Ever since the stock exchange opened in the late 1990s, the procedures for private share placement in Vietnam have been divided between public companies and privately held companies. For publicly held companies the process has always been somewhat onerous in an effort to dissuade them from conducting private share placements. It has always, however, been governed by the extant Securities Law and remains the same. For privately held companies the process was unlimited–other than by restrictions placed on M&A approvals–for most of their history in the country. From 2010 to 2012, however, an impressive array of restrictions were imposed on private companies private share placements in Vietnam. This was quickly seen as limiting the freedom of privately held companies to raise capital and to lure investors and, as the brief two year period tells, was repealed in 2012. There exists, now, no substantial restrictions for conducting private share placement in Vietnam, at least not for privately held companies.
While the previous Securities Law controlled private share placements for public companies under the law itself and a subsequent decree, the new Securities Law–passed last year and coming into effect from January 1, 2021–is the only issued guidance so far for the new securities regime. The old Securities Law remains in place for a few more months, therefore, this article will review the old law briefly before focusing on the new law’s regulations with the anticipation of making this post slightly more evergreen than it might be otherwise.
WHAT IS A PRIVATE SHARE PLACEMENT IN VIETNAM
A private share placement in Vietnam is, as it states, not a public share placement. To understand this, public share placements are those made through mass media, to at least 100 investors not being professional investors (see definition below). In contrast, private share placements are not made on mass media and are offered to fewer than 100 investors, not being professional investors, or only made to professional investors.
PRIVATE SHARE PLACEMENT IN VIETNAM UNDER THE OLD LAW
Under the old law, the first requirement for making a private share placement in Vietnam is to obtain a decision of the General Meeting of Shareholders, the GMS, of the company. This decision must include a capital utilization plan which itself includes:
specify the objective, eligible investors or the criteria for selection of eligible investors, the number of investors and the scale of the proposed offer
The buyers of such privately placed shares must enter a one year lockup period, except for shares offered as part of a ESOP, and subsequent tranches of a share placement cannot take place sooner than six months after the last tranche was offered. Additional restrictions are imposed on foreign ownership ratios and restricted business lines. The only restriction, other than foreign ownership limits, on who may purchase privately placed shares is a prohibition against the private placement of shares to a subsidiary company of the seller.
In addition to a regular private share placement, the current (old) law provides for private placement of shares for the purpose of making an equity/debt swap and for the exchange of shares in another company. I won’t go into either of those restrictions here as they are tangential and will become obsolete in a matter of two and a half months.
PRIVATE SHARE PLACEMENT IN VIETNAM UNDER THE NEW LAW
First off, the new law specifically states that private share placement in privately held companies is governed under the Enterprise Law and does not fall under the purview of the Security Securities Commission, the SSC. The new law divides the private placement of shares from various types of bonds, debt, and other valuable papers of public companies, securities companies, and fund management companies–all of which fall under the jurisdiction of the SSC. For now, and for comparison’s sake, I’m just going to look at the private placement of shares in Vietnam by public companies.
Like the old law, the new law requires a decision of the GMS that:
ratif[ies] the plan for issuance and the plan for use of capital generated by the private placement with specific criteria and quantity of investors
Further guidelines on what this plan from the GMS must contain are forthcoming. However, it is important to note that the private share placement in Vietnam is limited to strategic investors and professional investors.
A strategic investor an
investor. . . selected by the General Meeting of Shareholders according to their financial capacity, technological capacity and commitment to cooperate with the building work for at least 03 years.
While a professional investor includes:
- Commercial banks, foreign branch banks, finance companies, insurers, securities companies, fund management companies, securities investment funds, international financial institutions, off-budget financial funds, state-owned financial institutions permitted to buy securities as prescribed by relevant laws;
- Any company whose contributed charter capital exceeds 100 billion VND; every listed or registered organization;
- Holders of securities professional certifications;
- Any individual holding a quantity of listed or registered securities that is worth at least 02 billion VND as confirmed by the securities company; or
- Any individual whose taxable income in the latest year is at least 01 billion according to his/her submitted tax return or tax deduction documents of his/her income payer.
By restricting private share placements to strategic and professional investors, the new securities law not only provides an innovation for Vietnam while bringing standards closer to international levels, but also provides protections for smaller investors in the country where prohibitions against over leveraged investments are not existent.
Additional restrictions include a lockup period of three years for strategic investors and one year for professional investors, though this may be escaped through judicial or arbitral order or through inheritance upon the investor’s death. Tranches must be spaced at least six months apart and stated ownership ratios, including those for foreign ownership and restricted business lines, must be respected.
Private share placement in Vietnam, then, is fairly straightforward. There is, as of now, no extra-company approval required other than those currently in place for the approval of M&As under the new Competition and Investment Laws. There are, however, new restrictions on who can buy private share placements without the additional protections that exist for public share purchases though official securities markets. It is possible, however, to do, and for some public companies, especially those seeking a strategic handshake with foreign investors, it is more desirable to make a private share placement than jumping through the hoops required to make a public acquisition. It is still tricky, however, and all of the rules have yet to be promulgated for the new Securities Law.
As always, if you need help making a private share placement in Vietnam, please feel free to contact your attorney on staff or go to our website at www.indochinecounsel.com to contact us afresh.