My Article about “Open room” for foreign investors’s ownership ratio under Decree 60/2015/ND-CP

My Article about “Open room” for foreign investors’s ownership ratio under Decree 60/2015/ND-CP

1    1. Introduction

Decree 60/2015/ND-CP (ND 60) by Government will be effective on 01/09/2015. The most important rules from this Decree is the ownership ratio of foreign investors and foreign-invested business organizations in public companies, securities-trading organizations and securities investment funds. This Article will be written to comment the rules and analyse relevant problems.

     2. Rules

Refer to clause 2, article 1 Decree 60; clause 21, article 1 Decree 60 on amending clause 9, supplementing clause 11, 12, 13 article 71 Decree 58/2012/ND-CP (ND 58). The specific rules, analysis, commentary will be written at the part 3.

     3. Analysis

3.1.         What is the room?

Room is the informal word used by investors to describe clause 13, article 2 ND 58 amended by clause 1, article 1 ND 60: “foreign ownership ratio is  the sum of shares with right to vote or capital contribution ownership ratio from all foreign investors and foreign-invested business organizations with 51% of charter capital or more is held by foreign investors in public companies, securities-trading organizations and securities investment funds”. The old rule in Decree 58: “The maximum foreign ownership ratio is the maximum securities that foreign individuals and organizations hold under relevant Vietnamese Laws”. The old rule depends on definition of foreign investor from Law on Investment 2005. Law on Investment 2014 changes that definition, in detail: “Foreign investor means an individual holding a foreign nationality or an organization established under foreign laws making business investment in Vietnam”. Besides, there are foreign-invested business organizations (not a form of foreign investors) when contributing capital, buying shares must satisfy conditions and follow investment procedures applied to foreign investors:

a.     51% of charter capital or more is held by foreign investors, or the majority of the general partners are foreigners if the business organization is a partnership; (F)

b.     51% of charter capital or more is held by the business organizations mentioned in Point a of this Clause; (F1)

c.      51% of charter capital or more is held foreign investors and the business organizations mentioned in Point a of this Clause. (F2)

 In brief, F and foreign investors will contribute capital, buy shares under ND 60. F1 and F2 can unlimitedly contribute capital, buy shares in public companies, securities-trading organizations and securities investment funds. It’s the difference between Law on Investment 2014 and ND 60. In my opinion, ND 60 must conform to Law on Investment 2014.

3.2.         Room in public companies:

a.     If an international treaty of which the Socialist Republic of Vietnam is a member contains provisions about foreign ownership ratio, the provisions of such international treaty shall apply.

b.     If public companies operate in business lines and sectors for which the laws have specific provisions on the foreign-ownership ratio, these specific provisions apply for them. If public companies operate in business lines and sectors, in which there have been conditions applicable to foreign investor, but there have been no specific provisions on foreign ownership ratio, the maximum foreign ownership ratio is 49 percent.

c.      If public companies operate in multi-business lines and multi-sectors; and there have been other regulations on foreign-investor ownership applicable to each business line and sector, the maximum foreign ownership ratio in these companies do not exceed the lowest level of a business line or sector provided in the regulations on foreign ownership, except for international treaties that have some other provisions.

d.     Except that cases, the foreign ownership ratio is not limited except the company charter has other provisions.

Nowadays, there are no legal normative document indicating what the condition investment, business lines applied to foreign investors are. Appendix 4 of Law on Investment 2014 is the list of conditional business, invesment lines. Is this list the same as list of condition investment, business lines applied to foreign investors as indicated in ND 60? I think this list can be applied to foreign investors because Foreign investors and F’s nvestment, business activities are regulated by Law on Investment 2014. Therefore, this list is applied to both Vietnames investors, foreign investors and foreign – invested business organization. In brief, clause b indicated above will be referred to list of conditional investment, business lines in Law on Investment 2014 (includes 267 conditional investment, business lines), in international agreement to which Vietnam is a member and in other legal normative documents by the National Assembly.

3.3.         Room in securities investment funds and securities - trading organizations:

       a. Foreign investors may own an indefinite amout of charter capital invested in securities – trading organizations, fund certificates invested in securities investment funds.

      b.  A foreign investor who is an organization under clause 10, article 71, ND 58 may own 100% ratio of charter capital invested in a securities – trading organization; establish a wholly foreign – invested securites – trading organization. In case a foreign investors who is an individual or not a organization under clause 10, article 71, ND 58 may only own below 51% charter capital invested in securities – trading organizations.

In brief, room in securities investment funds and securities - trading organizations is 100% if their owners allow that. However, if only one foreign investor who is an organization or an individual “control” securities – trading organizations, he must conform to clause b above.

      4. Conclusion

There are a lot of public companies which is full or ready to be full of room, such as: HCM, SSI, VNM, JVC, DHG, FPT, REE,..To know whether they can be allowed to open room or not, they must depend on some legal normative documents guiding ND 60, Law on Investment 2014. Only one thing is sure: public companies are securities – trading organizations allowed to open room up to 100% under General Meeting of Shareholders’s decision.