Bottleneck stymies Vietnamese firms from raising foreign shareholding

Effective since September 2015, Decree 60/2015/ND-CP has paved the way for listed Vietnamese firms to raise the FOL from 49 percent to 100 percent. Under the decree, if the company operates in a business that is eligible for unrestricted foreign ownership and it wants to raise FOL, it simply needs to submit an application to the State Securities Commission.
The policy was expected to have a major positive impact on the development of the securities market and promote private equity activity in Vietnam as it would enhance liquidity of the country’s stock markets and facilitate the exit strategies through listings.
Right after the decree took effect, SSI was the first public company to lift the foreign shareholding to 100 percent in September 2015. However, SSI was among a few companies whose FOL has been lifted to date.
Three years after the decree took effect, there are only 30 out of 740 listed companies that have opened themselves completely to foreign investment. The firms which have relaxed their caps on foreign stakes are operating mainly in the securities, food and pharmaceutical industries, such as Vinamilk, PAN Group, Vinh Hoan Corporation, DHG Pharmaceutical, Domesco Medical Import Export JSC, Saigon Securities Inc, Ho Chi Minh Securities Company and Bình Minh Plastics Company.
Meanwhile, it is undeniable that relaxation on foreign ownership limit has contributed to success of state capital divestments in Vinamilk, Binh Minh Plastics Co and Sai Gon Alcohol-Beer- Beverage Corp (Sabeco). It has also helped improve business transparency and efficiency over time.
Besides, local businesses will also be supported to build a more global development strategy with foreign capital, such as Thai Beverage promising to bring Sabeco’s products to the regional markets.
Policy hindrance
According to experts, the slow progress has dampened the enthusiasm of overseas investors, who have waited a long time to invest in good-quality Vietnamese firms.
Pham Hong Son, vice chairman of the State Securities Commission, attributed the slowness to the current legal regulations.
According to Son, most of public companies register many business lines, including conditional business lines. However, some conditional business lines haven’t got regulations on FOL. The companies thus will have to eliminate some business lines if they want to raise foreign ownership limit, such as the case of DHG Pharmaceutical, which had to give up drug distribution business line to satisfy conditions for raising foreign stakes.
Meanwhile, according to Pham Tien Dung, deputy head of analysis division at Bao Viet Securities Company, in the short term, the elimination of some business lines will make these companies lower business plans.
The regulation on conditional business lines thus makes many companies hesitate when deciding to lift their caps, Son said.
Besides, Son said, under the Law on Investment, a company will be treated as a foreign one if its foreign shareholding is higher than 51 percent. It means the company will be limited to foreign room when investing, contributing capital or buying shares in other companies.
This regulation forces companies to be reluctant when deciding to lift the foreign shareholding, Son noted.
To deal with the shortcomings, industry insiders expected besides the revision of the Law on Securities, competent ministries and agencies will also issue a detailed list of FOL applied for conditional business conditions to ease public companies in lifting their foreign shareholding.