Triple amendments strike sparks in M&A

How do you estimate the impact of the amended laws on enterprises, investment, and securities on capital contributions and share purchases activities?

Deputy director of the Central Institute of Economic Management Phan Duc Hieu

The first impact that needs to be mentioned is the change of products in the merger and acquisition (M&A) market as corporate governance principles, which are listed in the Law on Enterprises, will promote this change.

Corporate governance is an important factor in business and the basis to develop enterprises in a sustainable direction. Good corporate governance will help companies to increase their competition capacity and effectiveness while simultaneously decreasing internal conflicts and disputes and increasing safety levels for investors.

Both the laws on enterprises and securities have important changes, including the institutionalisation of international principles and best practices in corporate governance, which contributes to enhancing the legal framework.

Besides this, the Law on Securities added a content about corporate governance, which is asymptotic with basic principles of corporate governance mentioned by the Organisation for Economic Co-operation and Development. These principles are ensuring the rights and equality of shareholders and investors, including any intermediate organisations that are supporting corporate governance.

In addition, the Law on Enterprises, which is in charge of issuing basic principles in corporate governance, saw numerous important improvements that directly impact investors’ rights.

What added rights and benefits will investors enjoy from these amended laws?

The Law on Enterprises removed the requirement that shareholders must own their stakes for six consecutive months to have right to implement a number of important works in the company.

This will help investors to immediately restructure the company right after buying a sufficient amount of shares, that is 5 per cent of the ordinary shares or a lower ration depending on the company’s regulation.

According to the existing law, at present shareholders have to hold at least 10 per cent stake for six consecutive months to propose a member to join the board of directors, convoke a shareholder meeting, and ask the board of supervisors to examine specific problems.

For instance, this was one of the reasons why Thai shareholders had to wait for six months to restructure Sabeco instead of right after they spent around $5 billion on 53 per cent stake in the brewer.

Foreign investors are paying attention to Vietnam’s M&A market as well as the legal changes relating to their companies’ operation. What are the changes for foreign investors in these amended laws?

There will be more opportunities for them to join M&A deals. Notably, according to the Law on Securities and the draft decree on implementing it, foreign investors will not be limited with regards to the ownership ratio in public companies.

Relating to this, the Law on Investment details regulations on approaching the market. Notably, foreign investors are permitted to approach the market in a similar way that is applied for domestic ones, with the exception of some sectors where such approaches are limited. A list of these sectors will be published by the government.

How will the new Law on Enterprises impact M&A activities?

The new Law on Enterprises has a number of regulations that are directly related to foreign investors, including allowing private companies to switch to the join-stock company format from a limited company.

This change will open more opportunities for small- and medium-sized enterprises to conveniently join M&A deals.

Moreover, I expect the products on the M&A market to not only increase in quality but also in quantity.