The draft of the new regulation on the foreign ownership cap in Vietnamese public companies has been published in the second draft of the new Law on Securities (Draft Law). The latter is expected to replace the Law on Securities 70/2006/QH11 dated June 29 2006 and Law 62/2010/QH12 dated November 24 2010 amending and supplementing a number of articles of the Law on Securities (collectively, the Existing Law).
In particular, Article 32 of the Draft Law provides that the foreign ownership ratio in a Vietnamese public company is unlimited (it can be up to 100%) if there is no limitation on foreign ownership ratio specified in the international treaties in which Vietnam is a member or in the prevailing laws of Vietnam. In cases where a Vietnamese public company operates in multiple industries or sectors that have different regulations on the foreign ownership ratio, the foreign ownership ratio of such company must not exceed the lowest ratio specified in all of those regulations. It is worth noting that the definition of 'foreign ownership ratio' is aligned with the Existing Law, and calculations will only be done on a 'voting shares' basis.
Under the prevailing regulations (Article 1.2 of Decree 60/2015/ND-CP dated June 26 2015 amending and supplementing several articles of Decree 58/2012/ND-CP for the implementation of the Existing Law [Decree 60], which added Article 2a to Decree 58/2012/ND-CP), if a public company operates in a business line with conditions that apply to foreign investors, but which has no existing specific provision on foreign ownership ratio, then the maximum foreign ownership ratio will be deemed to be 49%. However, the Draft Law seems to remove such foreign ownership limitation in a public company.
Furthermore, under Decree 60, even in cases where a public company operates in business lines that are not subject to any foreign ownership limitation (as specified in the international treaties in which Vietnam is a member or the prevailing laws of Vietnam) or conditions applicable to foreign investors, the cap of the foreign ownership ratio can be up to 100%. This would be the case only if a cap was not otherwise stipulated by the public company's charter. This means that a public company's charter is allowed to set out a specific cap on foreign ownership ratio (eg, 49%) which is different from the regulations. That company would be required to have a resolution of the General Meeting of Shareholders to approve an amendment to the charter to lift the cap on the foreign ownership ratio. On the other hand, since the Draft Law does not have a provision allowing a public company to provide a specific cap on foreign ownership ratio in its charter, it is possible that under the Draft Law, the cap on foreign ownership ratio could be up to 100% without being subject to any restriction in the public company's charter. In such a case, the Draft Law seems to be more favourable for foreign investors wishing to acquire shares of a public company.
Although opinions and comments on the Draft Law are still in being collected, it can be considered as a positive step towards attracting additional foreign capital to Vietnam's securities market.
Akira Hiramatsu and Pham Quoc Thai
Nishiruma & Asahi, Vietnam