Vietnam fine-tunes laws to aid business, investment

New provisions on non-voting depositary receipt proposed in the draft amendments of the Law on Enterprises that have been released recently will encourage companies in Vietnam to raise capital from foreign investors.

Under the current legal regulations, if a public company operates in a conditional business line with conditions applicable to overseas investors such as banking industry, but there is not yet any specific provision on foreign ownership ratio, the maximum foreign ownership ratio is capped at 49 percent.

However, if the investors own non-voting depositary receipt mentioned in the draft amendments of the Law on Enterprises, it will not amount to an increase in the ownership ratio of a particular public company, so foreign funders will have an option to invest further in a public company.

The draft amendments of the Law on Enterprises provide that when ordinary shares are deposited to issue non-voting depositary receipt, owners of such non-voting depositary receipt will have full rights and obligations with respect to such ordinary shares, except for voting rights.

In other words, when investors invest in NVDR, they would receive the same financial benefits, including dividends, right issues or warrants, as ordinary shareholders, except for voting rights.

In addition, voting for ordinary shares that are deposited to issue non-voting depositary receipt will comply with the company’s charter and the provision under the Law on Securities, as applicable.

Besides the amendments of the Law on Enterprises, the modifications of the Law on Investment will also ease investment in the country as it separates the investment conditions into two groups.

These are business investment conditions, which apply to the operation of an investment project; and market access conditions for foreign investors, which apply to such investors who wish to invest in sectors or industries that attract market access restrictions.

Accordingly, overseas investors will no longer be required to obtain merger and acquisition approval when they acquire a stake in a local company.

No discrimination

To optimize the foreign capital investment inflow, the Vietnam Association of Financial Investors (VAFI) recommended that foreign investors founding business or holding controlling stakes at firms in Vietnam under the Law on Enterprises and the Law on Investment should be regarded as domestic investors.

In addition, the regulation on caps on the ownership of foreign investors could not limit the reception of technology and capital from the foreign investors, VAFI said, urging the government to issue a new list of business lines requiring foreign ownership caps.

VAFI estimated that around 80 percent of existing business lines with foreign ownership caps should be removed.

Singapore is one of the largest financial centers in Asia because its Law on Enterprises treats all investors equally, the association said.

VAFI said that the development of the Vietnamese economy and business community was entering a more intensive period in the technology-driven era, requiring management to be more facilitating.

“The government should regard amending the investment and business laws to be a revolution,” VAFI said.

The association said that the draft law which was recently made public for consultation did not really create changes to bring benefits to the economy and the business community, urging more amendments.

The laws must create framework that helps attract more foreign capital and technology, the association said, adding the procedures for setting up businesses must be simplified.