The proposal was made in the revised draft Securities Law, which has been made public recently by the State Securities Commission (SSC) for comment before being submitted to the National Assembly for approval due in the last quarter of 2019.
Foreign portfolio investment in local stock markets was US$34.2 billion at the end of July
Under the draft law, there will be no cap on foreign ownership at the companies, except for some cases, which relate to either international treaty with Vietnam being a member or other specialized laws regulating lower foreign ownership limits.
Under the current law, foreign investors are permitted to hold 49 percent of public companies’ charter capital at the maximum. If the companies want to lift the ratio to 100 percent, they have to get approval from its shareholders.
According to experts, besides easing foreign investments in the listed companies, the new regulation, if being approved, will also help shares of many Vietnamese companies to be qualified to join the Morgan Stanley Capital International (MSCI) Index of emerging markets.
Regulations on foreign ownership limits are also considered main causes hindering Vietnam’s stock market to be upgraded its status from a frontier market to an emerging market.
In June, MSCI has decided to hold Vietnam’s status in the equity market in the Frontier Markets Index until 2019, noting that the promotion of the Vietnamese equity market will depend largely on the improvement of five items including foreign ownership limits.
Fine-tuned framework for sustained growth
The revised draft law is also aimed to streamline legal framework for the sustained development of the country’s stock market, ensuring it to meet international rules and become a key channel for mobilizing medium and long-term capital.
The 2006 Securities Law, amended for the first time in 2010, was introduced in the context of the small-scaled securities market. The law has created the legal corridor to enable the stock market to grow in the past 11 years but is also gradually exposing shortcomings along with its rapid expansion.
According to Vu Thi Chan Phuong, SSC’s vice chairwoman, the update on the Securities Law at the current time is necessary given that the country’s laws on investment, inspection, civil code and handling of administrative violations were revised and promulgated which have related to the implementation of the Securities Law such as the ownership of foreign investors, corporate governance, inspection authority and administrative sanction.
Besides, Phuong said, the amendments of the law will demonstrate the policies and guidelines of the government in restructuring financial markets, state-owned enterprises, creating favorable investment environment for all investors and enhance transparency for businesses.
Under the draft law, regulations on initial public offering (IPO) and extra offering conditions are separated to make it accord with international rules.
As for IPO, the new law regulates that at least 20 percent of the charter capital of the issuing organization must be sold to at least 100 investors, who aren’t shareholders owned more than 1 percent of the organization’s charter capital.
In case the organization’s charter capital of the issuing is more than VND100 billion (US$4.25 million), the minimum ratio is 15 percent of the organization’s charter capital. If the organization’s charter capital is more than VND1 trillion (US$42.55 million), the minimum ratio is 10 percent.
As for private placement, qualified participants include strategic investors and professional securities investors, of which the minimum timing to hold the companies’ stake required for the investors is three years and one year, respectively.