities of the target.
\n\u2022\tInsurance, tax, intellectual property, debts, and land-related issues.
\n\u2022\tAnti-trust, corruption and other regulatory issues.
\nRestrictions on shares transfer of key shareholders
\nFounding 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:
\n\u2022\tThe company increases its capital by issuing new shares.
\n\u2022\tThere is any share transfer of the founding shareholders within the above three-year period.
\nIf 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.
\nWhen a tender offer is required
\nA tender offer is required in the following cases:
\n\u2022\tPurchase 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.
\n\u2022\tPurchase 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.
\n\u2022\tPurchase 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.
\nThere 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.
\nThe 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.
\nMaking the bid public
\nThe offer timetable is as follows:
\n\u2022\tThe bidder prepares registration documents for its public bid to purchase shares.
\n\u2022\tThe bidder sends the bid registration documents to the SSC for approval and, at the same time, sends the registration documents to the target.
\n\u2022\tThe SSC reviews the tender documents within seven days.
\n\u2022\tThe 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.
\n\u2022\tThe bid is announced in the mass media (although this is not a legal requirement).
\n\u2022\tThe length of the offer period is between 30 and 60 days.
\n\u2022\tThe bidder reports the results of the tender to the SSC within 10 days of completion.
\nCompanies operating in specific sectors (such as banking, insurance, and so on) can be subject to a different timetable.
\nOffer conditions
\nA takeover offer usually contains the following conditions:
\n\u2022\tThe terms and conditions of the offer apply equally to all shareholders of the target.
\n\u2022\tThe relevant parties are allowed full access to the tender information.
\n\u2022\tThe shareholders have full rights to sell the shares.
\n\u2022\tApplicable laws are fully respected.
\nAn offer can also be subject to conditions precedent. Conditions precedent are set out in the share sale and purchase agreement or the capital contribution transfer agreement. There is no specific restriction on conditions precedent other than the requirement that they cannot be contrary to law and conflict with social ethics (although the legal definition of social ethics is unclear). The most common conditions precedent are:
\n\u2022\tAmendments to the charter\/relevant licence of the target.
\n\u2022\tObtaining necessary approvals to conduct the transaction.
\n\u2022\tChanges to the target’s management body.
\nPayment of the contract price will only be made after the conditions precedent are met.
\nEmployee consultation
\nThere is no requirement under Vietnamese law that the employees must be consulted about the offer. However, if a layoff is to be conducted, the employer must:
\n\u2022\tPrepare a labour usage plan.
\n\u2022\tConsult with the employee representative.
\n\u2022\tNotify the competent labour authority on the implementation of the labour usage plan.
\nWhen a tender offer is required?
\nA tender offer is required in the following cases:
\n\u2022\tPurchase of a company’s circulating shares that results in a purchaser, with no shareholding, or less than a 25% shareholding, acquiring a 25% shareholding.
\n\u2022\tPurchase 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.
\n\u2022\tPurchase 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 the previous offer.
\nForm of consideration and minimum level of consideration
\nUnder 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.
\nIn 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.
\nIn 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.
\nIn 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.
\nDelisting a company
\nIf a company seeks voluntarily de-listing, it must submit an application for de-listing that includes the following documents:
\n\u2022\tA request for de-listing.
\n\u2022\tFor a joint stock company:
\no\tthe shareholders’ general meeting approval of de-listing of the stock;
\no\tthe board of directors’ approval of de-listing of bonds; and
\no\tthe shareholders’ general meeting approval of de-listing of convertible bonds.
\n\u2022\tThe 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.
\n\u2022\tFor a securities investment fund, the investors’ congress approval of de-listing of the fund’s certificate.
\n\u2022\tFor a public securities investment company, the shareholders’ general meeting approval of stock de-listing.
\nA 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.
\nIf 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.
\nTransfer duties payable on the sale of shares in a company
\nDepending on whether the seller is an individual or a corporate entity, the following taxes will apply:
\n\u2022\tCapital 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 20%. 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.
\n\u2022\tPersonal 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:
\no\tstays in Vietnam for 183 days or longer within a calendar year;
\no\tstays in Vietnam for a period of 12 consecutive months from his arrival in Vietnam;
\no\thas a registered permanent residence in Vietnam; or
\no\trents a house in Vietnam under a lease contract of a term of at least 90 days in a tax year.
\nIf 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.
\nPayment of the above transfer taxes is mandatory in Vietnam.
\nRegulatory approvals
\nThe investor will need to register the capital contribution and purchase of shares if either:
\n\u2022\tThe target is operating in one of the 267 conditional sectors referred to in the 2015 Investment Law.
\n\u2022\tThe capital contribution and purchase of shares results in foreign investors owning 51% or more of the target’s charter capital (in particular, from below 51% to more than 51% and from 51% to above 51%).
\nThe local Department of Planning and Investment where the target is located must issue its final approval within 15 days from the receipt of a valid registration application. However, in practice, this procedure can take several months due to the workload of certain central authorities and the lack of clear guidance documents. Therefore, the registration requirement can cause substantial delays to the whole M&A process.
\nIn other cases, the target company only needs to register change of membership \/ shareholders at the Business Registration Division.
\nRestrictions on repatriation of profits and\/ or foreign exchange rules for foreign companies
\nIf the target company in Vietnam already has an investment registration 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.
\nIf the target company in Vietnam does not have an investment registration certificate, the foreign investor will need to open an indirect investment capital account for payment to the seller and remittance of profits.
\n***
\nPlease do contact the author Dr. Oliver Massmann under omassmann@duanemorris.com if you have any questions on the above. Dr. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.<\/p>\n","protected":false},"excerpt":{"rendered":"
Vietnam has remained an attractive destination for foreign investors. In 2017, the total FDI capital to Vietnam is USD35.88 billion, an increase of 44.4% compared to last year. Out of USD35.88 billion FDI, USD6.19 billion came from 5,002 M&A deals, up 45.1% against last year. Real estate continues being a very attractive sector, with USD1.5 … <\/p>\n