Finance Turns A Corner In Vietnam

Vietnam’s first Stock Exchange Center ("Center") was opened in Ho Chi Minh City on July 20, 2000. The event inaugurated the operation of a securities market in Vietnam. According to Decision No. 127/QD-TTg of the Prime Minister dated July 11, 1998, regarding formation of the Center, the State Securities Commission¹ ("SSC") is a non-business organization which receives its financial support from the State Budget.

There is not yet a securities law, as such. Basic rules for operation of the securities market are provided by Decree 48/1998/CP dated July 11, 1998, of the Government on securities and a securities market ("Decree 48"). In addition to Decree 48, there are regulations for particular activities, such as: listing, information announcements, trading, custody, clearing and registration, organization and operation of securities companies and securities investment funds and management funds, and foreign participation in the securities market. There are also circulars and decisions guiding the implementation of these regulations.

1. Issuance of securities.

Entities which want to be licensed to issue and sell securities through the Center, must meet the following requirements²:

i. To have a minimum legal capital of 10 billion Vietnamese dong³;

ii. Have been profitably operated for the past two consecutive years;

iii. Members of its Management Board and the director (or general director) must have adequate business management experience;

iv. To have a feasible plan to use the capital derived from the issuance of securities;

v. At least 20% of the issued securities must be sold to more than 100 outside investors; if the issued securities are valued over VND 1,000 billion, the rate will be 15%;

vi. The founders of the issuing organization must hold at least 20% of the organization’s securities, and this ratio must be maintained for at least three years from the date the securities are issued; and

vii. A securities issuing guarantee organization is required, except in case the organization issuing bonds is a credit organization, and in case the value of the issued shares are under VND 10 billion.

These requirements are considered difficult to meet, especially those specifying legal capital, past profitability, and the percent of shares which must be sold to outside investors. In Vietnam’s current economic situation, not many enterprises can meet these conditions. Moreover, there are entities which do meet the requirements but do not, in fact, wish to issue shares. However, according to SSC officials, strict requirements are necessary in order to protect investors and to guarantee that the Center operates safely and efficiently. The SSC’s strategy is that "the fledging securities market should be started with a limited number of qualified companies rather than with a large number of unqualified companies".

2. Securities trading.

Securities trading uses intermediaries. Inter-mediation is provided by securities companies which must be licensed by the SSC. These securities companies must be limited liability or joint stock companies. Credit organizations, commercial banks, investment banks, and insurance companies wishing to be involved in securities trading are required to establish independent securities companies.

To be licensed, securities companies must meet at least the following requirements⁴:

If a company wants to undertake more than one of the businesses mentioned above, it must have a legal capital which aggregates the amount of the parts.

Vietnamese overseas, foreign entities and individuals ("Foreigners") are entitled to participate in the securities market. However, there are some restrictions imposed on participation as follows⁵:

It appears at this early stage that most stocks are bought as soon as they are issued. In other words, the supply of stocks does not meet the demand in the market. However, according to officials, the SSC is considering licensing more companies to list their shares, and soon, perhaps, the supply will increase.

There are six licensed securities companies operating in the Center. The sense is that their operations have been effective thus far. Even so, the SSC is considering granting more licenses for trading securities in the Center.

Currently, two banks provide custodial services to foreign investors⁶.

According to recent interviews, many foreign investors say they prefer to wait before deciding whether to invest in the securities market. There might be two reasons to explain this situation:

i) the securities in the market are still not abundant, or ii) the restrictions on foreign participation are too severe.

The Vietnamese Government has a plan to develop the SSC’s operations further. In particular, in recent meetings between Deputy Prime Minister, Nguyen Tan Dung and the SSC’s Management Board, certain measures for development have been resolved, such as: permitting more stock companies including foreign stock companies to list and issue shares, establishing an over-the-counter (OTC) market, issuing more Government bonds, and opening another exchange center in Hanoi. As these objectives are met, the securities market in Vietnam should become more exciting.