On November 26 2019, the National Assembly approved the Law on Securities 54/2019/QH14 (Securities Law 2019). This Law will replace the Law on Securities 70/2006/QH11, as amended in 2010, (Securities Law 2006) and will be effective from January 1 2021. In an attempt to improve the securities market, the Securities Law 2019 introduces, among other amendments, notable changes in relation to certain requirements for private placements of shares in public companies (Private Placement).
Notable changes to private placements
Under the Securities Law 2019, there is a change in the definition of private private placement is defined as an offer for the sale of securities that does not fall into the category of an offer for sale via the mass media, and that is made via either of the following methods: (i) an offer for sale to fewer than 100 investors excluding professional securities investors; or, (ii) an offer for sale to professional securities investors only (Article 4.20 of the Securities Law 2019). In comparison with the Securities Law 2006, this definition supplements that shares offered for sale to professional securities investors only are considered to be a private placement as well.
To offer shares through a private placement, a public company will be subject to the requirements listed below (Article 31.1 of the Securities Law 2019):
A resolution of the GMS required
Under the Securities Law 2019, there must be a general meeting of shareholders (GMS) resolution approving the private placement plan which identifies the number of potential investors as well as the criteria for selection of eligible investors (Article 31.1(a) of the Securities Law 2019). This was also the case under the Securities Law 2006 and guiding documents, and remains unchanged.
In addition, under the Securities Law 2019, the investors are not required to make a tender offer bid (TOB) if the investors purchase newly issued shares in line with an issuance plan passed by the GMS, as with the Securities Law 2006. Under the Securities Law 2006 and its guiding documents, it was understood that eligible investors should be specified in the GMS resolutions in order to be exempted from a TOB. This point is not clearly stipulated under the Securities Law 2019, but the requirement may remain unchanged.
Participants of a private placement
The Securities Law 2006 did not limit the types of the investors who could participate in a private placement. In particular, eligible investors could be decided by the GMS of the issuer. Nevertheless, the Securities Law 2019 provides that only two categories of investors are allowed to purchase shares in a private placement: (i) professional securities investors; and (ii) strategic investors.
In relation to (i), this is not a new term. However, this term covers not only financial institutions as under the Securities Law 2006, but also (a) companies with paid-up charter capital of VND 100 billion ($4.3 million) or more; (b) listed organisations; (c) organisations registered for trading; (d) individuals with securities practising certificates (which include: securities brokerage practising certificates; financial analysis practising certificates; and fund management practising certificates); and, (e) individuals holding a securities portfolio with a value of at least VND 2 billion or who had taxable income of at least VND 1 billion in the latest year (Article 11 of the Securities Law 2019).
In relation to (ii), 'strategic investors' is a new term first set forth in the Securities Law 2019, which is defined in Article 4.17 of the Securities Law 2019 as 'investors selected by the GMS according to the criteria regarding financial capability, technology expertise and who have a commitment of at least a three-year partnership with the company'. For the criteria regarding financial capability and technology expertise, each issuer at its discretion can decide how these are fulfilled. However, detailed guidance regarding 'financial capability' and 'technology expertise' has not been provided, and it is unclear which documents reflect a commitment of at least a three-year partnership. Such ambiguities may be addressed by the guiding documents to be issued by the state authorities.
Lock-up period applied to a private placement
Under the Securities Law 2006, privately placed shares were subject to a lock-up period of one year as from the date of completion of the offer tranche (Article 10a.1(b) of the Securities Law 2006). In relation to a professional securities investor, the aforementioned lock-up period is only applied when an organisational investor wishes to transfer shares privately issued to a professional securities investor, or a professional securities investor wishes to transfer its shares to a purchaser that is a non-professional securities investor.
However, the Securities Law 2019 has tightened the lock-up period by adding that the lock-up period must also be at least three years for a strategic investor and at least one year for a professional securities investor as from the date of completion of the offer tranche (Article 31.1(c) of the Securities Law 2019). In relation to the lock-up period applied to a professional securities investor, the Securities Law 2019 allows only one exception where privately placed shares are transferred between professional securities investors.
Tranche offer requirement
A period of six months must lapse between one private placement tranche offer and the next. This requirement (Article 31.1(d) of the Securities Law 2019) remains unchanged from the Securities Law 2006.
The share offering and foreign ownership cap
The share offering must satisfy the requirements regarding the foreign ownership cap in accordance with prevailing laws. This provision is supplemented in the Securities Law 2019 (Article 31.1(dd) of the Securities Law 2019) representing no change from the Securities Law 2006 and its guiding documents. As the Securities Law 2019 provides that the government will provide detailed regulations on the foreign ownership cap, further specifications on this requirement may appear in subsequent government decrees.
Potential effects of stricter private placement requirements under the Securities Law 2019
It was reported by the Ministry of Finance in the government's proposal regarding the Securities Law Project (amended) 186/TTr dated May 9 2019 that many companies have intentionally taken advantage of the simple requirements provided under the Securities Law 2006 to avoid the strict conditions for a public offering of securities managed by the State Securities Commission. Therefore, with a view to enhancing publicity, the transparency of the securities market and improving the quality of goods on the securities market, the new law imposes stricter requirements for a private placement.
As a result, potential investors who wish to purchase shares privately placed, regardless of whether they are professional securities investors, have been voicing concerns about the restrictions set forth in the new framework. In particular, investors purchasing shares through a private placement need to give the longer lock-up greater consideration, as once an investor purchases shares privately placed, they cannot transfer those shares during the lock-up period. In addition, to avoid confusion, determining who is deemed to be a strategic investor will require further guidance in upcoming legal documentation released by the government.
|Akira Hiramatsu||Pham Quoc Thai||Hoang Nhu|