|Justin Gisz, partner from Frasers Law Company |
Remarkable progress has been made in facilitating international-standard merger and acquisition (M&A) transactions in Vietnam during the last 20 years and the rate of progress has also accelerated markedly during the last decade.
The legal framework which underpins M&A transactions in Vietnam has become increasingly clear, robust, and effective, particularly since 2015.
This year in particular has seen the entry into force of a raft of new laws which are of fundamental importance to M&A in Vietnam, including (amongst others) the new Law on Enterprises, Law on Investment, and Law on Securities, all of which came into force on January 1. These new laws represent significant improvements as compared with their predecessors and are likely to have a materially beneficial impact on M&A transactions in Vietnam.
Despite there still being room for improvement, generally any domestic or foreign investor wishing to implement an M&A transaction in Vietnam will in most cases be able to obtain (before committing to the proposed transaction) a relatively clear picture in relation to key matters, including foreign ownership restrictions; structuring options and restraints; regulatory approval requirements; the passing and registration of legal title in acquired equity interests or assets; compulsory payment pathways and processes; transaction implementation timetables; and necessary completion deliverables and post-completion obligations.
Merger control issues
Perhaps the most significant issue which faces many investors (both domestic and foreign) in relation to M&A in Vietnam is the issue of merger control notification requirements.
This issue applies equally to M&A transactions involving public target companies as well as those involving private target companies. Merger control notifications in Vietnam can often be expensive, burdensome, and time-consuming.
Although in some cases merger control notification applications are processed through to determination within one to two months, in other cases merger control notification applications (particularly in more complex cases) may take 3-6 months to process.
The legislated triggers for merger control notification obligations under Vietnamese competition law are (in international terms) comparatively low and capable of exceedingly broad application.
Unlike many other jurisdictions worldwide, in Vietnam there are no clearly legislated exceptions to or exemptions from merger control notification obligations and no “safe harbour” tests upon which M&A transaction participants can rely. In addition, the market research and competition impact reports which must be filed as part of merger control notification applications can often be burdensome and expensive to procure.
Many M&A transactions connected with Vietnam (whether or not implemented inside the country) – including many which would not have given rise to any merger control issues under the previous Law on Competition – must now be notified to the competition authorities, before they can be completed.
The burdensome nature of the notification procedures and requirements, combined with the often lengthy transaction timetable delays, appear to be presenting a material disincentive to many otherwise eager participants in the M&A market in Vietnam.
|Legal moves are being made to ensure fewer burdens are placed on the process of carrying out an M&A transaction, Photo: Shutterstock |
Public target companies
In relation to public target companies, the legislative and regulatory regime which underpins M&A transactions is comparatively robust and effective, although various key complaints are often heard from investors.
For example, the rigidity of the “trading band” system is irksome to many investors. In relation to share sale and purchase transactions implemented at prices falling outside the legislated “trading bands” (+/-7 per cent either side of last exchange trade price for the Ho Chi Minh City Stock Exchange, or +/-10 per cent either side of the last exchange trade price for the Hanoi Stock Exchange), specific State Securities Commission (SSC) approval is required before the transaction can proceed.
The logistics of obtaining these SSC approvals and then the mechanics of actually implementing these types of transactions via the case-by-case Vietnam Securities Depository application system are often perceived by investors as being cumbersome and opaque.
Another example is the “mandatory public offer (MPO)” (public tender) requirements which apply in relation to certain categories of significant M&A transactions. The procedures and timelines for seeking SSC approval for MPOs and then actually implementing them are also often perceived by investors as being cumbersome and opaque.
A number of other complaints are often heard in relation to M&A in the context of public companies in Vietnam. First is the comparatively lenient nature of Vietnam’s insider trading laws and the comparatively lenient sanctions applicable (and generally applied) to insider traders.
Second would be the comparatively lenient market disclosure requirements applicable to public companies, as well as the comparatively lenient sanctions applicable (and generally applied) to companies failing to observe their disclosure obligations.
Next is the comparative difficulty in procuring enforcement or sanctions against board members, executives, or managers of public companies who breach their officers’ duties or otherwise act unlawfully to deny shareholders their lawful rights, following completion of M&A transactions.
Lastly is the absence of a formally legislated takeover framework (aside from the abovementioned MPO framework), including “mop up” provisions to compel the buy-out of residual minority shareholders following a successful takeover.
On the whole, however, despite investor complaints of the kind outlined above, the legislative and regulatory platform which underpins M&A in Vietnam in relation to public target companies generally operates effectively and facilitates the on-going growth and enhanced sophistication of the M&A market in Vietnam.
Private target companies
Insofar as private target companies are concerned, again, the legislative and regulatory platform in Vietnam is generally robust and effective and is vastly improved as compared with its predecessor equivalents.
The key complaints which are most commonly heard from investors in connection with private company M&A in Vietnam relate primarily (but not exclusively) to foreign investors and include the following:
- The cumbersome and process-heavy nature of routing transaction payments through the compulsory “indirect investment capital accounts” or “direct investment capital accounts” (in addition to the generally restrictive and burdensome nature of foreign exchange control regulations, overall);
- The cumbersome, time-consuming, and expensive requirements to procure and file consular legalised corporate supporting documents as part of the application dossiers which must be filed with relevant licensing authorities in order to apply for “M&A Approvals”;
- The lack of clarity and certainty around the issue of “indirect” or “deemed” corporate income tax, which is capable of being imposed upon capital gains realised by foreign-domiciled sellers of shares in foreign-domiciled companies that in turn hold shares in Vietnam-domiciled companies;
- The difficult, time-consuming, and unclear nature of the processes involved in securing “tax clearances” following completion of M&A transactions, including the lack of clarity around precisely what is deemed to constitute “tax clearance” (which is frequently interpreted differently by different banks); and
- The comparative difficulty associated with enforcement of shareholder rights against majority shareholders, board members, officers, or executives who unlawfully act so as to deny the lawful rights of shareholders or members (in particular, minority stakeholders), following completion of M&A transactions.
These types of issues are for the most part issues that are encountered by foreign investors as opposed to domestic investors. Overseas investors continue to face a number of issues, challenges, and risks which do not affect domestic investors, which in itself is a factor which may be argued to constitute a hindrance to Vietnam’s development as an international-standard M&A jurisdiction.
The excellent work which the Vietnamese government has done in order to establish a comparatively clear and robust legislative and regulatory platform for M&A in Vietnam must be acknowledged and commended.
Further action to address these key investor complaints outlined above is to be encouraged, in order to accelerate Vietnam’s ascension up the ranks of the world’s most desirable jurisdictions for engagement in M&A activity.