Foreign ownership law lifts securities market

Under the new decree, a foreign stake can be lifted to 100 per cent for most sectors, and firms will also be allowed to propose their own limits. Photo tinnhanhchungkhoan

The decree amends and supplements several articles of Decree 58, providing details and implementing guidelines on several articles of the Law on Securities and Amended Laws on Securities.

The new decree, due to take effect on September 1, will remove limits on foreign ownership in listed companies.

Current regulations cap foreign stakes in public companies at 49 pet cent.

Under the new decree, a foreign stake can be lifted to 100 per cent for most sectors, and firms will also be allowed to propose their own limits.

However, the limit on foreign stakes at banks will be retained at the existing level of 30 per cent.

Le Nhi Nang, head of the State Securities Commission in HCM City, said the increase in foreign ownership ratio in the securities market would benefit both foreign investors and the listed firms.

In particular, the former would have more opportunities to participate in managing the listed Vietnamese companies, while the latter would be managed more effectively and transparently, thus enabling them to attract more overseas capital, Nang said.

The domestic stock exchange would also be able to attract more foreign capital to improve its liquidity, helping it become a member of newly emerging market groups.

The change in the foreign-ownership rate would also permit sustainability of funds so domestic firms would no longer have to depend on credit from commercial banks.

Nguyen Thanh Long, vice chairman of the State Securities Commission (SSC) said that the objective of Decree 60 was to help struggling enterprises seek new sources of capital and improve restructuring plans.

The new decree is consistent with Viet Nam's commitments to the World Trade Organisation (WTO), which allows for more foreign indirect investment in the securities market.

According to market analysts, dozens of listed companies in domestic bourses had run out of room for foreign investors, so changes in Decree 60 will allow those foreigners to become strategic shareholders.

The local market has in recent days registered a significant increase in points although the new decree has yet to come into effect.

On July 7, for instance, the VN Index increased 10 points to close at 330.27 points. The market also received a new flow of capital from overseas investors.

Analysts, however, said that while changes in the new decree were welcomed by foreign investors, many domestic investors were concerned because their ownership ratio would likely drop due to the higher stakes of foreign investors.

Huynh Anh Tuan, director of the SJC Securities Company, said that 80 per cent of domestic investors in the securities market were still small, so they would not be able to compete with major investors, particularly foreigners.

Nang, head of the State Securities Commission in HCM City, said he was concerned about the possibility that listed domestic companies would likely be usurped by foreign investors who could buy domestic companies' stakes without any limits.

He said Vietnamese firms should conduct careful studies of foreign partners to ensure that they would closely cooperate with them in implementing long-term strategies for the sake of the company's development, and for the interests of the two sides and the shareholders

Foreign investors continued to buy in the HCM City stock market in the second quarter.

According to the HCM Stock Exchange, in April-June their buying totalled VND18.5 trillion (US$849 million), up from VND14.3 trillion ($656 million) in the first quarter and VND16.3 trillion ($747 million) a year earlier.

Their selling remained largely unchanged from the previous quarter at VND14.7 trillion ($674 million).

Their buying accounted for 16.5 per cent of the market total and their sales for 13 per cent.

The market's capitalisation was VND1,106 trillion ($50.7 billion), up from VND1,019 trillion ($46.7 billion) in the same period last year.

A total of 303 companies are listed along with 38 bonds and one ETF (exchange-traded fund).

The exchange is expected to add the VN - Total Return Index on July 27 to provide an additional tool for investors in line with international practice.

TRI is an equity index that will track the capital gains of a group of stocks over time, assuming that any cash distributions such as dividends are invested back into the index.