Vietnam Finance and Investment Regulatory Update
Purchase of shares by foreign direct investors:
HANOI – On February 20th, 2014, Circular 01/2014/ND-CP went into effect, it covers the purchase of shares by foreign investors from Vietnamese credit institutions. This legislation replaced Circular 69/2007/NĐ-CP dated April 20th, 2007.
According to the Circular, foreigners can purchase shares from Vietnam credit institutions in the following cases:
- Purchase shares from shareholders of joint-stock credit institutions.
- Purchase shares when joint-stock credit institutions sell treasury shares or sell shares to increase charter capital.
- Purchase shares when credit institutions transform into joint-stock credit institutions.
This Circular also sets a limit on the shareholding percentage for foreign investors. The maximum contribution to charter capital is 5 percent for individuals, 15 percent for foreign organizations, and 20 percent for foreign strategic investors. The total shareholding level of foreign investors must not exceed 30 percent of the charter capital of a Vietnamese commercial bank.
In order to purchase 10 percent or more of the charter capital of a Vietnamese credit institution, foreign investors must meet the following requirements:
- Being ranked by global prestigious credit-rating agency with a ranking of stable or higher.
- Having full financial resources to purchase shares as defined under its financial statement.
- Foreign banks, financial companies and finance-leasing companies having total assets of at least US$10 billion or other organizations having a minimum charter capital equivalent to US$1 billion.
Some additional requirements are called for when foreign banks, financial companies, or finance-leasing companies seek to become foreign strategic investors in Vietnam. They must possess five or more years of experience in international banking and finance, have a minimum total of US$20 billion in assets, and cannot own 10 percent or more of the charter capital at any other credit institution in Vietnam.
Foreign strategic investors need to keep in mind that they cannot transfer shares at Vietnamese credit institutions to other organizations or individuals within the first five years of investment. This requirement is lowered to three years for foreign investors which are organizations and own 10 percent or more of the charter capital of a Vietnamese credit institution.
Although foreign investors need to conform to various obligations and requirements, they are also entitled to a number of rights. Vietnam’s regulations allow them to transfer incomes from investments, share purchases, and revenues into other countries. Foreign investors also have the possibility of participating in or appointing representatives to Managing Boards, Control Boards, or executive positions of joint-stock credit institutions.
A notice to foreign portfolio investors:
Foreign investors engaging in portfolio investment should pay particular attention to the newly released Circular No. 05/2014/TT-NHNN that regulates the opening and usage of foreign portfolio investment (FPI) capital accounts for the implementation of foreign direct investment activities.
First, foreign portfolio investors don’t directly participate in the management of enterprises. The following investing activities are classified as portfolio investment:
- Capital contribution, purchase or sale of shares or capitals in Vietnamese enterprises which are not yet listed or registered for transactions on the Vietnam securities market.
- Capital contribution, purchase or sale of shares in Vietnamese enterprises on the Unlisted Public Company Market (UPCOM) and the listed securities market.
- Sales and purchase of bonds and other types of stocks on the securities market of Vietnam.
- Sale and purchase of other valuable papers in Vietnam Dong which are permitted to issue within the territory of Vietnam by organizational residents.
- Investment trusts in Vietnam Dong through fund management companies, securities companies, and other authorized organizations; investment trusts in Vietnam Dong through authorized credit institutions and branches of foreign banks.
- Capital contributions, transfer of capital of foreign investors (who do not directly participate in management) in securities investment funds and fund management enterprises.
Secondly, the Circular stipulates that all porfolio investment activities must be conducted in Vietnam Dong through 01 (one) account opened at 01 (one) licensed bank. The balance on the accounts of foreign investors is not permitted to be transfered to definite-term deposits and savings deposits at domestic or international credit institutions. For the purpose of remitting capitals, interests and other lawful incomes to foreign countries, investors can exchange Vietnam Dong for foreign currencies in order to implement remittance.
This Circular took effect on April 28, 2014.
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