Framework mooted for stock listing

Foreign investment requires encouragement across several areas in order for groups to see listing in Vietnam as a viable option Photo: Le Toan

Securities listing on the Vietnamese stock market was regulated by specialised decrees in both 2003 and 2005, on transforming a number of foreign-invested enterprises (FIEs) to operate in the form of joint-stock ­company, and on participation of foreign parties in the country’s securities market.

Tuan Nguyen, managing partner at ANT Lawyers

Those regulations were replaced by further decrees in 2012 and 2015, guiding implementation of a number of articles of the Law on Securities. In reality, a number of FIEs have converted into joint stock companies in order to have their stocks listed on the stock exchange. However, it appears there are not many FIEs on securities listing in recent years, and the reasons could originate from both FIEs and Vietnamese state authorities. Pursuant to Vietnamese laws, it is required that enterprises strictly satisfy conditions of charter capital, meaning having operated in the form of a joint-stock company for a number of years, and have at least 20 per cent of voting stocks held by at least 300 non-major shareholders, with limitation of foreign ownership in some conditional investment areas.

Additionally, when listed on the stock exchange, the company has to publish information which FIEs take into account when comparing the pros and cons of listing.

Considering the current situation, there have been some concerns on the business operation of FIEs after being listed over the years in terms of lost profits and withdrawal of capital that may be in contrast with the direction of Vietnam’s government, whose purpose of creating attraction for foreign investors is to develop the economy and society.

However, practically, there have been demands for securities transactions conducted without securities listing. Therefore, rather than prohibition, it is necessary to finalise legal provisions to manage the stock listing of FIEs for state management.

Further, in the context of economic integration, there should be no discrimination among companies established and operating under the laws of Vietnam, consistent with Resolution No. 50-NQ/TW issued by the Politburo and dated August 20 this year on orientations to perfect mechanisms, policies, raise quality and efficiency of foreign investment by 2030. The foreign-invested economic sector is an important component of the Vietnamese economy. Hence, it should be encouraged and facilitated for long-term development, fair co-operation, and competition with other economic sectors.

The government respects and protects the legitimate rights and interests of investors and ensures harmonisation of interests between the state, investors, and employees.

With reference to the experience of several neighbouring countries in the region, there are no different provisions regarding conditions of securities listing between FIEs and other enterprises, but there are different conditions apply to domestic enterprises and foreign enterprises at stock exchanges.

Additions and improvements

Converting into a joint-stock company and conducting securities listing at several enterprises over the years have brought certain positive results in the form of profits and contributing to growth, of not only enterprises but also the stock exchanges.

However, according to expert opinions, there are still many outstanding issues in FIEs such as transfer pricing, capital withdrawal, or the parent company holding all the shares after converting into a joint-stock company, which may have a strong influence on the country’s economic market.

In order to strengthen the strict management on FIEs’ ­securities listing, the legal system should be improved, especially the laws on foreign investment, securities and on enterprises, which are considered the three main areas ­directly affecting the activities of FIEs.

The improvement process should be synchronised and unified in order to open the way and bind FIEs on securities listing on stock exchanges.

Opening up the path means creating a legal corridor for FIEs to conduct the conversion into public companies for the purpose of securities listing; and binding means that not all enterprises are free for securities listing.

In particular, in order to have their stocks listed, enterprises must satisfy conditions of capital, scale, and operation time, as well as the post-listing conditions required for foreign individuals and organisations to ensure that the securities listing complies with the laws and restricts enterprises from abusing the legal mechanism for unlawful purposes.

Encouraging FIEs

FIEs themselves acknowledge the benefits of securities listing on stock exchanges in Vietnam in areas such as brand awareness, transparency, raising capital, and expanding the operational scale of enterprises.

However, in order to encourage FIEs to list in Vietnam, some other matters should be taken into consideration. The first thing is to complete a legal system by promulgating regulations on securities listing of FIEs and removing existing problems.

The second is speeding up completion of mechanisms, policies, and legal provisions which focus on key matters such as percentage of capital ownership, conditions of securities listing applied to FIEs, and enterprise valuations.

The third area is strengthening the strict management of the state, ensuring publicity, transparency, and fairness among enterprises.

This will promptly prevent acts of abusing stock exchanges to conduct capital withdrawals, and transfer pricing that may cause harmful effects to stock exchanges.

Securities listing and trading of FIEs on stock exchanges could have a strong influence on the securities market. But in addition to the advantage of contributing for business growth and increasing the scale of the stock market, it may also bring negative impacts if not strictly and systematically managed. However, Vietnam cannot stand aside from global economic integration.

There is a need for strong development of the financial market that allows Vietnam to attract both direct and indirect overseas investment.

The demand from investors to have more options for trading would encourage FIEs and the Vietnamese government to work toward listing securities to attract more funding into Vietnam in order to keep up the economic growth momentum.