Vietnam: Share repurchase threshold

Author: | Published: 11 Dec 2017
Email a friend

Please enter a maximum of 5 recipients. Use ; to separate more than one email address.

Nishimura & Asahi

Address

Otemon Tower 1-1-2 Otemachi
Chiyoda-ku, Tokyo 100-8124
Japan

Telephone

+81 3 6250 6200

Fax

+81 3 6250 7200 Visit Website

A bank may need to acquire treasury stocks for a variety of reasons, such as to adjust firm leverage levels or to deliver financial compensation to shareholders. One concern, though, is the situation where the bank wishes to repurchase its shares from the market while its foreign shareholding ratio has already reached the threshold under the law.

In general, the foreign shareholding ratio in a joint stock commercial bank in Vietnam must not exceed 15%, in respect of organisational foreign shareholders, or five percent, in respect of individual foreign shareholders, of its charter capital. If the foreign organisational shareholder is a strategic shareholder, it may hold up to 20%. The shareholding ratio of a foreign investor and its affiliates must not exceed 20%, and the total foreign shareholding ratio must not exceed 30%, of its charter capital. Any ratio in excess of these must be approved by the prime minister.

To ascertain the shareholding ratio, the determination of the charter capital is essential. Under the law, the charter capital of a joint stock company is the total aggregate par value of shares of all classes which have been sold (those offered for sale and paid in full). When a bank repurchases its issued shares, such shares are considered as treasury shares, and are deemed as unsold shares (those offered for sale but not paid for). The issue is whether the charter capital will be re-calculated after acquisition of treasury shares by the bank.

If the purpose of the repurchase is not to reduce the charter capital, the treasury shares will be kept for a period of time and the charter capital recorded on the enterprise registration certificate is maintained. As treasury shares are unissued shares, the voting rights will be re-calculated based on the total outstanding shares which do not include the treasury shares. As a result, the foreign shareholder will have more voting rights after the acquisition of treasury shares. There is a view that if the charter capital of the bank in the financial statement is the same after the acquisition of treasury shares, the shareholding ratio of shareholders, including the foreign shareholding ratio, should not be impacted by this acquisition. However, this understanding is not entirely in line with the definition of charter capital. In this situation, the bank may need to obtain clarification from the relevant state authorities to avoid any violation of the threshold by the foreign shareholder(s) and the bank itself.

Vu Le Bang Nguyen Van Trang

 


 

 

close Register today to read IFLR's global coverage

Get unlimited access to IFLR.com for 7 days*, including the latest regulatory developments in the global financial sector, updated daily.

  • Deal Analysis
  • Expert Opinion
  • Best Practice

register

*all IFLR's global coverage published in the last 3 months.

Read IFLR's global coverage whenever and wherever you want for 7 days with IFLR mobile app for iPad and iPhone

"The format of the Review has changed over the years; the high quality of its substantive content has not."
Lee C Buchheit, Cleary Gottlieb

register