Exempted shares under short selling legal framework

The Hanoitimes – State firms that have completed the privatization process are expected to float shares on local bourses and create space for more foreign investors to invest in the local stock market.

A finalization of legal framework is needed to address issues during the process of privatization and divestment of state capital at state-owned enterprises (SOEs) in the 2021 – 2025 period, according to Deputy Prime Minister Truong Hoa Binh.

The progress of SOEs privatization remains slow, meeting 28% of the target so far.

The Ministry of Finance  is tasked with instructing the State Securities Commission (SSC), the country’s stock market watchdog, to ensure SOEs that have completed the privatization process float shares on local bourses and create room for more foreign investors to invest in the local stock market.

Meanwhile, the Ministry of Planning and Investment is responsible for summing up suggestions and concerns from the business community to report to Prime Minister Nguyen Xuan Phuc for appropriate supportive measures.

Deputy PM Binh also requested the Ministry of Natural Resources and Environment to review existing land-related regulations that are hindering the privatization process and causing difficulties for some SOEs to determine their own values.

The privatization process is expected to speed up at Vietnam Cement Corporation (VICEM) and Housing and Urban Development Corporation (HUD) under the management of the Ministry of Construction, as well as for the Vietnam Bank for Agriculgure and Rural Development (Agribank) under the State Bank of Vietnam.

In a recent report from the Ministry of Finance, of the total of 128 SOEs due to undergo privatization during the 2017 – 2020 period, only 37 have completed the progress as of July 2020, or 28% of the target.

From 2016 to July 2020, 177 SOEs had their privatization schemes approved with total asset value of VND443.5 trillion (US$19.1 billion), of which the state capital was estimated at VND207.1 trillion (US$8.91 billion).

However, of these 177 SOEs, only 37 are from the list of 128 firms expected to be privatized by the end of this year under the instruction of PM Phuc, which means that the remaining 91 should complete the process in the next five months.

Notably, SOEs subject to privatization in Hanoi and Ho Chi Minh City make up 54% of the total, including 13 in Hanoi and 38 in Ho Chi Minh City; others include six managed by the Committee for State Capital Management (CSCM), four under the Ministry of Industry and Trade (MoIT), and two under the Ministry of Construction (MoC).

The Hanoitimes – The government is responsible for not only promoting innovation in the banking sector, but also maintaining stability and safety of the financial market.

The State Bank of Vietnam (SBV), the country’s central bank, is in the process of revising the Law on Credit Institutions, aiming to create a complete legal framework for fintech and support the digitalization process in the banking sector, according to SBV Governor Le Minh Hung.

SBV’s Governor Le Minh Hung. Photo: VGP.

The rapid development of fintech is putting state authorities under pressure of anti-money laundering/combating the financing of terrorism (AML/CFT), as well as coping with risks related to data privacy and cyber security, among others, said Mr. Hung said at an online conference on September 7.

Under this circumstance, the state is responsible for not only promoting innovation in the banking sector, but also maintaining stability and safety of the financial market and contributing to economic growth, Mr. Hung suggested.

Like many other countries, Vietnam currently does not have proper legislation to regulate operations of fintech companies such as peer-to-peer lending (P2P lending), new payment methods, cross-border transactions, or user information sharing via open application programming interfaces (Open APIs).

Therefore, Mr. Hung stressed the importance of establishing a regulatory sandbox, which would be applied to new and unregulated services.

The SBV is cooperating with related government agencies in drafting a new decree on fintech regulatory sandbox in the banking sector, stated Mr. Hung.

Overview of the conference. Photo: SBV.

In the meantime, the SBV is expected to revise current legislations to support credit institutions and banks applying new technologies during their operation, including new guidance in cashless payment, the adoption of remote verification process, namely e-KYC (electronic Know-Your Customers), or the revision of the Law on Prevention of Money Laundering, among others.

A report on fintech in ASEAN conducted by United Overseas Bank (UOB), PwC and the Singapore Fintech Association (SFA) revealed Vietnam came second behind Singapore in terms of funding attraction for fintech in ASEAN in 2019, accounting for 36% of the total in the region and up 0.4% in 2018.

With regard to the number of funding deals in 2019, Vietnam ranked third at 8% of total deals, up from 2% in 2018, behind Singapore and Indonesia with 51% and 28%, respectively.

Singapore continues to be the preferred base of fintech firms in ASEAN, which is home to 1,157 or 45% of all fintech in ASEAN , while Vietnam, with 136, is hosting the fewest among ASEAN-6 countries (Singapore, Indonesia, Malaysia, Thailand, the Philippines, Vietnam).

Tran Thai Binh and Dao Manh Toan, lawyers at LNT & Partners

According to Section I, Item 3.2 of the letter, the target company receiving capital contribution or selling shares and contributed capital – instead of the foreign investor itself as regulated in the Law on Investment 2014 and the 2020 version – shall submit one dossier applying for mergers and acquisitions (M&A) approval to the investment registration authority.

However, the form used for the M&A approval procedure must be signed by both the foreign investor and the target company, and so we therefore opine that either or both of them could still submit the dossier in reality.

According to the letter, the dossier applying for the M&A approval currently requires more information and documents in comparison with the former regulations. This first consists of a written request for the M&A approval which includes specific information such as enterprise registration details of the target company, including name, enterprise code, enterprise form, head office address, business lines, charter capital, and current foreign investor if applicable.

This written request also requires information on founding shareholders, if any, and land use right certificate of the target company (if it uses land located in island, border, or coastal areas); the holding ratio of the foreign investor before and after making the investment; the transaction value; and information on the investment project of the target company (if any), which is new in comparison with the former regulations.

The second part of applying for approval consists of a valid copy of legal identity documents of both the foreign investor and the target company.

Third is a written agreement on capital contribution, purchase of shares, and contributed capital between the foreign investor and the target company, which is also new. Of note, from a practical aspect, the M&A approval must be obtained before the investor executes any capital contribution, purchase of shares and contributed capital. Therefore, this requirement may create confusion for both the foreign investor and the target company on whether they should submit the draft written agreement or the signed one to the investment registration authority.

In addition, if the foreign investor makes investment by way of contributing additional capital (not purchasing any shares or contributed capital from any current shareholder or member), it would be uncertain which kind of written agreement is required for submission.

The fourth and final part of this process is a written declaration on land use right certificate if the target company uses land located in island, border, or coastal areas. However, the letter does not provide any form or further guidance for this declaration so it is still uncertain whether the target company shall declare on the basis self-declaration and self-responsibility, or with confirmation/certification by a competent authority.

In terms of business lines and market access conditions applied for foreign investors, those investors shall be treated equally with local ones with respect to market access conditions, save for specific cases provided in the list of business lines restricted to foreign investors which will be issued by the government. However, it is still uncertain when such a list will be issued by the government.

In the list, the restricted sectors should comprise business lines that are not allowed, and conditional business lines for market access. The government will elaborate the market access conditions applied for the foreign investor in each sector in compliance with the applicable laws, resolutions, ordinances, decrees, and international treaties to which Vietnam is a signatory.

Before the application of the Law on Investment 2020, all valid dossiers submitted to the investment registration authorities shall be processed in accordance with the 2014 law. However, the 2020 version has already taken effect and replaced the previous one. Hence, the letter offers two circumstances under which the dossier shall be processed:

Firstly, if the deadline is overdue but there is still no result returned to the applicant, such a dossier shall be continuously processed pursuant to the Law on Investment 2014 and relevant regulations.

Alternatively, if the deadline is after January 1, 2021 the investment registration authority shall instruct the applicant to supplement missing required documents (if any) or amend the submitted dossiers for compliance with the Law on Investment 2020, and the procedure shall be conducted pursuant to the correspondent laws.

For the sake of implementation, the letter is issued together with application forms used for investment registration procedures. However, the letter is provisional guidance to ensure implementation of investment registration procedures in accordance with the Law on Investment 2020 from January 1, 2021 until an official decree guiding the same is issued by the government.