Vietnam: New Circular On Ratio Of Foreign Participation In The Securities Market In Vietnam

Written by Dao Nguyen (Partner) and John Hickin (Solicitor)

To provide guidelines for the implementation of Decision No. 146/2003/QD-TTg Regarding The Ratios Held By Foreign Parties In The Vietnamese Securities Market of the Prime Minister dated 17 July 2003, on 12 December 2003 ("Decision 146"), the Ministry of Finance released Circular No. 121/2003/TT-BTC ("Circular 121").

The following are some issues addressed by Circular 121.

Under Circular 121:

(a) Foreign organisations and individuals include:

• organisations established under foreign laws;

• foreign parties to foreign-invested enterprises in Vietnam (which include: joint venture companies and wholly foreign-owned enterprises. It is unclear whether foreign parties to business co-operation contracts will also be regarded as foreign invested enterprises, and thus, be subjected to the regulation of Circular 121);

• foreign individuals; and

• Vietnamese residing abroad permanently;

(b)  Listed shares of an issuer are shares, which have been issued and listed in the centralised trading market;

(c)  A joint venture securities company is a securities company established based on a joint venture agreement between a foreign securities trading organisation(s) and a Vietnamese partner(s) under an establishment license issued by the State Securities Commission;

(d)  A joint venture fund management company is a company established based on a joint venture agreement between a foreign securities trading organisation(s) which is licensed to operate in fund management and a Vietnamese partner(s) under a licence issued by the State Securities Commission; and

(e)  Circulated bonds are bonds which have been issued and listed in the centralised trading market.

Circular 121 permits foreign organisations and individuals purchasing and selling shares in the Vietnamese securities market to hold no more than 30% of the total listed shares of an issuer. In case they are holding in excess of 30%, they may not purchase any additional shares and have to sell the excess shares until the 30% ratio requirement is met. No limitation in terms of the ratios of circulated bonds is imposed on foreign organisations and individuals purchasing and selling circulated bonds of an issuer. However, if a foreign investor owning convertible bonds converts his bonds into shares, the 30% limit as mentioned above must be complied with. So far, under Circular No. 01/1999/UBCK1 dated 30 December 1999 ("Circular 01"), foreign organisations and individuals have been permitted to hold only up to 20% of the total circulated shares of an issuer and up to 40% of the total circulated bonds.

Further, the ratio of equity contribution by a foreign securities trading organisation to a joint venture securities company or a joint venture fund management company is increased from 30% to 49% of the joint venture charter capital. Any change in the ratio and assignment of the contributed equity shall be decided by the joint venture Board of Management and must be reported to the State securities Commission. This ratio is no more than 30% under Circular 01.

Circular 112 will become effective 15 days from the date of its publication in the Official Gazette (which at the time of this Legal Update has not yet been made) and will replace Circular No. 01.

The content of this article does not constitute legal advice and should not be relied on in that way. Specific advice should be sought about your specific circumstances.