Vietnam: Vietnam's new regulation on securities transactions

Amid the stock market slump, the Vietnamese Government has issued Decree 58/2012/ND-CP ("Decree 58") on securities to replace Decree 14/2007/ND-CP of 19 January 2007, Decree 84/2010/ND-CP of 2 August 2010, and Decree 01/2010/ND-CP of 4 January 2010. The three repealed Decrees are collectively referred to as the "Old Decrees" in this article.

Decree 58 takes effect on 15 September 2012.

Among the highlighted changes are the lifting of certain restrictions on private placement, introduction of a legal framework and approval requirements for the international offering of depository receipts, increase of conditions for the listing of shares, provision of conditions for the holding of 100% of the shares in a securities company by a foreign investor and introduction of "real estate investment funds."

Decree 58 lifts several important restrictions on private placement. Particularly, shares issued in a private placement are no longer subject to the one-year lock-up from trading, proceeds of the private placement are no longer required to be placed in escrow and each private placement tranche is no longer required to be at least six months apart from each other.

Decree 58 imposes approval procedures on international offer of securities.

An international offer of securities must be registered with the State Securities Commission of Vietnam ("SSC") for approval. Prior to such registration, approval of the State authority overseeing the relevant industry may be required. For instance, if the issuer is a financial institution, the State Bank of Vietnam's approval is required. If the issuer is an insurance firm, the Ministry of Finance's approval is required.

Decree 58 provides a legal framework for the issuance of securities to be represented by internationally offered depository receipts ("DRs"). The issuer must satisfy the same conditions for public offering of securities under the Law on Securities. The shares issued to be represented by DRs are counted towards the issuer shares held by foreign shareholders for purpose of evaluating any foreign equity caps.

The issuer must register the securities issue plan with the SSC for approval and must notify the SSC of the DR plan prior to registration of the DR listing on a foreign stock exchange.

Decree 58 prohibits the offerer from doing any of the followings during the period from the filing for registration of the tender offer with the SSC to the completion of the transaction:

• Directly or indirectly acquiring or committing to acquire shares, options and convertible bonds of the target company other than within the tender offer;
• Selling or committing to sell shares which the offerer offers to acquire in the tender offer;
• Rendering unfair treatments to holders of the same class of shares, options and convertible bonds being offered;
• Providing information privately to shareholders or investors at varying extents or at different points in time;
• Refusing to acquire shares of the target company during the tender offer; and
• Acquiring shares of the target in a manner different from the published terms of tender offer.

Decree 58 imposes more stringent conditions for listing on the Ho Chi Minh City Stock Exchange ("HSX") and Hanoi Stock Exchange ("HNX").

Important conditions for the listing of shares include among others:

• paid up charter capital of VND 120 billion (HSX) or VND 30 billion (HNX) (previous required paid up charter capital was VND 80 billion);
• having operated as a joint stock company for at least two years (HSX) or one year (HNX);
• a return on equity rate of at least 5% for the latest financial year;
• having made profits for at least two years prior to the year of listing (HSX);
• no indebtedness which has been overdue for more than one year;
• having at least 300 shareholders (up from 100 shareholders under the Old Decrees) who are not major shareholders and who are holding at least 20% of the total voting shares of the company (HSX) or having at least 100 shareholders who are not major shareholders and who are holding at least 15% of the total voting shares of the company (HNX); and
• shareholders who are related persons (eg, Board of Management members, General Director, Chief Accountant, etc) to continue to hold 100% of their shares for at least six months from the date of listing and 50% of such shares for the following six months. While this condition already existed in the Old Decrees, Decree 58 adds the clarification that the condition applies also to corporate shareholders with authorized representatives acting as Board of Management members, General Director or Chief Accountant and to major shareholders who are related to Board of Management members, General Director or Chief Accountant.

Decree 58 states that foreign investors can generally acquire up to only 49% of the shares of an existing securities company.

A foreign bank, a foreign securities company or a foreign insurance firm which has been in operation for at least two years may be permitted to acquire 100% of the shares of an existing securities company or to set up a new 100% foreign-owned securities company subject to satisfaction of certain conditions.

A REIF may operate in the form of a public securities investment fund or a public securities investment company. The fund must be managed by a fund management company.

At least 65% of the net assets value of a REIF must be invested in real properties. A REIF must hold each property for at least two years except in certain limited cases or as approved by the REIF's General Investors Meeting or by the fund representative board in accordance with its charter. A REIF must not engage in property development and may only purchase under-construction properties in limited circumstances.

VILAF is a business law firm, advising multinational clients on all legal aspects of their business and investment in Vietnam. Vo Ha Duyen is Managing Partner of the firm's Ho Chi Minh City Office. Website: www.vilaf.com.vn.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.