5 March 2021

On 20 February 2021, Decision No. 37/2020/QD-TTq (“Decision 37”) issued by the Prime Minister of Vietnam on 23 December 2020 came into effect. Decision 37 pertains to the establishment of the Vietnam Stock Exchange and follows on from other changes to the securities regime in the country. The new Law on Securities 2019 came into force on 1 January 2021, repealing the Law on Securities 2006 and its 2010 amendments (“previous Law”). Decree 155/2020/ND-CP (“Decree 155”), which was adopted by the Government of Vietnam on 31 December 2020, also came into effect on 1 January 2021, replacing previous decrees which provided guidance on the previous Law, namely, Decree 58/2012/ND-CP, Decree 60/2015/ND-CP, Decree 86/2016/ND-CP, Decree 71/2017/ND-CP, and certain provisions of Decree 151/2018/ND-CP.  

This Alert discusses key highlights of this new regime.

1. Foreign ownership ratio

Decree 155 seeks to amend foreign ownership ratios in public companies to be consistent with the new Law on Investment 2020 as follows:   

  • If a public company operates in a business line and there are specific provisions that restrict the level of foreign ownership for such business line, the foreign ownership ratio shall be subject to such restrictions; 
  • If a public company operates in a business line which is on the list of business lines for which foreign investment is restricted but there are no specific provisions that restrict the level of foreign ownership for such business line, then the maximum foreign ownership ratio is 50%;  
  • If a public company operates multiple business lines with different levels of foreign ownership restrictions, the most restrictive foreign ownership restriction shall apply; and 
  • For other cases not prescribed above, the foreign ownership ratio is unrestricted, unless the company charter provides limitations on the level of foreign ownership. 

2. Mechanism for offering to sell shares with price lower than par value

Decree 155 sets out certain conditions for an issuer to offer shares with a price lower than the par value, either via private placement or public offering, in addition to conditions applicable to private placement or public offering, as follows: 

  • The trading share price on the securities trading system of an issuer, which is calculated by the average reference price of 60 consecutive trading days preceding the date of closing the list of shareholders to seek approval of the general meeting of shareholders on the issuance plan, must be lower than the par value of the shares of the issuer; and 
  • The share premium recorded on the latest audited financial statement of an issuer must be sufficient to cover the shortfall arising from the issuance of shares below par value (i.e., the difference between the proposed issue price and the par value).

Under an issuance of shares under a private placement scheme, an issuer is only entitled to offer the shares to strategic investors who will be subject to a restriction of at least three-years in relation to the transfer of the offered shares. 

3. New conditions for listing securities

Decree 155 changes some of the conditions for listing securities on the Vietnam Stock Exchange. A joint stock company must satisfy the following conditions to list its shares on the Vietnam Stock Exchange:

  • Conditions on financial status of a company
    • The contributed charter capital of the company must be at least VND 30 billion as recorded in its latest audited financial statements;  
    • The capitalisation value of the company must be at least VND 30 billion as determined based on (a) the weighted average of the payment price of the latest public offer of shares, or (b) the average reference price of shares traded on the Unlisted Public Company Market (“UPCoM”) in the 30 trading sessions that preceded its filing of a listing registration application, or (c) the weighted average of payment price of the first sale of shares upon the equalisation of enterprises;  
    • The company must have a return on equity of at least 5% for the year preceding the company’s listing application; 
    • The company must have been profitable for the two years preceding the company’s listing application;  
    • The company must have no debts overdue for more than one year; and
  • Other conditions
    • The listing has been approved by the General Meeting of Shareholders;  
    • The company has been trading on the UPCoM trading system for at least two years; this condition will be exempted if the company has registered the public offer of shares or it is a case of enterprises equatisation; 
    • With the exception of companies undertaking an enterprises equatisation, the company must have at least 15% of the voting shares held by at least 100 non-major shareholders. If the charter capital of the company is VND1,000 billion or more, the above rate will be reduced to 10%; 
    • The company and its the legal representatives shall not have been subject to any administrative penalty due to violations of prohibited acts in securities and securities market activities within two years prior to the listing application;
    • The company’s shareholders who are, or have their representatives appointed as chairman, members of the board of management, members of the board of controllers, general director (director), deputy general director (deputy director), chief accountant, finance director, other managerial positions and major shareholders who are related persons to the holders of these positions must commit to hold 100% of their shares in the company for six months from the first trading date of the company’s shares on the Stock Exchange and 50% of their shares in the company for a subsequent six months; and
    • Unless it is itself a securities company, the company must appoint a securities company to advise on the listing process. 

4. Registration of security over shares of public companies with VSDCC

Decree 155 officially allows collateral transactions over securities of public companies and any other organisations which are centrally deposited at the Vietnam Securities Depository and Clearing Corporation (“VSDCC”), to be perfected under registration with VSDCC. This new regulation supports a pledgee in better managing collateral securities and also facilitates the enforcement process. Under the previous regulations, collateral transactions over securities could only be registered at the National Registration Agency for Secured Transactions, and parties then had to carry out other processes to request that the Vietnam Securities Depository block the pledged securities to perfect the pledge.

5. Establishment of Vietnam Stock Exchange

Decision 37 seeks to provide guidelines on the establishment of the Vietnam Stock Exchange (“VNX”) according to which VNX will be established as a single member limited liability company with a charter capital of VND 3,000 billion and being solely owned by the State of Vietnam. VNX will have two subsidiaries being (i) Ho Chi Minh City Stock Exchange (“HOSE”) which will operate the shares trading market and (ii) Hanoi Stock Exchange (“HNX”) which will operate the derivative securities and bond trading market.

The VNX shall commence its operations upon obtaining the Enterprise Registration Certificate which is expected no later than 1 January 2023. HNX and HOSE shall continue their operation and maintain the securities markets which have been organised and operated prior to the date of Decision 37 until there is fresh guidance from the Ministry of Finance on the rearrangement of the securities markets.