This chapter provides an overview of the legal regulatory framework for SOE governance in Viet Nam. The first part looks at main national laws and regulations that are applicable to the corporate sector in general. The second part examines laws, regulations legal documents and policies that govern SOEs particularly with respect to professionalising boards of directors; transparency and disclosure; equitisation process; and land issues. Lastly, it examines the current legal regulatory landscape concerning participation of foreign investors in the SOE equitisation process and IPOs.
OECD Review of the Corporate Governance of State-Owned Enterprises in Viet Nam
Report
Corporate Governance
Table of contents
Share
Facebook
Twitter
LinkedIn
3. Legal and regulatory framework
Abstract
3.1. Main laws and regulations on corporate sector
The legal and regulatory framework for corporate governance has developed at a fast pace in the last decade. The main laws which govern corporate governance in Viet Nam are the Enterprise Law (2020), the Securities Law (2019) and the Decrees, circulars and decisions which guide the implementation of these two laws. The Accounting Law (2015) and the Law on Independent Audit (2011) establish the statutory framework for financial reporting, accounting and auditing in corporate sector in Viet Nam. In addition, other laws – Law on Investment (2005), Law on Competition (2018), Law on Credit Institutions (2010) and Law on Insurance Business (2010) – have further enhanced corporate governance frameworks in the country. Vietnamese companies are also subject to anti-corruption, bankruptcy, commerce, competition, construction, labour, tendering and taxation laws.
Key organisations involved in regulating corporate governance in Viet Nam are the State Securities Commission, the Central Institute for Economic Management (CIEM) under the Ministry of Planning and Investment, the State Bank of Viet Nam (SBV) and the Ministry of Finance. Details on the roles of these institutions are provided in Section 4.1.
However, while relevant laws and regulations ensure some clarity over supervision and accountability in corporate governance of companies, compliance by individual companies is still weak. The legal regulatory framework for corporate governance remains complex and there is a lack awareness by participants in the market (OECD, 2018[1]). Institutional challenges remain. For instance, the overlapping roles and responsibilities between the State Securities Commission (SSC), State Bank of Viet Nam and the Ministry of Finance, as well as a lack of co‑ordination and accountability mechanism between them, hampers the effectiveness of the enforcement of corporate governance.
Regarding listed companies, the SSC has a number of enforcement powers, including the ability to fine and to suspend or remove licenses. It may also issue directives for compliance with relevant securities law and regulations. However, it is not a regular practice for the SSC to initiate civil actions in court and collect damages on behalf of shareholders. Complicated judicial procedures make it hard for shareholders to enforce corporate governance through the courts. Enforcement of the Enterprise Law that governs the incorporation of all businesses including SOEs is conducted on a local level and in a decentralised manner. The 63 Departments of Planning and Investment (DPIs) are responsible for registering companies and enforcing related provisions in the Enterprise Law. The central DPI is in Hanoi, Ho Chi Minh City (OECD, 2019[2]).
Company Law (Commercial Law). Before 1990, the legal framework for the incorporation of private‑sector companies did not exist. In 1990, private sector companies and enterprises were recognised for the first time with the introduction of the Company Law (Law No. 47‑LCT/HDNN8 on Company dated 21 December 1990 by the National Assembly) and the Sole Proprietorship Law (Law No. 48‑LCT/HDNN8 on Sole Proprietorship dated 21 December 1990 by the National Assembly). The two laws provided the legal foundation for the establishment of the first private businesses in Viet Nam.
Enterprise Law. It was first introduced in 1999 replacing the Company Law and the Sole Proprietorship Law. The law prompted a boom in the development of domestic private sector enterprises in Viet Nam. The Enterprise Law provided formal protection for private businesses as well as private ownership. It improved business start-up procedures and reduced barriers to business entry. As a result, the number of registered enterprises increased dramatically, and large‑scale investments were made by Vietnamese business people through enterprises registered under the Enterprise Law. However, the initial version of the Enterprise Law did not recognise corporate governance as a top priority. In 2005, the issuance of the new Law on Enterprises was a landmark in the history of Vietnamese economic policy. It unified three different laws – Law on State‑Owned Enterprises, Law on Foreign Direct Investment and Law on Private Enterprises, creating a legal framework applicable to both SOEs and private enterprises.
Regulations on corporate governance were emphasised in the amended version of the Enterprise Law in 2014, replacing the previous version. The 2014 Enterprise Law provides the main elements for corporate governance framework in all businesses in Viet Nam covering both private sector enterprises (including listed companies, public companies and all other companies) and SOEs. The 2014 Law set out more comprehensive and stricter corporate governance requirements for SOEs. It stipulates composition of the Board of Members (BoM) or Board of Directors (BoD), representation of independent board directors in certain JSCs, liabilities of directors, information disclosure, and protection of rights of shareholders, etc.
Under the law, SOEs must conduct periodical disclosure of various financial and non-financial information and the Chair of the BoM or a CEO may be dismissed if they do not meet the business target in the approved business plan. It also increased the number of days for which shareholders must be notified for annual general meetings. This Law is considered as an important milestone in improvement of corporate governance framework in the SOE sector. The Law last revised in 2020 and the resultant 2020 Enterprise Law is currently in force.
The new Law on Enterprises No. 59/2020/QH14 was passed by the National Assembly of Viet Nam on 17 June 2020 and took effect from 1 January 2021. It again broadened the definition of SOEs, put more attention to treatment of minority shareholders and simplified the business registration process. The amended Law regulates the establishment, organisation of management, reorganisation, dissolution and other activities of enterprises. It defines the requirements for being designated as SOEs, outlines the types of SOEs and provides information related to the management body, the appointment and composition of BoMs and BoDs and disclosure requirements, which are considered key elements in the country’s SOE corporate governance framework. For instance, it stipulates that members/partners/shareholder of partially state‑owned enterprises (over 50% of charter capital or voting shares is held by the State) must not designate a relative of the executive and the person having the power to designate the executive as representative of another company. It has brought business practices in Viet Nam closer to international good practices.
Securities Law. The Securities Law (No. 70/2006/QH11) was adopted in 2006 and revised in 2019, providing regulation on corporate governance requirements applicable to listed companies and public companies. Listing requirements, public offerings, issuance of shares to the public, were further elaborated in the Decree No. 58/2012/ND-CP in 2012. Some articles of Decree No.58 were amended by Decree No.60/2015/ND-CP in 2015.
Accounting Law. Under the Law on Accounting, revised in 2015, the MOF is required to develop accounting standards on the basis of international accounting standards but taking into account the national context into consideration. As of now, IFRS are still not adopted in Vietnam. Vietnamese Accounting Standards are applied by all enterprises during the preparation of financial statements. The IFRS is only applied when reporting to foreign investors. The MOF has recently issued Decision No. 345/QD-BTC to fully adopt IFRS. According to the MOF, there are three phases, including: preparatory phase from 2020 to 2021, 1st phase (voluntary application) from 2022 to 2025, and 2nd phase (compulsory application) after 2025.
Law on Independent Audit. This law adopted in 2011 required all SOEs to be subject to external audit. According to the Article 37 of the Law and Article 15 of Decree No. 17/2012/ ND-CP guiding the Law, among the subjects that are required to audit are annual financial statements of foreign-invested enterprises; annual financial statements of credit institutions established and operating under the Law on Credit Institutions; annual financial statements of public companies, issuers and securities trading organisations; and annual financial statements of SOEs, except for SOEs operating in the field of state secrets1 as prescribed. Administrative penalties are applied in case of failing to conduct audits and violations in the field of independent accounting and auditing.
Investment Law. The amended 2020 Law on Investment provides updates on conditional business lines, investment incentives and related mechanisms while simplifying administrative approval process for investment projects of a certain type. It provides conditions for selecting investors for projects involving land use, including the auction of land use rights.
Competition Law. A first competition law was established in 2004, as part of Viet Nam’s accession to the WTO, and applied to all sectors of the economy and enterprises including SOEs. It regulates classic anti-trust issues such as acts of unfair competition, abuse of market dominant positions and concentration in product and service markets. A market share threshold of 30% is used to determine substantial market power and to prevent certain anti-competitive behaviours, while a merger can be suspended if the consequent combined market share is 50% or more. In 2018, Viet Nam adopted a new competition law (No. 23/2018/QH14). It makes it clear that it is applied to: “business organisations and individuals, including enterprises that produce and provide public-utility products and services, enterprises that operate in state‑monopolised sectors/domains [and] public sector entities.” (OECD, 2021[3])
The Credit Institution Law requires additional requirements for banks that go beyond those of listed companies. This includes requirements with respect to internal controls, internal audit and risk management, and requirements for board members.
Circular 121/2012/TT-BTC. Under the laws, the Ministry of Finance issued the Circular 121/2012/TT-BTC providing regulations on corporate governance applicable for public companies. The Circular set out regulations on the following areas: shareholders and GMS; BoD and members of BoD; Board of Controllers (BoC) and members of the BoC; prevention of conflict of interest; and information disclosure and reporting. Furthermore, Circular 155/2015/TT-BTC provided guidance on information disclosure in the securities market.
Decree No. 71/2017/NĐ-CP. The above circulars have been superseded by the Decree No. 71/2017/NĐ-CP which provides guidance on corporate governance in public companies. The Decree provides regulations on corporate governance to be consistent with the Enterprise Law. The Decree aims at establishing a more comprehensive policy framework for the application and compliance of enterprises with dispersed shareholding. The regulations provided in the Decree cover important aspects of corporate governance such as rights of shareholders and related stakeholders, equal treatment of shareholders, shareholder meetings, composition and responsibilities of the BoD, inspection committee and identifies relevant corporate disclosures. It further clarifies board and management responsibilities in cases of conflict of interest and establishes different regulatory regimes for public companies according to size of companies.
Circular No. 95/2017/TT-BTC. To further support the implementation of the Decree No. 71/2017/ NĐ-CP, the Ministry of Finance issued Circular No. 95/2017/TT-BTC on 22 September 2017. The circular provides: (i) the model charter that public companies should follow; and (ii) the internal company regulation on corporate governance that public companies should adopt.
3.2. Legal and regulatory framework applicable to SOEs
In general, SOEs are subject to the same rules and regulations as those applied to private sector enterprises as mentioned above. Further to the above‑mentioned laws and regulations on corporate governance, the general policy framework regulating state ownership and management in the country includes Law on Management and Utilisation of State Capital Invested in Enterprises (“State Capital Management Law”- Law No. 69/2014/QH13), Decrees, sectoral ministries’ circulars and the accompanying guidelines which have enumerated the rights and responsibilities of state ownership representative bodies. The Ministry of Planning and Investment is also considering to developing a new corporate governance code for SOEs. The details of the plan are not available yet.
State‑owned enterprises can operate in the form of a limited liability company or a joint stock company. The current Law on Enterprises does not prescribe other legal forms for enterprises of other economic actors (see Box 3.1). Private companies (without state capital) reserve the right to operate under these models, so the law does not allow SOEs to operate under any exclusive model different from other types of companies. Benefits of employees in SOEs are delivered per regulations of the government and sectoral ministries while private enterprises must implement labour policies per their commitments and agreements with employees and provisions of the Labour Code.
Box 3.1. Article 88 of chapter IV on State‑Owned Enterprises in the 2020 Law on Enterprises
Article 88. State‑owned enterprises.
1. State‑owned enterprises shall be limited liability companies or joint stock companies, including:
Wholly state‑owned enterprises (100% of charter capital of which is held by the State)
Partially state‑owned enterprises (over 50% of charter capital or voting shares is held by the State, except the enterprises specified in Point a Clause 1 of this Article).
2. Wholly state‑owned enterprises specified in Point a Clause 1 of this Article include:
Single‑member limited liability companies 100% of charter capital of which is held by the State that are parent companies of state‑owned corporations or parent companies in groups of parent company – subsidiary companies;
Independent single‑member limited liability companies 100% of charter capital of which is held by the State.
3. Partially state‑owned specified in Point b Clause 1 of this Article include:
Multiple‑member limited liability companies and joint stock companies over 50% of charter capital or voting shares of which is held by the State that are parent companies of state‑owned corporations or parent companies in groups of parent company – subsidiary companies;
Independent multiple‑member limited liability companies and joint stock companies over 50% of charter capital or voting shares of which is held by the State.
4. The government shall elaborate this Article.
Source: Enterprise Law of Viet Nam (2020); World Laws Information Center, https://world.moleg.go.kr/web/main/index.do
The State Capital Management Law (Law No. 69/2014/QH13) enacted in 2014 is the government’s most important recent attempt to develop and implement a comprehensive framework that consolidates state ownership practices. It is notable that the Law No. 69 established the right of enterprise owners as (i) exercising all ownership rights, and (ii) undertaking investment and capital management over the assets vested in the companies. The Law and its guiding documents have defined a list of strategic state capital investment domains which include: the provision of essential public production and services to the society; national defence and security; national monopoly; and high technology. The law includes requirements on further information disclosure specific to enterprises and organisations representing state capital in SOEs. It also specifies that the Chair of the BoM or a CEO may be dismissed if they do not meet the business target in the approved business plan.
For enterprises in which 100% of charter capital is held by the State, the distribution of profits shall comply with the provisions of Article 34 of the Law No. 69/2014/QH13. For partially-owned enterprises (joint-stock companies, limited liability companies with two or more members), a representative of the state capital portion shall report and consult the owner’s representative agency prior to participating and voting in the General Meeting of Shareholders, meetings of the Board of Directors, the Board of Members on the matters related to dividend payment and distribution of profits of the enterprise according to the Article 48 of the Law No. 69/2014/QH13). However, the law does not provide details about separation between ownership function and regulation of SOEs nor co‑ordination mechanism between various entities exercising state ownership.
Government is currently drafting a law to amend the Law No. 69/2014/QH13 to make it more aligned with the OECD SOE Guidelines, collecting comments from various ministries and SOE stakeholders. The Ministry of Finance is currently leading the process and is planning to submit the amended Law 69/2014/QH13 to the National Assembly by end‑2023. The revised Law is expected to take effect from 1 July 2024. The OECD mission team is informed that some of the key priorities underpinning the new law will be ensuring enhanced level of autonomy for board of members and executive management in SOEs; structural separation between public policy and commercial activities of SOEs; and reducing administrative and procedural burden for SOEs that operate in manufacturing sector.
The Law 69/2014/QH13 on State Capital Use and Management, the 2020 Enterprise Law, decrees and circulars mentioned below specify other state ownership functions and important obligations of enterprise owners such as reporting, disclosure and professionalising board practices in a fragmented manner. While the legal regulatory framework for corporate governance of SOEs has made significant progress over the years, it has traditionally put more emphasis on state capital management framework, and it is only recently that the regulations have given attention to ensuring transparency and accountability of the state‑owned sector. The current legal framework rather views SOEs as a tool to regulate the economy and does not recognise autonomy and self-responsibility of SOEs.
Frequent changes in the legal definition of SOEs have also been problem in the recent past. The 2005 Enterprise Law recognised majority state‑owned companies as SOEs, the revised 2014 Law did not. This had created a confusion for policy makers and also delayed equitisation process as other laws (e.g. the State Capital Management Law) implied a broader scope than the 2014 Enterprise Law which had considered only 100% state‑owned enterprises as SOEs (see Box 3.2).
The new Enterprise Law which went into force in early 2021 has again broadened the scope of SOEs – recognising both wholly state‑owned enterprises and majority state‑owned companies (more than 50% and less than 100%) as SOEs provided that their shares are owned directly by the state.2 While the new law is expected to bring more clarity on SOE landscape in the country there is also a concern that the broadened definition of SOE will make joint stock companies that are partly owned by the State more eligible for preferential treatments from the State owners and state‑owned banks.
At the same time, a number of laws and regulations related to the equitisation of SOEs (i.e. Law on Securities, State Capital Management Law, Law on Investment and the Law on Enterprises) overlap with each other and are also often ambiguous, which hamper the full implementation. Often, a foreign investor needs additional guidance from competent authorities when acquiring shares in an equitizing SOE. The Prime Minister has recently issued decision on state capital divestment at enterprises as a key measure to speed up the equitisation process of SOEs and enhance transparency in state management in SOEs. The details are provided below.
Box 3.2. Changes in definition of SOE
Prior to 1995, organisation, management and operation of SOEs in Viet Nam were regulated by different legal documents issued by the Government or Ministries. In 1995, the first Law on SOEs was enacted. A state‑owned enterprise was defined in the law as an economic organisation, which is capitalised, set up, organised and managed by the State. The law also classified SOEs into two categories: (i) state business enterprises which operate on a profit basis and without subsidies; and (ii) state public service enterprises which operate in accordance with social and security policies of the State and are eligible for subsidies. The 1995 Law on SOEs did not address key corporate governance elements such as transparency, disclosure and board independence. It also allowed close supervision of line ministry over its portfolio SOEs including day-to-day management.
The 1995 Law on SOEs was replaced by the 2003 Law on SOEs. The “new Law” included not only enterprises with 100% state capital, but also joint-stock and limited liability companies with dominant state share (higher than 50%) as SOEs. However, in practice, the Law on SOEs only applied to wholly state‑owned enterprises and other types of SOEs that are joint stock or limited liability companies were regulated by the 1999 Law on Enterprises.
The 2005 Law on Enterprises defined SOEs as enterprises of which the State owns over 50% of charter capital. The corporate forms of SOEs included one‑member limited liability company (i.e. an SOE of which its capital is 100% owned by the State); joint stock company and limited liability company with more than one member (i.e. an SOE of which majority of its share or capital is owned by the State).
The 2014 Law on Enterprises was enacted with a new definition of SOEs. It defined SOEs as those “fully owned by the State”, instead of “more than 50%” as prescribed previously. With the new definition, the scope of SOE sector in Viet Nam was narrowed down and joint stock companies that are partly owned by the State were required to operate on the same legal basis as other private companies and thus were in principle were not eligible for any preferential treatments from the State owners. The Law was again revised in 2020 with broadened definition of an SOE and more attention to treatment of minority shareholders and investors.
Source: Interview with SOE stakeholders in Viet Nam
3.2.1. Other relevant legal documents that are applicable to SOEs
Professionalising boards of directors
Decree No. 97/2015/ NĐ-CP, Decree No. 106/2015/NĐ-CP, and Decree 159/2020/ND-CP.
These Decrees set out functions and mandates of BoMs and BoDs of companies in which the State holds more than 50% of share capital. They provide guidelines and regulations on the board nomination criteria and an official nomination and appointment procedure to a certain extent. According to these Decrees, membership and the structure of the BoM or BoD depends on the proportion of shares that shareholders hold in the enterprise. In SOEs, the State is the only shareholder or majority shareholder who reserves the right to assign all or the majority of members in the BoM and BoD.
All charters require that SOEs’ BoMs/BoDs, or BoCs, shall take full responsibility for the company’s performance and be granted with full autonomy to define strategies for the company in accordance with the objectives defined by the government. The Decrees also state that if a board member is found to have been unduly influenced by outside person(s) or institution(s), public authorities may implement and apply adequate disciplinary measures. The CEO of an SOE cannot serve as chair of the board at the same time. However, in practice, the BoM/BoD has yet to be given full responsibility for and autonomy in the development of SOEs’ strategies. SOEs develop and suggest their strategic development strategies and submit them to competent authorities for approval. Public authorities often exert influence on SOEs’ day-to-day business through the so-called state management function.
Transparency and disclosure
Decree No. 47/2021/ND-CP dated 1 April 2021 of the government provides details on a number of articles in the Law on Enterprises which specifies a list of information that should be disclosed as well as forms and means of disclosure. The Decree requires that reports on information disclosure be published on the website of the enterprise, the portal or website of the agency representing the owner and the Business Portal for at least five years. Enterprises disclosing information must conserve and archive reported and announced information according to the law provisions. Decree No.81/2015/NĐ-CP dated 18 September 2015 by the government had previously stipulated requirements for information disclosure by SOEs but a number of SOEs do not publish any reports in public domain except listed SOEs.
The reports provided by listed SOEs are also of varying qualities. According to the Official Letter No. 668/BKHDT-PTDN dated 24 January 2017, issued by the Ministry of Planning and Investment, only 40% of SOEs submitted reports to the Ministry of Planning and Investment to disclose information in accordance with Decree 81 in 2016 (Phuong, 2020[4]).
Equitisation process
Decree No. 126/2017/NĐ-CP provides regulations on equitisation process of SOEs – converting SOEs and one‑member limited liability companies in which the State holds 100% of share capital into joint stock companies. It specifies obligations to list securities on the UPCOM after equitisation. With the aim of addressing a number of regulatory issues and constraints in SOE equitisation, it introduced new measures. The details of the new measures are provided in the Box 3.3.
Box 3.3. Decree No. 126/2017/NĐ-CP on equitisation process of SOEs
The Decree allows four methods for launching an IPO – auction, underwriting, private placement and book building.
According to the Decree, when preparing for IPO documents, the enterprise must at the same time prepare documents for registration at the Viet Nam Securities Depository or for stock trading if eligible. Documents for registration or stock trading on the unlisted public company market must be completed within 90 days from the IPO. This regulation aims to speed up the listing of SOEs following their IPOs and thus has a strong implication on the requirements of improving corporate governance of SOEs while they are preparing for the IPO and after being equitised.
The Decree provides three methods for equitisation, i.e. (i) keeping State capital at SOEs intact and issue shares to increase charter capital, (ii) selling part of State capital at SOEs or combine State stake sale with additional share issuance, and (iii) selling entire State stake or combine entire State stake sale with additional share issuance.
The Decree provides detailed instructions for evaluating an SOE’s value, including land use right value and business advantage value. Business advantage value includes brand value and development potential value. The decree is expected to prevent cases in which its brand value was determined to be zero.
The Decree states that the State will not finance the equitisation of SOEs, including enterprises in which the State still holds more than 50% stake following equitisation.
Note: According to the Vietnamese Land Law, all land is state‑owned. Private ownership of land is not permitted in the country.
Source: Submissions from the Ministry of Finance
Decision 707QD-TTg/2017 set out details about which SOEs to be divested, the requirement of listing on the stock exchange and the establishment of the Commission for the Management of State‑owned Capital (CMSC) in Enterprises to improve ownership arrangements of SOEs. No. 26/2019/QD-TTg of Prime Minister set equitisation deadlines for SOEs by 2020. But many SOEs missed the deadlines.
Decision No 22/2021/QD-TTg dated 2 July 2021, of the Prime Minister stipulates criteria for the classification of SOEs and state‑invested enterprises that are subject to ownership conversion and divestment in 2021‑25 period. The Ministry of Finance views that this is a step towards decentralisation of powers of the government and the Prime Minister in equitising SOEs. According to the Decision, the Prime Minister will directly approve ownership conversion and divestment plans of parent companies in groups of parent company-subsidiary companies that are single‑member limited liability companies with 100% of charter capital held by the State. As for subsidiaries in groups of parent company-subsidiary companies that are single‑member limited liability companies with all charter capital held by the State, their parent companies should approve their plans.
Under the decision, the Prime Minister will approve ownership conversion and divestment plans for nearly 500 “parent companies”, such as maintaining an enterprise in which the State holds 100% of charter capital, the State will hold from over 50% to under 65% of charter capital after the equitisation, or the State will hold from 65% of charter capital after equitisation.
The SOEs that are included in the list include the Vietnam Posts and Telecommunications Group (VNPT), Electricity of Vietnam, The Việt Nam Oil and Gas Group (PVN), Việt Nam National Coal and Minerals Group (Vinacomin), Việt Nam National Chemical Group (Vinachem), Military Industry-Telecoms Group (Viettel) and the State Capital Investment Corporation (SCIC).
3.2.2. Legal regulatory framework relevant to participation of foreign investors in equitisation and IPO of SOEs
Foreign investors/foreign enterprises are entitled to purchase shares from equitised SOEs according to the Provisions of Clauses 1 and 2, Article 6 of Decree No. 126/2017/ND-CP dated 16 November 2017 of the government and Article 125 on Law on Enterprises. Law on Investment further stipulates the conditions that foreign investors must meet when contributing capital, buying shares or buying capital contributions from economic organisations, including conditions for market access; ensuring national defense and security; and land regulations.
The current legal regulatory framework ensures participation of foreign countries, except for some cases where conditional business lines should be controlled by the state due to national security reasons or must be consistent with criteria of international commitments to which Viet Nam is a member (e.g. WTO, EVFTA, CPTTP, Viet Nam-Japan Economic Partnership Agreement (VJEPA) and Viet Nam-Korea Free Trade Agreement (VKFTA) (e.g. insurance industry, accounting, tourism services, advertising, post and telecommunications).
OECD mission team is informed that the government is aware that foreign investors often feel hesitant to buy shares from equitised SOEs in Viet Nam because they are only minority ones, and they feel it is not meaningful for them. The government has tried to address this issue by improving regulations on foreign ownership limits (FOLs) in recent years. New Security Law which came into effect in 2019 aims to remove FOLs in most industries except for specific sectors important to national security. This allows for public companies to take steps to increase the foreign ownership to 50% or above, or to remove foreign ownership restrictions when given approval by the State Securities Commission. However, a timeline for the implementation is not clear and all banks still have FOLs of 30%. Securities Law 2019 and Article 139 of Decree No. 155/2020/ND-CP dated 31 December 2020, of the government provide provisions on the rate of foreign ownership in the Vietnamese stock market for public companies with details on how equitised enterprises shall list and register for transactions on the stock market.
The 2014 Law 69 on Management and Utilisation of State Capital provides principles and methods of transferring investment capital. The Law stipulates that the attraction of foreign investors to participate in production and business activities of enterprises during restructuring is one of the contents of capital restructuring state in business. In addition, equitised enterprises are required to publicly disclose information and list on the stock market as prescribed in Article 11 of Decree No. 126/2017/ND-CP of the government. The equitisation must be publicly announced on the Government’s web portal and sent to the Ministry of Finance and the Steering Committee for Innovation and Enterprise Development for monitoring: the roadmap and progress of equitisation information about the business (including the approved land use plan, the disputed land areas that need to be further resolved – if any), financial handling issues during the process, equitisation process, valuation method and results of enterprise valuation.
Pursuant to the above‑mentioned provisions, the initial public offering of shares is carried out through an open process with no statutory restriction on participation of foreign investors. However, there are some exceptions when foreign investment must meet market access conditions which often vary depending on state ownership rate and criteria for classification of SOEs announced by the Prime Minister.
The government has recently enacted the divestment portfolio in line with the Decision 26 and made it clear what enterprises should be subject to holding and how much percent of share should be available to strategic investors to ensure the transparency. As for Vinamilk and Sabeco there was a strong interest by foreign investors. For the 2021‑25 period, the government aims at continuing this approach to provide investors with sufficient and clear information about the ownership percentage. The government is considering conducting a roadshow to attract more interest to widely disseminate relevant information. Research results indicate that the more stake that strategic investors hold in the enterprises, the better these enterprises will perform (Nguyen and Vo, 2022[5]).
The land issue
In Viet Nam, all land is state owned. Individuals, enterprises, or organisations are granted “land use rights certificate” in accordance with the Land Law. Foreigners can retain the land use rights up to 50 years while locals can retain indefinitely. According to the government and various SOE stakeholders, there is no preferential treatment toward SOEs in terms of land allocation. No free land is being given to an SOE at the moment except for several cases due to national security reasons. When SOEs want to rent a portion of land from the state, they are must submit a clear and comprehensive land use plan. Government confirmed to the OECD that there is no way for a regular SOE to use the land free as they used to do in the past.
However, the current Land Law is unclear about roles and responsibilities of the State as the owner’s representative regarding land use and management. Also, it doesn’t provide detailed guidance on compensation and resettlement when the State recovers land nor comprehensive policy framework for settling land disputes. The government has recently submitted Report No. 224/TTr-CP to the National Assembly Standing Committee, proposing to amend and supplement relevant policies in the Land Law. Also, as a move to tackle problems related to land use rights during equitisation process, the Ministry of Natural Resource and Environment has recently issued Circular 03/2021/TT-BTNMT (12 May 2021). However, full compliance by stakeholders remains to be seen.
Table 3.1. Provisions related to the procedures for selling shares to foreign investors
|
2014 Law 69 on Management and Utilisation of State Capital |
Clauses 1 and 2, Article 31 of Law No. 69 on principles and methods of transferring investment capital. Clause 4, Article 36 of Law No. 69 stipulating that the attraction of foreign investors to participate in production and business activities of enterprises during restructuring is one of the contents of capital restructuring state in business. |
|
Decree No. 126/2017/ND-CP dated 16 November 2017 of the Government on Conversion from State‑Owned Enterprises and Single‑Member Limited Liability Companies with 100% of Charter Capital Invested by State‑Owned Enterprises into Joint-Stock Companies |
Article 6. Requirements for purchasing shares 1. Domestic investors shall be entitled to purchase shares from equitised enterprises with unlimited quantity, unless otherwise stated in Clause 4 this Article. 2. Foreign investors shall be entitled to purchase shares from equitised enterprises in compliance with provisions of this Decree and relevant legislative documents. Foreign investors that wish to purchase shares shall open accounts at credit institutions under regulations of Vietnam law on foreign exchange. 3. Strategic investors: a) A strategic investor may be a domestic or foreign investor that: - has the status of a legal entity; - has adequate financial capacity and a profitable business in the past 2 years before the date of subscribing for shares without accumulated loss; and - has a written commitment made by a competent person when registering to become the strategic investor of the equitised enterprise that: + The primary business line(s) and brand(s) of the equitised enterprise will be maintained for at least 3 years from the date officially becoming the strategic investor |
|
Law on Enterprises |
Articles 123 and 125 stipulate forms of share offering (Offering shares to existing shareholders; Offering private shares; Offering shares to the public), in which: Clause 3, Article 123 stipulates: Public offering of shares, offering for sale of shares by public companies and other organisations shall comply with the law on securities. Clause 3, Article 125 stipulates that offshore investor buy shares offered for private sale in joint-stock companies that are not public companies: “Overseas investors (foreign investors) buy shares offered for sale. According to the provisions of this Article, they must carry out the procedures for buying shares in accordance with the provisions of the Law on Investment. |
|
Law on Investment |
Article 24 of the Investment Law 2020 stipulates the conditions that foreign investors must meet when contributing capital, buying shares or buying capital contributions from economic organisations, including: conditions for market access; ensuring national defense and security; and land regulations. Article 9 of the Investment Law 2020 stipulates market access conditions for foreign investors specified in the List of industries and trades with restricted market access for foreign investors, including: rate of ownership of charter capital of foreign investors in economic organisations; investment form; scope of investment activities; investor’s capacity; partners participating in investment activities; and other conditions as prescribed in laws and resolutions of the National Assembly, ordinances and resolutions of the National Assembly Standing Committee, Government decrees and international treaties to which Viet Nam is a member. Clause 5, Article 4 of the Investment Law 2020 provides for the application of the law to contracts in which at least one party is a foreign investor: “For a contract in which at least one party is a foreign investor or economic organisations specified in Clause 1, Article 23 of the Law on Investment, the parties may agree in the contract on the application of foreign laws or international investment practices if such agreement is not contrary to the provisions of Vietnamese Law”. Clauses 2, 3, 4, Article 14 of the Law on Investment 2020 provide for the settlement of disputes in business investment activities involving foreign investors. Clause 2, Article 26 of the Investment Law 2020 stipulates investment procedures in the form of capital contribution, share purchase, purchase of contributed capital for foreign investors. Articles 15, 16, 17, 18 of the Government’s Decree No. 31/2021/ND-CP dated 26 March 2021 detailing and guiding the implementation of a number of articles of the Investment Law providing for subjects and principles of application of the list of industries and trades with restricted market access for foreign investors. Article 6 of Decree No. 126/2017/ND-CP dated 16 November 2017 and Clause 3, Article 1 of Decree No. 140/2020/ND-CP dated 30 November 2020 of the Government on the transfer of home businesses state‑owned enterprises and one‑member limited liability companies with 100% charter capital invested by state‑owned enterprises into joint-stock companies: 2.1 Point a, Clause 2, Article 33 stipulates “shares held by the State according to the criteria for classification of state‑owned enterprises announced from time to time by the Prime Minister”. 2.2 Article 6 provisions - Right to buy shares of foreign investors. - The selection of strategic investors (conditions, selection process, selling price). |
|
Securities Law |
Article 139 of Decree No. 155/2020/ND-CP dated 31 December 2020 of the government provides provisions on the rate of foreign ownership in the Vietnamese stock market for public companies with details on how equitised enterprises shall list and register for transactions on the stock market. |
|
Decree No. 91/2015/ND-CP (amended and supplemented in Clause 16, Article 2 of Decree No. 140/2020/ND-CP) |
Article 29 stipulates the method of transferring investment capital out of enterprises in which 100% of charter capital is held by the State, in the case of capital transfer in a joint stock company listed or registered for trading on the stock market and in case of capital transfer at a joint stock company unlisted. |
Source: Submission from the Ministry of Finance, Vietnamese Law Portal, https://thuvienphapluat.vn.
References
[5] Nguyen, M. and T. Vo (2022), “Residual State Ownership and Firm Performance: A Case of Vietnam”, Journal of Risk and Financial Management, Vol. 15/6, p. 259, https://doi.org/10.3390/jrfm15060259.
[3] OECD (2021), OECD Competitive Neutrality Reviews: Small-Package Delivery Services in Viet Nam, OECD, Paris, https://www.oecd.org/competition/fostering-competition-in-asean.htm.
[2] OECD (2019), Corporate Governance Frameworks in Cambodia, Lao PDR, Myanmar and Viet Nam, OECD Paris, https://www.oecd.org/daf/ca/Corporate-Governance-Frameworks-Cambodia-Lao-PDR-Myanmar-Viet-Nam.pdf.
[1] OECD (2018), OECD Investment Policy Reviews: Viet Nam 2018, OECD Investment Policy Reviews, OECD Publishing, Paris, https://doi.org/10.1787/9789264282957-en.
[4] Phuong, T. (2020), Politics and institution of corporate governance in Vietnamese state-owned enterprises, University of Economics, The University of Danang, Da Nang, Viet Nam, https://www.emerald.com/insight/content/doi/10.1108/MAJ-02-2018-1810/full/pdf?title=politics-and-institution-of-corporate-governance-in-vietnamese-state-owned-enterprises.