For a brief moment I want to discuss the capital markets of Vietnam, mainly the stock market, and what a person can expect from a company prior to listing.
The Law on Securities 2019, includes a list of certain requirements that must be met before a company can issue shares to the public. Public offerings include initial public offerings, follow-on offerings of shares or pull options, and other types of offerings.
Shares offered publicly in the territory of Vietnam must be denominated in Vietnam Dong and have a face value of 10,000VND. If the value of the securities on the trading system is lower than the face value, then the shares may be offered at that lower value. Only joint stock companies can make public issuance of shares in Vietnam.
In order to be allowed to issue shares publicly, the issuer must meet the following requirements in general:
- Its contributed charter capital is at least 30 billion VND on the offering date according to the accounting books;
- The company has profit over the last 02 years and has no accumulated loss on the offering date;
- There is a plan for issuance and use of capital generated by the offering ratified by the General Meeting of Shareholders;
- At least 15% of its voting shares have been sold to at least 100 non-major shareholders. If the issuer’s charter capital is 1.000 billion VND or above, the ratio shall be 10%.
- Before the offering date, the major shareholders have made a commitment to hold at least 20% of the issuer’s charter capital for at least 01 year from the end of the offering;
- The issuer is not undergoing criminal prosecution and does not have any unspent conviction for economic crimes;
- The offering is consulted by a securities company, unless the issuer is already a securities company;
- The issuer has a commitment to have its shares listed or registered on the securities trading system after the end of the offering;
- The issuer has an escrow account to receive payments for the offered shares.
In order for the issuer to make a follow-on public issuance of shares, the joint stock company must meet the additional requirements:
- In order to make follow-on offering, a public company (the issuer) shall satisfy the following requirements;
- a) The company has profit in the preceding year and has no accumulated loss on the offering date;
- b) The value of the new shares does not exceed the total value of shares outstanding at their face value, unless there is a commitment to buy all of the shares of the issuer for reselling or to buy all of the unsold shares of the issuer, shares issued to raise more capital from equity, shares issued for swapping, consolidation or acquisition of enterprises;
- d) If the public offering is meant to raise capital to execute a project of the issuer, at least 70% of the offered shares must be sold to the investors. The issuer shall have a plan to make up for the shortage in case the capital generated by the offering is inadequate.
Companies seeking to make a public offering must register with the State Securities Commission. An application for registration of public offering consists of
- The application form;
- The prospectus;
- The issuer’s charter;
- The decision of the General Meeting of Shareholders to ratify the plan for issuance and the plan for use of capital generated by the offering, and the commitment to have the shares listed or registered on the securities trading system;
- The commitment to comply with the regulations in Point d and Point e Clause 1 Article 15 of this Law;
- The major shareholders’ written commitment to hold at least 20% of the company’s charter capital for at least 01 year from the end of the offering;
- The contract with a securities company for public offering consulting;
- A bank’s or FBB’s confirmation on opening of an escrow account to receive payments for the offered shares;
- The public offering underwriting agreement (if any).
I’ll stop there lest I give away all of our secrets, but there are a large number of additional requirements for companies who seek to make public offerings included in this list. For instance, both the charter of the issuer and the prospectus must include certain minimum obligations on the part of the issuer, obligations which detail the corporate governance, the purpose for which the funds raised by the issuance will be used, and several other essential points.
While Vietnam has progressed considerably in its public regulation of listing companies, there remains a vast scope for increased scrutiny, especially in light of recent issues with large development companies overburdened with debt and efforts to manipulate certain stocks for the profit of a small number of investors.
It may be a few more years before we get the next installment of the securities law, there remain a great many things the SSC can do to improve its oversight of publicly listed companies and ensure the fairness of information sharing that will allow investors to understand the true issues related to a given company.