Articles
Foreign Investor Decree Clarified

04 - 04 - 2013
by Vo Huu Tu, Legal Assistant*)  

The Government has recently launched various measures to strengthen weak credit institutions. One of these measures is a draft decree regulating how many shares foreign investors can purchase in Vietnamese credit institutions, listed and non-listed shareholding banks, financial companies and financial leasing companies (collectively VCIs). The new decree replaces Decree 69/2007/ND-CP.

The decree makes it appear that the Government is allowing foreign investors to own a greater percentage of VCIs. But there are a few issues that must be clarified.

For instance, the decree lacks a provision distinguishing indirect ownership from direct investment. There is also no detailed definition of "affiliate", though the foreign ownership limitation applies to both foreign investors and their affiliates. This lack of clarification may cause confusion for both the buyers and sellers in an acquisition deal.

While the current regulation requires all transactions involving foreign investors to be approved by relevant authorities, the draft decree proposes that only a few share transactions be required to obtain the relevant authority's approval. The list of transactions requiring state approval includes:

  • The purchase of share resulting in ownership of 10% or more of a VCI's charter capital;
  • A purchase in which the foreign investor becomes a strategic investor of a VCI; and
  • The purchase of shares resulting in ownership of 5% or more of the charter capital of a VCI and the purchase of additional shares when the foreign investor already owns 5% of the charter capital of a VCI.

The current regulations only allow Vietnamese banks to have foreign elements after meeting certain requirements, including having charter capital of at least VND1 trillion (US$47.62 million) and having a "healthy" financial status. In contrast, the draft decree proposes the removal of all such requirements and allows all VCIs to have foreign investors whenever they deem it necessary.

The draft decree also sets out a greater number of requirements that foreign investors must meet to be eligible to purchase shares in VCIs. Specifically, to be allowed to acquire 10 per cent or more of the charter capital of a VCI, a foreign investor must:

  • Have a stable rating or a higher equivalent rating provided by a reputable international credit rating agency;
  • Have sufficient financial resources for the acquisition;
  • Be in a position so that the acquisition of shares does not affect the safety and stability of credit institutions in Vietnam nor results in a monopoly or restraint on competition;
  • Not have committed any serious breach of law in its home country or in Vietnam in the past 12 months; and
  • Have total assets of at least USD10 billion (if a foreign credit institution), or charter capital of at least USD1 billion (if another type of foreign organization).

If the foreign investor wishes to become a strategic investor in a VCI, apart from the basic requirements for share purchase listed above, they must meet the following requirements:

  • Be a credit institution;
  • Have at least 5 years of international experience in the banking or finance sector;
  • Have total assets of at least USD20 billion in the year prior to the purchase of shares in the VCI;
  • Give an undertaking and a clear plan to support the VCI;
  • Undertake to own or, represent that it already owns, at least 10% of the charter capital in the relevant VCI; and
  • Not own 10% or more of the charter capital in any other credit institution in Vietnam.

*) Please contact the authors at tu.vo@indochinecounsel.com  if you wish to have more information or specific advice for the topic of this article.

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