1. What are the key rules/laws relevant to M&A and
who are the key regulatory authorities?
There is no single document regulating M&A activities in
Vietnam. The relevant rules are contained in several laws and
regulations governing general corporate and investment issues.
These laws and regulations include:
" Investment Law No. 61/2020/QH14 and Enterprise Law No.
59/2020/QH14 issued by the National Assembly on 17 June 2020, and
their guiding documents, namely Decree No. 01/2021/ND-CP and Decree
No. 01/2021/ND-CP. These laws set out the general legal framework,
conditional sectors and investment procedures. The authorities
responsible for enforcing these laws are the:
" Prime Minister;
" local People's Committee;
" Ministry of Planning and Investment;
" Ministry of Industry and Trade;
" Ministry of Health; and
" Other ministries depending on the business activities of the
target companies.
" Law on Securities No. 54/2019/QH14 issued by the National
Assembly on 26 November 2019, and its implementing documents, in
particular Decree No. 155/2020/ND-CP issued by the Government on 31
December 2020. This Law regulates the acquisition of shares in
public and private companies in Vietnam, including public tender
offers. The authorities responsible for enforcing the Law include
the:
" State Securities Commission (SSC);
" Vietnam Securities Depository Centre; and
" Ministry of Planning and Investment.
" Competition Law No. 23/2018/QH14 issued by the National
Assembly on 12 June 2018, which is enforced by the Vietnam
Competition Authority (VCA). Under this Law, any M&A
transaction that causes or may likely cause substantial
anti-competitive effects on the Vietnamese market will be
prohibited.
" Foreign exchange regulations. An investment capital account
in Vietnamese dong is a condition, among others, for capital
contribution/share purchase or subscription. These regulations are
enforced by banks and the State Bank of Vietnam.
" Vietnam's WTO Schedule of Specific Commitments on
Services. This sets outs the ratio of shares that can be owned by
foreign investors in various specific sectors.
" Other specific regulations for the acquisition of shares in
Vietnamese companies operating in special sectors, such as banking
and finance, insurance, and so on. These sectors are highly
regulated by the relevant authorities.
2. What is the current state of the
market?
Vietnam has remained an attractive destination for foreign
investors: In 2021, the total registered FDI capital to Vietnam was
USD31,15 billion, an increase of 9,2% compared to 2020 despite
continuous waves of different Covid-19 variants. Investment in the
form of capital increasement is increased dramatically by 40,5%
compared to 2020, suggesting the continuing satisfaction of current
foreign investors who have been doing business in Vietnam. Foreign
investors contributed capital to domestic enterprises mainly in the
field of processing technology and manufacturing (USD 18,q billion)
as well as water and energy sector (USD 5,7 billion), real estate
(USD 2,6 billion), retail and wholesale (USD 1,4 billion). Main
investors still come from Japan, Korea, Singapore, and China.
The main drivers of Vietnam's M&A market are:
" Privatization of state-owned enterprises (SOE). According to
Resolution No. 01/NQ-CP issued by the Government in 2021, one of
the key tasks in 2021 was to continue strengthening the
restructuring, equitisation and divestment of SOEs. The government
also aims to publicize equitized enterprises that are eligible but
are not listed nor registered for trading on the stock
market.
" Trade liberalization as a result of CPTPP, EU- Vietnam FTA,
and so on.
" Resolution No. 42 on pilot program of handling bad debts of
credit institutions is also the main driving force of M&A in
real estate sector as bad debts in real estate sectors accounts for
a high percentage of the total bad debts in Vietnam's
market.
Major deals:
" On 28 October 2021, Sumimoto Mitsui group (Japan) bought 49%
shares in FE Credit, a subsidiary of VPBank.
" In June 2021, Alibaba and Baring Private Equity Asia
invested USD400 millions into The CrownX, acquiring 5,5%
stake.
" On 9 October 2021, Thaco Group (Vietnam) acquired 100% stake
in Emart supermarket chain in Vietnam of Emart Group (Korea)
3. Which market sectors have been particularly active
recently?
" Processing technology and manufacturing
" Renewable energy
" Water and waste treatment
" Pharmaceuticals
" Consumer retails
" Real estate
4. What do you believe will be the three most
significant factors influencing M&A activity over the next 2
years?
The country's deeper and wider integration into the world's
economy is offering new opportunities for M&A activities.
Another factor includes the high pressure faced by the government
to privatise state-owned enterprises to meet requirements under
signed trade pacts, especially the EU – Vietnam Free Trade
Agreement, which came into force on 1 August 2020.
Encouraging signs for foreign investment include:
" Reformed policies to allow wider access to foreign
investors.
" ASEAN Economic Community single market and production
base.
" The conclusion of free trade agreements (FTAs), including
the EU – Vietnam FTA and The Comprehensive and Progressive
Trans-Pacific Partnership (CPTPP).
" Vietnam's super rich population is growing faster than
anywhere else and is on track to continue leading the growth in the
next decade.
" Equitization of state-owned enterprises will speed up.
Investment Law, Enterprise Law, Resolution No. 42 on handling bad
debts and other laws and policies have created a transparent legal
environment for investment and trade in general, and the M&A
market in particular. However, the following factors also affect
M&A transactions:
" Divergent interpretations and implementations by local
licensing authorities of international treaties such as
Vietnam's WTO Commitments.
" Different licensing procedures applied to different types of
transactions (for example, for foreign invested companies and
domestic companies, public companies and private companies, and for
buying state-owned shares or private shares).
Although legal and governance barriers, along with macro
instability and the lack of market transparency are still the
greatest concerns for investors, M&A deals in Vietnam are still
expected to be one of the key, effective channels for market
entry.
The major expected trends in the Vietnam M&A market
include:
" Bank restructurings.
" Acquisitions and anti-acquisitions, particularly in the real
estate sector.
" Growing Korean, Japanese and Thai investment in Vietnam
through M&A transactions.
" Reform of SoEs.
5. What are the key means of effecting the acquisition
of a publicly traded company?
In Vietnam, the term public company refers to a joint stock company
that meets one of the following conditions:
a) The company has a contributed charter capital of at least VND 30
billion and at least 10% of the voting shares are being held by at
least 100 non-major shareholders; or
b) The company has successfully made its IPO by registration with
SSC.
The most common means of obtaining control over a public company
are as follows:
" The acquisition of shares/charter capital through:
" buying shares/charter capital from the existing shareholders
of the company;
" buying shares/charter capital of a listed company on the
stock exchange; and
" public share purchase offer.
" Through a merger. The 2020 Law on Enterprises sets out the
procedures for company mergers by way of a transfer of all lawful
assets, rights, obligations and interests to the merged company,
and for the simultaneous termination of the merging
companies.
" Through the acquisition of assets.
There are restrictions on the purchase of shares/charter capital of
local companies by foreign investors in certain sensitive sectors.
In addition, the law is silent on merger or assets acquisition (for
example, business spin-off) transactions where a foreign investor
is a party. Regarding other assets acquisition transactions, if the
asset is a real property, foreign ownership right will be
restricted according to real estate laws.
Securities of public companies must be registered and deposited at
the Vietnam Securities Depository Centre before being traded.
Depending on the numbers of shares purchased, an investor can
become a controlling shareholder. Under the Vietnam Law on
Securities, a shareholder that directly or indirectly owns 5% or
more of the voting shares of an issuing organisation is a major
shareholder. Any transactions that result in more than 10%
ownership of the paid-up charter capital of the securities company
must seek approval of the State Securities Commission (SSC).
6. 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?
There is no legal requirement that a bidder must keep information
about the bid a secret until the bid is made. However, this can be
considered a contractual violation if the parties to the
transaction have committed to secrecy in writing. Leaking
information before the finalisation of the bid can lead to:
" An increase of the target's shares price.
" Difficulties in negotiating the terms of the
transaction.
" Competition in the market.
7. To what level of detail is due diligence customarily
undertaken?
Before officially contacting the potential target, the bidder
conducts a preliminary assessment based on publicly available
information. The bidder then contacts the target, expresses its
intention of buying shares/subscribing for its shares and the
parties sign a confidentiality agreement before the due diligence
process. The confidentiality agreement basically includes
confidentiality obligations in performing the transaction. The
enforcement of confidentiality agreements by courts in Vietnam
remains untested.
A bidder's legal due diligence usually covers the following
matters:
" Corporate details of the target and its subsidiaries,
affiliates and other companies that form part of the target.
" Contingent liabilities (from past or pending
litigation).
" Employment matters.
" Contractual agreements of the target.
" Statutory approvals and permits regarding the business
activities of the target.
" Insurance, tax, intellectual property, debts, and
land-related issues.
" Anti-trust, corruption and other regulatory issues.
8. What are the key decision-making organs of a target
company and what approval rights do shareholders
have?
It is necessary to obtain the approval of the general meeting of
shareholders to carry out a tender offer if the acquisition is
conducted by way of a transfer of shares from an existing
shareholder and results in a 25% ownership or more of the voting
shares in a public company. Such approval is also required when
there is a share transfer of a founding shareholder of a joint
stock company within three years from the issuance of the
Enterprise Registration Certificate. The approval normally includes
the:
" Number of shares offered.
" Price of the offer.
" Conditions of the offer.
There is no statutory requirement that prohibits a target board
from soliciting or recommending other offers before completion of a
transaction. However, in practice, the parties can agree on such
restrictions.
9. What are the duties of the directors and controlling
shareholders of a target company?
Shareholders of a public company shall:
a) Have the right to equal treatment;
b) Have accessibility to information periodically and irregularly
published by the company as prescribed by law;
c) Have their the lawful rights and interests protected; have the
right to request suspension or cancellation of a Resolution or
decision of the General Meeting of Shareholders or Board of
Directors as prescribed by the Law on Enterprises;
d) Not take advantage of the major shareholder's status to
influence rights and interests of the company and other
shareholders as prescribed by law and the company's charter;
disclose information as prescribed by law;
dd) Have other rights and obligations prescribed by law and the
company's charter.
10. Do employees/other stakeholders have any specific
approval, consultation or other rights?
There is no requirement under Vietnamese law that the employees
must be consulted about the offer. However, if a layoff is to be
conducted, the employer must:
" Prepare a labour usage plan.
" Consult with the employee representative.
" Notify the competent labour authority on the implementation
of the labour usage plan.
11. To what degree is conditionality an accepted market feature on
acquisitions?
A takeover offer usually contains the following conditions:
" The terms and conditions of the offer apply equally to all
shareholders of the target.
" The relevant parties are allowed full access to the tender
information.
" The shareholders have full rights to sell the shares.
" Applicable laws are fully respected.
An offer can also be subject to conditions precedent. Conditions
precedent are set out in the share sale and purchase agreement or
the capital contribution transfer agreement. There is no specific
restriction on conditions precedent other than the requirement that
they cannot be contrary to law and conflict with social ethics
(although the legal definition of social ethics is unclear). The
most common conditions precedent are:
" Amendments to the charter/relevant licence of the
target.
" Obtaining necessary approvals to conduct the
transaction.
" Changes to the target's management body.
Payment of the contract price will only be made after the
conditions precedent are met.
12. What steps can an acquirer of a target company take
to secure deal exclusivity?
The acquirer can enter into an exclusivity agreement, terms sheet
or letter of intent or MOU that includes a legally binding
exclusivity clause. The acquirer can also make use of deal
protection mechanisms such as:
" No Shop Provision: included in an agreement between the
seller and the buyer that prevents the latter from seeking purchase
proposals from third parties in a time frame after the signing of
the Letter of Intent
" Termination or Breakup Fees: if the seller accepts a bid
from a third party, then they will have to pay the original buyer a
fee equivalent to the breakup fee
" Lock-ups: seller is given part-ownership of stock or
important assets in the target company
" Stock options: allow the buyer to purchase a number of
shares in the target company if a particular pre-agreed event
occurs
13. What other deal protection and costs coverage
mechanisms are most frequently used by acquirers?
Besides the aforementioned, a deal protection mechanism an acquirer
can make use of is matching or topping rights where the seller has
to notify the bidder of any third party proposal, and the seller is
entitled to match or better such a proposal.
Cost coverage mechanisms include:
" Locked Box mechanism: where the seller and buyer agree on a
net purchase price upfront in the Sales Purchase Agreement and this
price remains effective until the financial closing/completion date
of the transaction – recommended for fast-growing target
companies
" Completion Account mechanism: base purchase price, plus
cash, less debt, plus excess or less shortfall in working
capital
14. Which forms of consideration are most commonly
used?
Under Vietnamese law, shares can be purchased by offering cash,
gold, land use rights, intellectual property rights, technology,
technical know-how or other assets. In practice, acquisitions are
most commonly made for cash consideration.
15. At what ownership levels by an acquiror is public
disclosure required (whether acquiring a target company as a whole
or a minority stake)?
The offer timetable is as follows:
" The bidder prepares registration documents for its public
bid to purchase shares.
" The bidder sends the bid registration documents to the State
Securities Commission (SSC) for approval and, at the same time,
sends the registration documents to the target.
" The SSC reviews the tender documents within seven
days.
" The bidder must publicly announce the tender offer within
seven days from receipt of the State Securities Commission's
opinion regarding the registration of the tender offer
" The board of the target must send its opinions regarding the
offer to the SSC and the shareholders of the target within 14 days
from receipt of the tender documents.
" The bid is announced in the mass media (although this is not
a legal requirement).
" The length of the offer period is between 30 and 60
days.
" The bidder reports the results of the tender to the SSC
within 10 days of completion.
Companies operating in specific sectors (such as banking,
insurance, and so on) can be subject to a different
timetable.
16. At what stage of negotiation is public disclosure required or
customary?
The bidder must publicly announce the tender offer within seven
days from receipt of the State Securities Commission's opinion
regarding the registration of the tender offer
17. Is there any maximum time period for negotiations or
due diligence?
There are no limitations (maximum or minimum) under Vietnam law on
the time period in which the parties are required to conduct
negotiations and/or due diligence.
18. Are there any circumstances where a minimum price
may be set for the shares in a target company?
There are no general requirements under Vietnam law that set
certain minimum price for shares in a target company.
19. Is it possible for target companies to provide
financial assistance?
There is no general prohibition under Vietnam law on target
companies providing financial assistance to acquirers. However,
such provision of financial assistance to acquirers may result in
breach of fiduciary duties of directors of the target company. In
this regard, the directors of the target company should be mindful
of their duties to the target company because, providing financial
assistance to an acquirer may be considered to be harming the
target company while benefiting the majority shareholders of the
target company or the acquirer, depending on the nature of such
assistance.
20. Which governing law is customarily used on
acquisitions?
Buyer and sellers are free to decide on the governing law of the
transaction agreements. Nevertheless, in deals that involve a
Vietnamese target company, the governing law is customarily Vietnam
laws.
21. What public-facing documentation must a buyer
produce in connection with the acquisition of a listed
company?
Shares can be bought before the bid announcement provided that the
number of shares sold does not exceed the thresholds requiring a
tender offer. A tender offer is required in the following
cases:
" Purchase of a company's circulating shares that result
in a purchaser, with no shareholding or less than a 25%
shareholding, acquiring a 25% shareholding or more.
" Purchase of a company's circulating shares that results
in a purchaser (and affiliated persons of the purchaser), with a
25% or more shareholding, acquiring a further 10% or more of
circulating shares of the company.
" Purchase of a company's circulating shares that results
in a purchaser (and affiliated persons of the purchaser), with a
25% shareholding or more, acquiring a further 5% up to 10% of
currently circulating shares of the company within less than one
year from the date of completion of a previous offer.
There is no guidance on building a stake by using derivatives. In
addition, the bidder cannot purchase shares or share purchase
rights outside the offer process during the tender offer
period.
The bidder must publicly announce the tender offer in three
consecutive editions of one electronic newspaper or one written
newspaper and (for a listed company only) on the relevant stock
exchange within seven days from the receipt of the State Securities
Commission's (SSC's) opinion regarding the registration of
the tender offer. The tender offer can only be implemented after
the SSC has provided its opinion and following the public
announcement by the bidder.
22. What formalities are required in order to document a
transfer of shares, including any local transfer taxes or
duties?
Depending on whether the seller is an individual or a corporate
entity, the following taxes will apply:
" Capital gains tax. Capital gains tax is a form of income tax
that is payable on any premium on the original investor's
actual contribution to capital or its costs to purchase such
capital. Foreign companies and local corporate entities are subject
to a corporate income tax of 20%. However, if the assets
transferred are securities, a foreign corporate seller is subject
to corporate income tax of 0.1% on the gross transfer price.
" Personal income tax. If the seller is an individual
resident, personal income tax will be imposed at the rate of 20% of
the gains made, and 0.1% on the sales price if the transferred
assets are securities. An individual tax resident is defined as a
person who:
" stays in Vietnam for 183 days or longer within a calendar
year;
" stays in Vietnam for a period of 12 consecutive months from
his arrival in Vietnam;
" has a registered permanent residence in Vietnam; or
" rents a house in Vietnam under a lease contract of a term of
at least 90 days in a tax year.
If the seller is an individual non-resident, he is subject to
personal income tax at 0.1% on the gross transfer price, regardless
of whether there is any capital gain.
Payment of the above transfer taxes is mandatory in Vietnam.
23. Are hostile acquisitions a common
feature?
Hostile bids are neither defined nor regulated under Vietnamese
law. There is also no express prohibition on this type of
transaction. Recommended bids often outnumber hostile bids due to
limited publicly available information about the target and
reluctance to disclose information.
However, the number of hostile bids in Vietnam has been increasing
since 2011, for example:
" Singapore-based Platinum Victory Ptl Ltd became
Refrigeration Electrical Engineering Corp (REE)'s largest
shareholder, accumulating a 10.2% interest in the company.
" Chile's CFR International Spa acquired a 46% stake in
healthcare equipment company Domesco Medical Import-Export Co
(DMC), making it the first foreign deal in the pharma sector.
During 2010 and 2011, there were two takeover deals in
Vietnam:
" The acquisition of Ha Tay Pharmacy in 2010.
" The acquisition of Descon, a construction company, in 2011.
Binh Thien An Company acquired a 35% shareholding in Descon,
officially took over Descon and made significant changes to its
management body.
The Government's Decree No. 155/2020/ND-CP lifted the foreign
equity cap regarding public companies, with some exceptions (a 49%
cap was previously in force). Specifically, the rules on foreign
ownership in a listed company can be generally classified into the
five following groups:
" If Vietnamese law, including international treaties,
provides for a specific ownership cap, the maximum foreign
ownership (MFO) must not exceed such a cap (group 1).
" If Vietnamese law treats a business activity as conditional
on foreign investment (pursuant to the list of conditional sectors
under the Investment Law) but does not yet provide any ownership
limit, MFO must not exceed 50% (group 2).
" In cases that do not fall within group 1 and group 2, MFO
can be up to 100% (group 3).
" In case a public company operates in multiple industries and
trades with different regulations on the foreign ownership rate,
the foreign ownership rate must not exceed the lowest level in the
industries and trades with determined foreign ownership rates
(group 4).
" Where a public company decides on the maximum foreign
ownership ratio lower than the rate specified above, the specific
rate must be approved by the General Meeting of Shareholders and
included in the company's charter.
This lift of the foreign equity cap can introduce more hostile bids
in Vietnam.
24. What protections do directors of a target company
have against a hostile approach?
There are no provisions regulating hostile bids under Vietnamese
law.
25. Are there circumstances where a buyer may have to
make a mandatory or compulsory offer for a target
company?
A tender offer is required in the following cases:
" Purchase of a company's circulating shares that result
in a purchaser, with no shareholding, or less than a 25%
shareholding, acquiring a 25% shareholding.
" Purchase of a company's circulating shares that results
in a purchaser (and affiliated persons of the purchaser), with a
25% or more shareholding, acquiring a further 10% or more of
circulating shares of the company.
" Purchase of a company's circulating shares that results
in a purchaser (and affiliated persons of the purchaser), with a
25% shareholding or more, acquiring a further 5% up to 10% of
currently circulating shares of the company within less than one
year from the date of completion of the previous offer.
26. If an acquirer does not obtain full control of a
target company, what rights do minority shareholders
enjoy?
Minority shareholders continue to enjoy full rights as
shareholders, such as voting rights and rights to receive
distributions of dividends. However, as shareholders may only
participate in the management of a company indirectly through a
shareholders' resolution, minority shareholders have limited
right to affect the management of the company.
Under Enterprise Law 2020, a shareholder or group of shareholders
that holds at least 5% of the ordinary shares (or a smaller ratio
specified in the company's charter) shall have the rights
to:
a) Access, extract the minutes of meetings, resolutions and
decisions of the Board of Directors, mid-year and annual financial
statements, reports of the Board of Controllers, contracts and
transactions subject to approval by the Board of Directors and
other documents except those that involve the company's
business secrets;
b) Demand that a GMS be convened in case
" the Board of Directors seriously violates the
shareholders' rights, obligations of executives or issues
decisions ultra vires;
" other cases prescribed by the company's charter.
c) Request the Board of Controllers to investigate into specific matters relevant to the company's administration where necessary
27. Is a mechanism available to compulsorily acquire
minority stakes?
If the bidder acquires 80% or more of the shares of a public
company, it must buy the remaining shares of the same type of other
shareholders (if they so request) at the bid price within 30 days.
However, there are no "squeeze-out" rights that can force
the remaining shareholders to sell their shares.
If you have any question on the above, please do not hesitate to contact Dr. Oliver Massmann under omassmann@duanemorris.com. Dr. Oliver Massmann is the general director of Duane Morris Vietnam LLC.
Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.
