This country-specific Q&A gives an overview of mergers and acquisition law, the transaction environment and process as well as any special situations that may occur in Vietnam.
It also covers market sectors, regulatory authorities, due diligence, deal protection, public disclosure, governing law, director duties and key influencing factors influencing M&A activity over the next two years.
This Q&A is part of the global guide to Mergers & Acquisitions. For a full list of jurisdictional Mergers & Acquisitions Q&As visit http://www.inhouselawyer.co.uk/index.php/practice-areas/mergers-acquisitions/
What are the key rules/laws relevant to M&A and who are the key regulatory authorities?
M&A transactions in Vietnam are primarily regulated by:
- the Law on Enterprises (2014) and its implementing legislation (the Law on Enterprises), from a general corporate law perspective; and
- the Law on Investment (2014) and its implementing legislation (the Law on Investment), from a general investment law perspective.
In the context of listed and other public companies, the Law on Securities (2013) and its implementing legislation (the Law on Securities) are of fundamental importance.
Other industry sector-specific laws also contain specific provisions regulating M&A transactions occurring within the relevant industry sectors, which are also of fundamental importance. Key examples include:
- the Law on Credit Institutions (2010) and its implementing legislation (the Law on Credit Institutions), in the context of the banking and finance sector; and
- the Law on Real Estate Business (2014) and its implementing legislation (the Law on Real Estate Business, in the context of the real estate sector.
International treaties of which Vietnam is a member are also crucial and must always be considered in relation to any Vietnam-based M&A transaction, including, most importantly, the market access commitments made by Vietnam to the WTO upon accession in 2006 (the WTO Commitments). In many cases the WTO Commitments are the key source of foreign ownership restrictions and related market access rules.
It is also often necessary for parties to consider other broadly-applicable laws such as the Law on Competition (2004) and its implementing legislation (the Law on Competition).
The key (but not the only relevant) regulatory authorities in relation to Vietnam-based M&A transactions include:
- the Ministry of Planning and Investment (at central Government level) (the MPI) and the various relevant Departments of Planning and Investment (at municipal or provincial level) (the DPI);
- the Ministry of Industry and Trade (at central Government level) (the MOIT) and the various relevant Departments of Industry and Trade (at municipal or provincial level) (the DOIT), as well as the Vietnam Competition Authority (the VCA), which falls under the jurisdiction of the MOIT;
- the State Securities Commission (the SSC), in the case of listed or other public target companies; and
- the State Bank of Vietnam (the SBV), which amongst other important functions regulates foreign exchange control in Vietnam.
What is the current state of the market?
The M&A market in Vietnam is strong and vibrant, notwithstanding its relatively small size in comparison with more developed markets.
Numbers and overall value of completed M&A transactions in Vietnam have grown steadily during the last two decades, and are expected to continue to grow strongly during 2017 and 2018 and beyond (particularly if the Trans-Pacific Partnership and the EU-Vietnam Free Trade Agreement are ratified and enter into force as anticipated).
The Vietnamese Government continues to achieve material progress in simplifying and streamlining administrative and regulatory procedures in Vietnam, which initiatives have made and are expected to continue to make material positive contributions to the strength and vibrancy of the Vietnam M&A market.
Which market sectors have been particularly active recently?
During 2016 to date, the following sectors have experienced a high level of M&A activity in Vietnam:
- real estate;
- wholesale and retail distribution;
- pharmaceutical; and
What do you believe will be the three most significant factors influencing M&A activity over the next 2 years?
In the view of Frasers Law Company, the three most significant factors which are likely to influence M&A activity in Vietnam during the next two years are:
- the tariff reductions and removal of investment barriers provided for under the Trans-Pacific Partnership and the EU-Vietnam Free Trade Agreement, assuming they enter into force as expected;
- the recent law which permits the increase of the available foreign ownership percentage of many listed and other public companies from 49% to 100%; and
- the continuing improvements made by the Vietnamese Government in areas such as:
- legislative clarity;
- consistency of legislative interpretation and application;
- streamlining and simplification of regulatory application procedures and approval times; and
What are the key means of effecting a merger?
Vietnamese law expressly recognises the concept of “...merger...” and “...consolidation...” transactions, which are directly analogous to the corresponding concepts in more developed jurisdictions.
In relation to acquisition transactions, Vietnam law expressly recognises the rights of investors (both domestic and foreign) to purchase from existing:
- shareholders of JSCs, fully paid-up shares; or
- members of LLCs, fully contributed charter capital.
What information relating to a target company will be publicly available and to what extent is a target company obliged to disclose diligence related information to a potential acquirer?
In the context of private companies, there is very little corporate information available in the public domain, and such information as is available is often not fully reliable or up-to-date.
In relation to all Vietnam-domiciled companies, the MPI does maintain a National Business Registration Portal, located at https://dangkykinhdoanh.gov.vn and https://fdi.dkkd.gov.vn/, from which the basic corporate particulars of any target company can be obtained.
There is also limited scope to conduct on the public record searches for particulars of the following in relation to any target companies:
- intellectual property rights registered with the National Office of Intellectual Property;
- secured transactions registered with the National Agency for Registration of Secured Transactions; and
- land use rights held by the target company over land located within Vietnam, including any security interests registered over such land use rights, as registered with each respective municipal or provincial Department of Natural Resources and Environment.
Reliable litigation searches are not possible to conduct in Vietnam.
Public companies are required to disclose publicly the following minimum information, which will generally be available online:
- audited financial statements;
- annual reports;
- information relating to meetings of the General Meeting of Shareholders;
- information relating to any securities offering and reports on the use of capital;
- information in relation to foreign ownership ratio; and
- information regarding the occurrence of irregular events in relation to capital, shares, shareholders, or important activities of the company.
Listed companies also have a wide range of obligations to make disclosures to one or more of the public, the SSC, and/or the stock exchange or securities trading centre on which their securities are traded, in relation to matters such as major corporate actions, major securities transactions, actions of major shareholders, and other types of market-sensitive information. Such disclosed information will generally be available online.
To what level of detail is due diligence customarily undertaken?
Where the target company is public, the normal (but not universal) position is for vendors to be expected to rely upon the information publicly disclosed by the target company.
Where the target company is private, the conduct of legal due diligence investigations, to a degree of detail which is similar to the norm in more developed jurisdictions, is now commonplace.
Domestically-owned Vietnamese companies normally insist upon physical data room arrangements and are highly sensitive to confidentiality concerns (to a degree which is materially higher than the norm in more developed jurisdictions), and normally do not allow any copies of documents to be taken.
What are the key decision-making organs of a target company and what approval rights do shareholders have?
In Vietnam, there are three basic forms which any Vietnam-domiciled company may take, namely:
- a JSC;
- an LLC with one member (an LLC1); or
- an LLC with two or more members (an LLC2).
In the case of a JSC, the governance and management structure is similar to that of companies domiciled in many more developed jurisdictions, and involves:
- a General Meeting of Shareholders, being the highest decision-making body of the JSC;
- a Board of Management, being a governance body which is elected by the General Meeting of Shareholders and subordinate only to the General Meeting of Shareholders;
- a General Director, being the most senior executive manager of the JSC and reporting to the Board of Management; and
- an Inspection Committee, which performs a supervisory function and reports to the General Meeting of Shareholders.
In the case of an LLC1, the governance and management structure involves:
- at the election of the owner, either a sole President (being the sole “Authorised Representative” of the owner) or a Member’s Council consisting of two or more “Authorised Representatives” of the owner – in each case, empowered to make decisions on behalf of the owner;
- a General Director (having functions being substantially similar to those of the General Director of a JSC); and
- an Inspection Committee (which is only compulsory in some cases) and has functions being substantially similar to those of the Inspection Committee of a JSC).
In the case of an LLC2, the governance and management structure is substantially similar to that of an LLC1, except that a Members’ Council (as opposed to a sole President) governance structure is mandatory.
The Law on Enterprises reserves for the shareholders or members exclusive decision-making powers in relation to a range of key corporate matters, which generally include (with differences, depending upon the form of the target company):
- high-level strategic direction;
- amendments to or supplementation of the charter;
- increase or decrease of the registered charter capital;
- transactions having a dilutive effect on equity, voting rights, or profit distribution rights;
- merger, consolidation, separation, or other restructuring;
- liquidation and dissolution;
- declaration of dividends or profit distributions;
- election, removal, or replacement of Board representatives (in the case of a JSC only);
- high-value related party transactions; and
- high-value investments, acquisitions, asset disposals, or other contractual commitments.
In most cases, target company shareholder or member approval is not required at law in respect of M&A transactions, except that in the case of an LLC2, the other members have pro rata pre-emptive rights to acquire any contributed charter capital which any member proposes to sell.
Do employees/other stakeholders have any specific approval, consultation or other rights?
As a general proposition, no (with limited exceptions).
What regulatory/third party approvals are required and what waiting periods do these impose, if any?
In the context of private target companies, it is often necessary for the target company to apply to the DPI for the issuance of an “M&A Approval” as a condition precedent to any M&A transaction involving a foreign purchaser, the statutory processing time for which is 15 business days.
In many cases, an M&A transaction will necessitate amendments to the enterprise registration certificate and/or investment registration certificate held by the target company or its investors, the statutory processing time for which ranges from three to 15 business days in most cases (and in many cases may be attended to as a condition subsequent without risk to the purchaser).
VCA approval is required, from a Law on Competition perspective, in the context of major “economic concentration” transactions.
In many cases, there will be deal-specific or sector-specific regulatory approvals which must be obtained. Careful case-by-case analysis of the necessary approvals is always of fundamental importance.
Statutory processing times in Vietnam only commence once the relevant State authority has issued an official receipt for the relevant application dossier, which it will only do once it is satisfied that the application dossier is complete and compliant (which often takes material time to achieve).
To what degree is conditionality an accepted market feature on acquisitions?
Historically, Vietnamese domestic vendors have been resistant to conditionality. Nowadays, however, conditionality is commonplace and increasingly accepted.
What steps can an acquirer of a target company take to secure deal exclusivity?
Exclusivity is commonly provided for in the form of binding memoranda of understanding or equivalent. The vendor will usually insist upon the lodgement of a deposit in order to secure exclusivity.
What other deal protection and costs coverage mechanisms are most frequently used by acquirers?
Which forms of consideration are most commonly used?
Cash is the most common form of consideration used in Vietnam-based M&A deals, although consideration in the form of share or equity swaps is becoming increasingly common.
At what stages of an acquisition is public disclosure required (whether acquiring a target company as a whole or a minority stake)?
Where the target company is public, disclosure to the public is generally required within seven business days after completion (subject to a number of additional case-specific rules).
Where the target company is private, disclosure to the public is generally not required (except that any consequential amendments to the business registration particulars of the target company must be published on the National Business Registration Portal within 30 days as from the date of the change taking effect).
Are there any circumstances where a minimum price may be set for the shares in a target company?
There are generally no specific rules in Vietnam as to the minimum price for shares or contributed charter capital which may be offered or paid in the context of M&A transactions (although minimum offer price rules do apply in the context of new share issuances).
There are, however, price-related rules which apply in the context of listed companies, for example:
- minimum offer price rules which apply in respect of mandatory public offer transactions; and
- transactions proposed to be implemented at prices falling outside of the allowable “trading band” set by the relevant stock exchange require the specific approval of the SSC on a case-by-case basis.
As a general proposition, it is normally considered to be undesirable for shares or contributed charter capital to be transferred at lower than registered par value or actual contribution value (due to the scrutiny which will invariably be placed on any such transactions by the Vietnamese tax authorities).
Transfers at market value have the benefit of minimising the likelihood of scrutiny by the tax authorities.
Is it possible for target companies to provide financial assistance?
As a general proposition, Vietnamese law does not prohibit the provision by target companies of financial assistance, except in the case of securities or fund management companies licensed to conduct business under the Law on Securities.
Which governing law is customarily used on acquisitions?
Vietnamese law is in most cases used to govern definitive transaction documents in the context of Vietnam-based M&A transactions. Although the choice of foreign governing law is in some cases possible, for a number of reasons such choice is usually undesirable.
What public-facing documentation is it necessary for a buyer to produce in connection with the acquisition of a listed company?
Where the purchaser is required to implement a mandatory public offer in relation to shares in a public target company, the purchaser is required to prepare, have approved by the SSC, and then publish a standard-form offer document, which sets out all of the key particulars of the purchaser and the offer.
Where the purchaser is already (or post-acquisition will become) a “major shareholder” (that is, holding 5% or more of the issued voting share capital) of a public company, the purchaser is required to prepare and then disclose publicly a standard-form disclosure document setting out the key particulars of the purchaser and the shares having been acquired.
What formalities are required in order to document a transfer of shares, including any local transfer taxes or duties?
In the case of private JSCs, transfers of shares require the following documentation:
- a share sale and purchase agreement; and
- the updating of the target company’s register of shareholders.
In the case of public JSCs:
- the Vietnam Securities Depository (VSD) maintains an electronic share registry and clearance system, through which the transfer of shares is implemented; and
- transfers of shares require the updating of the target company’s electronic register of shareholders, as maintained by the VSD (as opposed to hard copy documentation) – although a share sale and purchase agreement is necessary in respect of “off-market” transactions.
In the case of LLCs, transfers of contributed charter capital require:
- a charter capital sale and purchase agreement; and
- the amendment of the enterprise registration certificate of the target company to register the particulars of the purchaser.
No stamp duty exists in Vietnam in relation to M&A transactions. There is, however, “capital transfer tax” payable on transfers of shares or equity interests, payable either at the rate of 0.1% of the total transfer consideration or 20% of the capital gain realised by the vendor on the transfer, depending upon the circumstances (with certain exceptions in limited situations). Before any proceeds of any M&A divestment transaction may be repatriated outside of Vietnam by any foreign-domiciled vendor, “tax clearances” must be procured from the Vietnam tax authorities.
Are hostile acquisitions a common feature?
Hostile acquisitions can and do occur in Vietnam, but are not particularly common in comparison with more developed jurisdictions.
What protections do directors of a target company have against a hostile approach?
Directors of target companies in Vietnam have very little by way of legislative protections against hostile approaches, with the key exception of the mandatory public offer rules referred to in paragraph 23 below.
Are there circumstances where a buyer may have to make a mandatory or compulsory offer for a target company?
A mandatory public offer must be made in circumstances where the target company is public and the purchaser:
- proposes to offer to purchase voting shares leading to ownership of 25% or more of the issued voting share capital;
- already holds (collectively with its affiliates and related parties) 25% or more of the issued voting share capital, and proposes to acquire a further 10% or more of the issued voting share capital; or
- already holds (collectively with its affiliates and related parties) 25% or more of the issued voting share capital, and proposes to acquire a further 5% or more but less than 10% of the issued voting share capital within one year of having completed any previous acquisition of voting shares.
If an acquirer does not obtain full control of a target company, what rights do minority shareholders enjoy?
Minority shareholders or members always have the rights to:
- receive notice of and briefing materials in relation to any meetings of the General Meeting of Shareholders or Members’ Council of the target company;
- attend meetings of the General Meeting of Shareholders or Members’ Council and cast votes;
- gain access to the minute book of the General Meeting of Shareholders or Member’s Council in order to inspect the same; and
- participate on a pro rata basis in any issuances of new shares of the same class or increases in the registered charter capital of the target company.
In the context of JSCs, any shareholder or group of shareholders holding 10% or more of the issued voting share capital for a period of at least six consecutive months is entitled to:
- nominate candidates for election to the Board of Management or Inspection Committee;
- obtain access to and take extracts from the minute book of the Board of Management, the annual and mid-year financial reports of the target company, or the reports of the Inspection Committee;
- request the convening of extraordinary meetings of the General Meeting of Shareholders in certain circumstances; or
- request the Inspection Committee to investigate specific matters relating to the management or operation of the target company.
Specific minority shareholder protections may of course be provided for in the charter of any target company.
Is a mechanism available to compulsorily acquire minority stakes?
In the context of a mandatory public offer in relation to a public target company, where the mandatory public offer results in the purchaser holding 80% or more of the issued voting share capital, the remaining shareholders may (but are not obliged to) require the purchaser to continue to acquire up to 100% of the issued voting share capital on the same terms as the terms of the mandatory public offer.
There is, however, no Vietnamese law which compels any minority shareholders or members to sell their shares or equity interests to any majority shareholder or member.