Tighter rules on converted FIEs

Foreign entities, which are founders in foreign-invested enterprises (FIEs) wanting to convert into shareholding firms, will be required to hold at least a 30 per cent stake in 10 years since the transformation.

During the restriction period, if a FIE joins the stock market, the shares owned by the foreign founding shareholders must not be traded.

This is one of the proposals voiced by the authors of a draft decree to supersede Decree 101/2006/ND-CP on September 21, 2006 proving for re-registration, transformation and registration for new investment certificates for FIEs under the Enterprise Law and the Investment Law.

Besides, FIEs must report a return-on-equity (ROE) ratio of at least 5 per cent in three consecutive years before the transformation and operate in Vietnam for at least five years with at least $10 million in chartered capital, report profits and not incur aggregated losses in three consecutive years before the transformation.

Existing regulations relative to FIEs turning into shareholding firms are also under consideration in accordance with Decree 43/2010/ND-CP dated April 15, 2010.

The draft decree’s compiling board argued that FIEs getting investment licences before 2005 were just joint ventures or limited liability companies. Therefore, they must satisfy requirements proving they are financially capable and operate effectively upon business restructuring. Besides, tougher regulations are needed to control capital flows after FIEs transform into holding firms to avoid casting adverse impacts on the economy.

For example, in 2007 Bourbon Tay Ninh Joint Stock Company, a wholly foreign-owned firm, turned into a shareholding company. More than three years later, the France-backed Bourbon Group which owned a 70 per cent stake in the company ended its sugar business in Vietnam through selling all its stocks to a group of Vietnamese investors for $46.5 million. The sugar firm was also one of a few FIEs listed on the Vietnamese bourse in 2008.

The compiling board is therefore mulling over stock transfer conditions for foreign shareholders, including those on the transfer of founding shareholders’ stocks during the restriction period to local individual or corporate partners.