With the voice of foreign ­investors gaining more weight in the crafting of Vietnam’s ­Securities Law, efforts to ­facilitate further growth of its capital market are taking place with a review of the ­implementation of non-voting depository receipts.

Foreign investors have expressed concerns on the shortcomings of FOL and NVDR in Vietnam 

Over a dozen investment funds, representing the Asian TraderForum (ATF) and those based locally such as Dragon Capital or VinaCapital, visited Hanoi earlier this month to join in ‘The Hanoi Dialogue’, an event co-hosted by the State Securities Commission (SSC) and Maybank Kim Eng Securities (MBKE). They had an opportunity to express their concerns to the SSC on the shortcomings of the foreign ownership limit (FOL) and the necessity of non-voting depository receipts (NVDR) for the sake of further development of the Vietnamese stock market to nest their investments.

The FOL, despite being raised to 100 per cent through Decree No.60/2015/ND-CP, still prevents foreign investors from pouring funds into the conditional sectors. The NVDR, though being brought up by the Ho Chi Minh City Stock Exchange (HSX) to the discussion table back in 2016, was then dropped as it was deemed unnecessary given the issuance of Decree 60.

SSC chairman Tran Van Dung admitted that while Decree 60 has removed the ownership threshold, thus allowing foreign investors to finance certain sectors, there are areas on the conditional list that a predetermined FOL still prevails over. For example, in the banking sector, the limit remains at 30 per cent; other sectors such as national defence do not permit the participation of foreign investors.

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 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 HSX resubmit the NVDR project for us 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. “NVDR would not necessarily be included in the Law of Securities. This trading instrument can be handled though our by-law documents.”

The implementation of NVDR is said to further facilitate foreign investments into local stock markets, thanks to its capability to allow foreign investors to invest in listed companies which may otherwise be restricted by the FOL.

This trading instrument will give its holders the same financial benefits in terms of dividends, rights and warrants as investors who invest directly in a company’s ordinary shares. The NVDR holders, however, do not have voting rights or get involved in company decision-making.

Improving from the inside out

Thanks to the open dialogue, foreign investors may now be offered direct communication with the SSC and build some kind of expectation on the implementation of NVDR in Vietnam in the near future.

“Without the dialogue, investors will keep wondering whether when they will see the NDVR or why it is not in the revised law,” said Lien Le, head of Institutional Research at MBKE Vietnam. “It’s all about communication that builds understanding and manages expectations.”

According to Jeffrey Goh, managing director of Maybank Kim Eng, regional brokers like themselves have been collecting feedback and input from foreign investors and passing them on to regulators to help improve investment environment, corporate governance and transparency, as markets like Vietnam continue to advance and evolve over time.

An official translation of the local Securities Law, as Goh noted, would be fundamental to helping address enquiries arising from the overseas investors.

“We’ve seen strong interest from overseas investors, and behind those are pension funds and retail investors, so their obligation to those asking some of the questions when they invest in Vietnam could be fulfilled with an official English interpretation of the local regulations,” he said.

“The SSC has taken and addressed the feedback from investors in a constructive way and as Vietnam is a young market compared to others in the region, we ought to take this into perspective to ensure a balance between moving things too quickly and managing risk,” said Goh on the sidelines of the dialogue.

Attractive destination

NVDR and FOL could be the two major issues that foreign investors have brought to the table, but they are not the only obstacles and foreign investors want the local securities authority to continue improving its operations and pursuing international practices.

George Molina is head of Global Emerging Markets Trading at Franklin Templeton Investments (Asia) – one of the 29 members of ATF representing well over $500 billion in assets under management in Asia. For Molina, events like the Hanoi Dialogue have been held in other markets such as India, China and Singapore, with the ultimate goal of helping improve stock markets, paving the way for their investment funds to come in.

“We have a common interest for a lot of these markets to improve their global best practices for us to be able to invest in the countries,” said Molina.

“We’ve been investing in Vietnam for over two decades. For many of us what we would like to see is the liquidity to improve, we definitely want more liquidity to be able to invest more of our funds,” he added.

In addition, Molina noted that corporate governance is also an issue that Vietnam ought to improve. Many of Franklin Templeton’s clients, which include some of the largest pension funds, sovereign funds around the world and retail clients, are concerned with the risk of investing in Vietnam.

“They like Vietnam, they think Vietnam has a lot of potential as we mention GDP growth – it’s fantastic, but what is the risk to their accounts being in there. So what we’re trying to do is to help promote Vietnam and help increase the liquidity so a lot of our funds can invest,” stressed Molina.

Rather than trying to solve all of the problems in one go, Molina suggested that there could be some form of consultation paper for both local and foreign investors to have their say, to hopefully help Vietnam open the market for foreign investors.

VIR