Articles
New regulations to develop Vietnam’s stock market

24 - 11 - 2010
By Phan Anh Vu and Truong Hoai Nam* 

Just a baby with first ten years of its life, Vietnam's security market has developed miraculously more than expected. To date, Vietnam has two stock exchanges and an UPCoM market, with nearly 600 listed stock codes, 105 securities companies and nearly one million trading accounts of which it is about 25% from foreign investors.

To further promote securities market development and improve investor protection, the Government issued Decree 84/2010/ND-CP dated 2 August 2010 on amendment of and addition to a number of provisions of Decree 14/2007/ND-CP dated 19 January 2007 providing details and guiding implementation of a number of articles in Law on Securities (Decree 84). This Decree introduced a number of new changes as summarized below:

New stocks for the bourse

For the first time the Government, through Decree 84, opens the possibility for offshore companies to make a public offer and list securities on the securities market of Vietnam in order to finance their investment project in Vietnam. This is an active change to reply to the calls from international practices and create a new channel to raise capital for project of such the offshore companies in Vietnam.

Under Decree 84, in order to make a public offer and then list securities in the securities market in Vietnam, the offshore issuer firstly must have an approved investment project in Vietnam and the offer proceeds must be utilised to invest in such the approved project in Vietnam. In addition, the offshore issuer shall also satisfy the following conditions:

  • undertaking to implement the project in Vietnam;
  • undertaking not to transfer the mobilized capital abroad and not to withdraw reciprocal equity within the approved project duration;
  • the number of shares which are registered for listing is equal the number of shares allowed to be offered in Vietnam;
  • undertaking to discharge obligations in accordance with the law of Vietnam;
  • having at least one Vietnamese securities company acting as the underwriter; and
  • complying with the foreign exchange regulations of Vietnam.
Under Decree 84, it is further stipulated that file and procedures for approval for registration of offers and listing of securities in Vietnam by foreign organizations shall be implemented in accordance with guidelines of the Ministry of Finance.

Although there are some uncertainties which need to be made clear (e.g. currency will be used for the public offer of the foreign investor, level of disclosure requirement applicable for the offshore issuer...), Decree 84 is bringing foreign investors a new option for capital mobilization via the securities market in Vietnam. Before, if wishing capital mobilization via Vietnam's securities market to fund its Vietnamese subsidiary, it is likeky that the offshore company has only an option to use its Vietnamese subsidiary to make a public offer and in that case their ownership level in such subsidiary must be down to 49% (being the foreign ownership cap for public and listed companies). Now, in the light of Decree 84, the offshore company may directly list a portion of its securities in Vietnam and use the proceeds to fund its Vietnamese subsidiary without reducing its ownership level in that subsidiary.

More obligations for issuer to better protect investors

It is likely that the Government is aiming to improve investor protection. Under Decree 84, when making a public offer, the issuer must open an escrow account at a commercial bank to deposit and freeze the proceeds earned from a public offer tranche. Such proceeds may only be released to the issuer once the issuer has submitted a report on the amount raised in the offer which must be submitted to the State Securities Commission within ten days of the expiry of the offer period. Furthermore, the issuer must publish a report every six months detailing how the proceeds from the public offer have been used. If there is a change in the using purpose of capital, the issuer must disclose information of the reason for such change together with the resolution of its board of management on the change.

Improving investor protection is also expressed by the way that Decree 84 raises new disclosure requirements for an offer of convertible bonds. Accordingly, the issuer must explain in the offer documentation the risks to the bond investors, including any compensation arising from any planned future share or bond issuance during the term of convertible bonds.

For explicitness in management of investment capital of a public securities investment company, Decree 84 stipulates that the public securities investment company shall not be permitted to manage its own investment capital, but must entrust a fund management company to do so.

Decree 84 took effect on 20 September 2010 and via these new regulations the Government hopes to further develop Vietnam's securities market.

(*) Please contact the author at vu.phan@indochinecounsel.com and nam.truong@indochinecounsel.com or our partners if you wish to have more information or specific advice for the topic of this article.
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