Mark Anthony Fraser of Frasers Law Company assesses the M&A regulatory framework in Vietnam
Section 1: GENERAL OUTLOOK
1.1 What have been the key recent M&A trends or developments in your jurisdiction?
In the first three months of 2016, there was a significant increase in M&A activity in Vietnam. With the Trans-Pacific Partnership (TPP) treaty set to be agreed in the next 12 to 18 months, investors may also be preparing for the resultant benefits for Vietnam.
1.2 What is your outlook for public M&A in your jurisdiction over the next 12 months?
We are bullish about the prospects for increased M&A activity in Vietnam over the next 12 months. Major amendments to the Law on Enterprises and the Law on Investment have further enhanced the opportunities for successful M&A transactions in Vietnam.
Section 2: REGULATORY FRAMEWORK
2.1 What legislation and regulatory bodies govern public M&A activity in your jurisdiction?
In addition to any sector-specific legislation, public M&A transactions are mainly governed by the: Law on Enterprises; Law on Investment; Law on Securities; Law on Competition; and any relevant decrees, circulars and other implementing legislation.
Any establishment or change to the existence, capital structures or shareholders of relevant enterprises is regulated by and, if required, reported to the State Securities Commission, Vietnam Competition Authority (VCA), and Ministry of Planning and Investment, and the relevant municipal department of planning and investment.
2.2 How, by whom, and by what measures, are takeover regulations (or equivalent) enforced?
Vietnam does not have separate regulations governing takeovers such as a takeover code. All M&A transactions are governed by the laws and authorities mentioned above. According to the Law on Securities, an entity that intends to buy 25% or more of the shares in a public company must conduct a public tender (bid) offer, unless a general meeting of shareholders of the target company has approved the transaction. The State Securities Commission can impose sanctions for any breaches of the Securities Law.
Section 3: STRUCTURAL CONSIDERATIONS
3.1 What are the basic structures for friendly and hostile acquisitions?
In a hostile acquisition, public tender offers may be the only way to acquire the target company. In friendly acquisitions, both public tender offers and private placements can be used.
3.2 What determines the choice of structure, including in the case of a cross-border deal?
The choice of structure depends on a number of factors, including the: (i) type of acquisition; (ii) type of business activity undertaken by the target; (iii) relationship between the target and buyers; (iv) risk appetite of buyers; and (v) nationality of the buyers (foreign versus local).
Foreign investors should take note of the limits on foreign ownership in public companies. Some business activities set limitations for the participation of foreign investors. In particular, the maximum foreign shareholding in public companies with conditional business lines is 49%, unless expressly stated otherwise.
3.3 How quickly can a bidder complete an acquisition? How long is the deal open to competing bids?
According to the guidelines on public tender offers in public companies or fund certificates in public closed-end securities investment funds (Circular 194), the tender offer period must be no less than 30 days and must not exceed 60 days. If the intention is to delist a company from the stock exchange and deregister it as a public company, it will take at least 12 months.
3.4 Are there restrictions on the price offered or its form (cash or shares)?
According to Article 6.1.(a) of Circular 194, bidding prices must not be less than the weighted average price recorded in the 60 days immediately before the registration of the public bid. There is no restriction on the form of the price offered.
3.5 What level of acceptance/ownership and other conditions determine whether the acquisition proceeds and can satisfactorily squeeze out or otherwise eliminate minority shareholders?
Minority shareholders are protected under the Law on Enterprises and there is no regulation providing for the compulsory sale of shares by minority shareholders in Vietnam. Squeeze out provisions do not exist under Vietnam's laws.
3.6 Do minority shareholders enjoy protections against the payment of control premiums, other preferential pricing for selected shareholders, and partial acquisitions, for example by mandatory offer requirements, ownership disclosure obligations and a best price/all holders rule?
The laws of Vietnam do not provide any of the above protections for minority shareholders, other than to state that all shareholders are to be treated equally.
3.7 To what extent can buyers make conditional offers, for example subject to financing, absence of material adverse changes or truth of representations? Are bank guarantees or certain funding of the purchase price required?
Buyers may set offering conditions provided that they comply with the laws of Vietnam and apply equally to all of the target's shareholders. Bank guarantees are not required.
Section 4: TAX CONSIDERATIONS
4.1 What are the basic tax considerations and trade-offs?
Sellers must pay income tax on transferred shares. The tax rate for an individual seller is 0.1% of the selling price. For companies, the tax rate is 20% of the profits generated from the sold shares.
4.2 Are there special considerations in cross-border deals?
The most important consideration in cross-border deals is double-taxation. Foreign sellers may be taxed both in Vietnam and their home jurisdiction if that jurisdiction has not entered into any double tax avoidance agreement with Vietnam.
Section 5: ANTI-TAKEOVER DEFENCES
5.1 What are the most important forms of anti-takeover defences and are there any restrictions on their use?
Share redemption, high dividend payments, and changing the scope of permitted business activities of the target to include so-called conditional investment activities are the most common anti-takeover defences in Vietnam. Other anti-takeover defences common in international practice are also used, such as the so-called white knight, poison pill, or pac-man defence. There is no express provision under Vietnam's fledging securities legislation in relation to restrictions on using these defences.
Limits on foreign investors owning shares in public companies operating in conditional business activities may be viewed as an anti-takeover defence provided by the government. A target company may apply this feature to control the participation of foreign investors in the company.
5.2 How do targets use anti-takeover defences?
5.3 Is a target required to provide due diligence information to a potential bidder?
5.4 How do bidders overcome anti-takeover defences?
Bidders may overcome anti-takeover defences if they have good relationships with the existing major shareholders who control the target. Otherwise, there is no way to force existing shareholders to sell their shares to the bidders.
5.5 Are there many examples of successful hostile acquisitions?
Hostile acquisitions are rare in Vietnam.
Section 6: DEAL PROTECTIONS
6.1 What are the main ways for a friendly bidder and target to protect a friendly deal from a hostile interloper?
In a friendly deal, purchasers and sellers should enter into an agreement that sets out a protective mechanism to prevent interference from a hostile interloper. Such mechanisms could take the form of a break fee or lock-up provisions where sellers are required to pay an amount of money to a purchaser if they cancel the transaction or refuse to sell their shares for a certain period of time.
6.2 To what extent are deal protections prevented, for example by restrictions on impediments to competing bidders, break fees or lock-up agreements?
Breaches to break fee and lock-up agreements may lead to a contractual penalty whereby the breaching party has to pay a predetermined amount to the other party. However, because Vietnamese law does not expressly recognise these kinds of agreements, the relevant courts may have different interpretations of the law. The agreements may be declared null and void due to an unexpected interpretation by an inexperienced judge.
Section 7: ANTITRUST/REGULATORY REVIEW
7.1 What are the antitrust notification thresholds in your jurisdiction?
Any economic concentration in which the participating enterprises have a combined market share in the relevant market of 30% to 50%, must notify the VCA. Economic concentrations leading to a combined market share exceeding 50% are prohibited.
7.2 When will transactions falling below those thresholds be investigated?
A preliminary antitrust investigation will be conducted when a complaint is submitted to the VCA, or when the VCA discovers any breach of competition laws.
7.3 Is an antitrust notification filing mandatory or voluntary?
Notification is mandatory for any transaction falling within the notification thresholds.
7.4 What are the deadlines for filing, and what are the penalties for not filing?
The notification must be filed before the implementation of the economic concentration.
Any enterprise participating in an economic concentration without giving the requisite notification will be fined up to 10% of its turnover for the financial year immediately prior to when the violation was committed.
7.5 How long are the antitrust review periods?
The antitrust review period includes a formal review of 45 days and two extension periods, being a maximum of 60 days. Therefore, the maximum review period is approximately 105 days.
7.6 At what level does your antitrust authority have jurisdiction to review and impose penalties for failure to notify deals that do not have local competition effect?
Notification is required irrespective of whether the deal will have any substantive effect on local competition.
7.7 What other regulatory or related obstacles do bidders face, including national security or protected industry review, foreign ownership restrictions, employment regulation and other governmental regulation?
Foreign investment is prohibited or restricted in certain conditional sectors in accordance with Vietnam's World Trade Organisation commitments on services and relevant laws. Other obstacles could be considered on a case-by-case basis depending on the sector.
Section 8: ANTI-CORRUPTION REGIMES
8.1 What is the applicable anti-corruption legislation in your jurisdiction?
The legal framework includes: the 2005 Law on Anti-Corruption (as amended in 2012); Decree no 59/2013/ND-CP, which details a number of articles of the Law on Anti-Corruption; and the Penal Code.
8.2 What are the potential sanctions and how stringently have they been enforced?
Depending on its severity, a corrupt act may be subject to criminal sanctions. The death penalty is the highest penalty possible for embezzlement or receiving bribes crimes. Other possible sanctions include imprisonment and administrative sanctions.
Vietnam has established a number of enforcement agencies for anti-corruption. These include the: Central Committee for Internal Affairs of the Communist Party; Ministry of Police; People's Procuracy; People's Court; State Inspectorate; and State Audit Office. There have been numerous criminal cases in relation to anti-corruption crimes. In the Transparency International 2015 Corruption Perceptions Index, Vietnam was ranked 112th in the world.
Section 9: OTHER MATTERS
9.1 Are there any other material issues in your jurisdiction that might affect a public M&A transaction?
There are many other issues – undertaking a successful public M&A transaction in Vietnam requires careful planning, structuring and, most of all, patience.
With thanks to Mai Nguyen Hoang Lam.
First published by our sister publication IFLR magazine. Take your free trial today.
Mark Anthony Fraser
Frasers Law Company
Ho Chi Minh City
About the author
Mark Fraser is the managing partner of Frasers Law Company. He has more than 28 years' experience advising clients from all over the globe and has been based in Ho Chi Minh City, London, Singapore, Bangkok, Hong Kong and Auckland. He has been advising clients on transactions in Vietnam since 1994. In the more than 20 years that he has been based in Vietnam, his practice has focused on corporate matters, especially M&A, banking and finance, restructuring and insolvency, commercial real estate, and infrastructure projects. This involves the debt and equity structuring of investment projects and the preparation and negotiation of documents. Fraser has been involved in numerous power generation, water treatment, telecommunications, road toll-way, and oil and gas projects in various jurisdictions within Asia. He has advised on a number of Vietnamese matters in the banking and finance, corporate and commercial, infrastructure, capital markets, property development and dispute resolution areas.