In a report presented to the Vietnam Business Forum 2015 on December 1 the Capital Markets Working Group expressed its appreciation of efforts made by the Ministry of Finance (MoF), the State Securities Commission (SSC), the stock exchanges, and the Vietnam Securities Depository (VSD) over recent years to improve the legal framework to create more favorable conditions for indirect investment activities but they also expect more changes to come.

SOE Equitization

“We welcome and appreciate the decision from the Prime Minister on State divestments in Official Letter No. 1787/TTg-DMDN dated October 8, 2015,” the report said. Under the Letter, the government will have a divestment plan for State capital in ten companies, including Vinamilk, FPT, and Bao Minh Insurance.

The group believes this is a wise decision, expressing the determination of the Prime Minister and the government in regard to equitization. “The decision, along with allowing the increase in foreign ownership, is a breakthrough to bring Vietnam’s stock market to the emerging markets ranking,” according to the report.

They also consider the compulsory listing of equitized SOEs under Decision No. 51/2014/QD-TTg dated September 15, 2014 and under Decree 60/2015/ND-CP dated June 26, 2015 issued by the Prime Minister as very encouraging.

However, the group also wishes to emphasize that State divestment in a transparent manner through bidding, and the compliance and enforcement, as well as the supervision of compliance and enforcement, of Decree No. 60 will play a crucial role in the success of SOE equitization.

The government should publicly release a list of SOEs to be equitized, the Group suggested. “The list should contain the names of the SOEs, the estimated time for equitization, and the estimated price to be offered to the public.”

To create liquidity, equitization should be done through a global syndicate and 25-30 per cent should be sold off.

Foreign ownership limits

The passage of Decree No. 60, increasing foreign ownership limits, shows the government’s direction and openness in promoting foreign investments in public companies and securities funds in Vietnam, the Group said. Foreign investors may also establish a new 100 per cent foreign-owned securities company or a fund manager, or acquire an interest of up to 100 per cent in an existing local securities company or fund manager.

Nonetheless, there are at least two major obstacles to the implementation of Decree No. 60. “First, the government has not still published lists of sectors and business lines that have conditions on foreign investment or set out clearly the foreign ownership limits applicable to each of those sectors and business lines,” the Group said. “The lack of these lists effectively stops the operation of Decree No. 60.”

Second, the Law on Investment 2014 is not clear on the scope of its application, to the confusion of domestic enterprises, local investors, and foreign investors in the stock market.

The SSC and the MoF cannot have a correct answer on whether the Law, particularly Articles 23, 24, 25 and 26, apply to domestic enterprises, local investors, or foreign investors when they buy shares in listed companies or when they invest in securities investment funds and securities in Vietnam.

Pension Funds

The MoF is now completing a draft Decree on Pension Funds, while the Ministry of Labor, Invalids and Social Affairs (MoLISA) has been also drafting a similar decree on pension funds. The Group is concerned about potential overlaps in the decrees and ensuring they are issued as soon as possible.

Over the past year and a half we have raised the issue of the weak performance of the Vietnamese courts when it comes to recognizing and enforcing international arbitration awards, whether they are rendered by the Vietnam International Arbitration Center (VIAC) or a foreign arbitration institution. This is a critical issue for the confidence of international investors in the rule of law in Vietnam and it directly impacts the cost of capital Vietnam has to pay.

Responding to these concerns, the Ministry of Justice and other relevant authorities organized several stakeholder meetings and work has been done on the draft amendments to the Civil Procedure Code. This work is encouraging, but concrete results remain elusive. Moreover, some of the proposals for the amendments to the Civil Procedure Code were quite alarming.

For example, one proposal was that after a foreign arbitration award had been granted, the losing party would have the right to request a Vietnamese court refuse to recognize and enforce such award. This idea is absolutely inconsistent with how arbitration and the enforcement of arbitral awards work around the world under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958).

Mr. Fred Burke from the Investment and Trade Working Group under the Vietnam Business Forum