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Official Gazette

Thursday, December 3, 2020

Public companies no longer allowed to decide on foreign holding caps

Updated: 13:52’ - 04/11/2020
The State Securities Commission (SSC) has recently proposed abolishing a regulation permitting public companies to provide the maximum foreign ownership rate in their company charters.

Such proposal is included in a draft decree guiding the 2019 Securities Law which will come into force next year.

As explained by Bui Hoang Hai, director of the SSC’s Securities Issuance Management Department, the proposal is made with a view to improving transparency in the securities market. “Once intending to pour money into Vietnam, foreign investors have to do a lot of market researches and submit investment plans to many managers. However, it may happen that after they decide to invest in a certain company, that company tightens its foreign holding cap, making the foreign investors incapable of accessing the company,” Hai said on vietnamfinance.vn.

According to Hai, this will make foreign investors judge Vietnam as ambiguous in foreign ownership, causing difficulties to their access to investment opportunities.        

The SSC representative also revealed that the proposal was designed based on the Investment Law and Law on Enterprises.

“The Investment Law has a provision saying that except the cases specified in treaties or agreements [which Vietnam has acceded to or signed] and sectors and trades subject to conditional investment, foreign investors are free to access the market like their local rivals,” Hai stressed.

“We believe that the adjustment we made is conformable with law,” the SSC official affirmed.

However, the SSC’s proposal is strongly opposed by many enterprises, especially banks.

According to the Vietnam Banks Association (VBA), current regulations do not set a specific foreign holding rate in commercial banks but only set a maximum cap and allow each bank to decide on a specific rate below such cap.

“The deprivation of the right to decide on the foreign ownership cap would make commercial banks lose their great objectives in seeking and approaching long-term and strategic investors,” VBA expressed their opinion on the SSC’ proposal.

Commenting on the proposal, economist Nguyen Duc Kien said the draft decree did not take into account specific characteristics of the banking sectors and “this is unreasonable”.

Meanwhile, banking expert Nguyen Tri Hieu said: “This regulation infringes upon enterprises’ right of self-determination. Moreover, as banking is a sensitive sector, foreign shareholders need to be carefully selected and approved by managing authorities so as to avoid adverse impacts on national financial security. The complete open of foreign “room” might make it hard to control big shareholders involving foreign elements.

The SSC’s proposal has been tabled to the Ministry of Justice for appraisal.- (VLLF) 
 

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