Many foreign investment funds expect the State Securities Commission (SSC), the country's stock market watchdog, to supplement and revise some provisions of  the draft Law on Securities in a move to stimulate foreign trading in the local stock market.

 Foreign holding at Vietnamese banks is capped at 30 percent

The provisions relate to the foreign ownership limit (FOL) and the non-voting depository receipts (NVDR).

The recommendation was made at a recent dialogue between SSC and representatives of 13   members of the Asia Trader Forum (ATF) including Dragon Capital, Vinacapital, Flanklin/Templeton HK, HSBC Global Asset HK and PXP Vietnam Asset Management.

At the meeting, the funds expressed their concerns about the FOL and suggested the introduction of  NVDR saying those changes are needed  for the sake  of the Vietnamese stock market to nest their investments.

According to the funds, though the FOL is raised to 100 percent under Decree No.60/2015/ND-CP, it still prevents foreign investors from pouring funds into the conditional business lines.

Meanwhile, the implementation of the new trading instrument NVDR would counter the shortcoming, thanks to its capability to allow foreign investors to invest in companies listed but restricted by the FOL.

Investing in NVDR, investors would receive the same financial benefits, including dividends, right issues or warrants, as ordinary shareholders. The only difference between ordinary shareholders and NVDR holders was that the latter could not be involved in the company decision-making.

According to the funds, if introduced in Vietnam, NVDR will enable the government to sell more shares without worrying about handing control of certain sectors and companies to foreign investors.

Scrutiny needed

It wasn’t the first time NVDR was mentioned in Vietnam. The plan, first proposed by the Ho Chi Minh City Stock Exchange (HoSE) in 2013, was based upon its study of the Thai Stock Exchange, in which a similar plan was enacted in a bid to lure foreign investment to their domestic stock market.

The HoSE plan was prompted by concerns that foreign investors could not expand their investment  because foreign ownership in these firms had reached the ceiling  of 49 percent, as stipulated in the current regulations. Thus, NVDR would offer an alternative for foreign investors who are interested in arbitrage and financial benefits, such as dividends, rights issues or warrants.

However, at that time, SSC had rejected the idea of allowing NVDR in Vietnam, pointing out there was no legal framework yet for this instrument.

At this dialogue, SSC chairman Tran Van Dung admitted though Decree 60 has removed the ownership threshold and allowed foreign investors to finance certain sectors, there are areas on the conditional list that a predetermined FOL still prevails over. For example, foreign ownership in  the  banking sector is capped at 30% or no foreign ownership at all in national defense businesses.  

Dung further explained that the levers of Decree 60, which allow company shareholder general meetings to decide on their own FOL while companies in the same industry may have different FOL ratios, has confused foreign investors and made it hard for them to apply the regulation in reality.

Due to the difficulties that arose in the implementation of Decree 60, SSC will restart research to examine the feasibility of NVDR, after addressing some technical issues, including the role of stock exchanges and how they will handle the issuance of NVDR, Dung said.

“We’ve had HoSE resubmit the NVDR project to evaluate its feasibility in this fourth quarter. While we have yet to reach a final decision at this point in time, we’ll study this matter carefully,” Dung told investors at the dialogue.

However, NVDR will not necessarily be included in the Law of Securities, Dung said, explaining that this trading instrument can be handled though  by-law documents.

Hanoitimes