Intro

In August 2019, General Secretary, President of Vietnam Nguyen Phu Trong issued a Resolution No. 50-NQ/TW of the Politburo on direction to complete regulations and policies to improve quality and effectiveness of foreign investment until 2030 (“Resolution 50“).

The Politburo recognizes that over 30 years of “Doi Moi”, the foreign-invested economic sector has developed rapidly and effectively, becoming an important part of the economy, contributing positively to the socio-economic development of the country, but still have some shortcomings and limitations, such as decrease of contributions to the State budget, transfer pricing, “hidden” investment, “shadow” investment etc

Therefore, under the Resolution 50, the Politburo sets out core measures to improve quality and effectiveness of foreign investment until 2030, which are guidelines and directions for the Government to issue and adjust policies and regulations.

M&A under the Resolution 50

One of the notable things which the Resolution 50 is addressing is implementation of new laws and regulations on M&A of assets that are critical to national security.  Currently, the regulations applicable to M&A activities in Vietnam are scattered among several laws.  The Civil Code 2015 and the Law on Enterprises 2014 provide legal principles and regulations governing enterprises, the transfer of property in or ownerships over such enterprises, and any agreements, including M&A agreements. For an acquisition performed by a foreign investor or a foreign invested company in Vietnam, investment registration procedures under the Law on Investment 2014 must be carried out.  If the acquisition target is a public company, the acquisition must be conducted through a public tender offer which is regulated under the Law on Securities 2006.[1]  In case M&A reaches the notification threshold prescribed under the Law on Competition 2018, it must be notified to competent authority.  However, none of these regulations provide any guidance on M&A of assets which might concern national security.

On the other hand, currently there is a phenomenon of “hidden” investment or “shadow” investment in some places in Vietnam.  A number of foreign investors investing in real estate enterprises, contributing less than 49% capital (under current regulations, enterprises with less than 49% foreign-invested capital are considered and treated as domestic investors) invest in land and facilities in sensitive areas related to national security and defence.  A number of foreign investors contribute capital, implement M&A activities with respect to domestic enterprises in projects having high influence on national security.

Therefore, Resolution 50 states that:

  • The issue of “shadow” investment or “hidden” investment shall be overcome by researching and developing regulations.
  • Moreover, “conditions on national defence and security” shall be researched and supplemented in the process of considering and issuing investment registration certificates (or documents of equivalent legal validity) for new investment projects and the process of reviewing, approving investment activities through capital contribution and share purchase.

These are the first regulation principles on M&A control measure to protect strategic assets which are important for the nation from being acquired by foreign buyers.

What is the next?

It is predicted that pursuant to the Resolution 50 the Government may issue a list of sensitive areas related to national security and defence where foreign investors are prohibited from investing in both directly and indirectly (i.e., capital contribution, and M&A).  A list of sensitive projects having high influence on national security and defence may also be promulgated to control direct and indirect foreign investment, such as: projects holding large distribution networks or holding large amount of information about users in Vietnam etc.  Moreover, there is a possibility that a set of criteria regarding national security and defence may be issued and applied when approving foreign investment activities.

Regulations on M&A in national security issues in other jurisdictions might a good guidance as to how the Resolution 50 will be implemented.  In the UK, for instance, the government is proposing radical new legislation to allow it to intervene in cases that raise potential national security concerns.  The UK government itself estimates that, under the new law, approximately 50 cases a year may end up with some form of remedy to address such concerns.  In France, the new PACTE law is likely to strengthen the sanctions mechanism, extend the list of sectors subject to review and introduce some transparency into the process through annual reporting on a no-name basis of reviewed cases.

For Vietnam, after the Resolution 50, the State shall issue new regulations as well as adjust current regulations to deploy the Politburo’s directions.  VCI Legal will continue updating you on upcoming important regulations.

[1] “International Comparative Legal Guide to: Mergers & Acquisitions 2018” [issued by Global Legal Group] – Chapter 55: M&A Laws and Regulations In Vietnam [contributed by VCI Legal]


DISCLAIMER

This LBN newsletter are NOT legal advice. Readers are advised to retain a qualified lawyer, should they wish to seek legal advice. VCI Legal are certainly among those and happy to be retained, yet VCI Legal is not to be hold responsible should any reader choose to interpret/apply the regulations after reading this LBN without engaging a qualified lawyer.