On 31 December 2020, the Government issued Decree No. 155/2020/ND-CP (“Decree No. 155“) implementing Securities Law No. 54/2019/QH14 (“Securities Law“). Decree No. 155 provides detailed guidance on the Securities Law, with changes made to the regulations on tender offer, foreign ownership limits, corporate governance and public company disclosure obligations — all of which could have an impact on public M&A transactions.
Decree No. 155 took effect on 1 January 2021 and replaced Decree No. 58/2012/ND-CP (as amended by Decree No. 60/2015/ND-CP) (“Decree No. 58“).
- Key takeaways
- In more detail
- The general meeting of shareholders can waive the requirement for a tender offer if the waiver is approved by more than 50% of all non-interested shareholders. If the tender offer meets the merger filing thresholds under Vietnam’s Competition Law,1 the acquirer must complete the merger filing process before lodging the tender offer application with the States Securities Commission.
- Foreign ownership limits applicable to a public company will depend on the business sectors the company operates in. For sectors subject to market access restrictions, if no foreign ownership cap is specified, a mandatory 50% ownership cap applies.
- Measures have been introduced to further enhance the corporate governance regime applicable to public companies.
- This alert also summarizes key changes to a public company’s disclosure obligations that were introduced by Circular No. 96, issued by the Ministry of Finance in November 2020.
In more detail
Decree No. 155 consists of 10 chapters and 311 articles covering a wide range of regulations on transactions carried out in the stock market. We discuss some key points from this decree, which are likely to have a notable impact on public M&A transactions.
Key changes on tender offer regulations
- Shareholder waiver of tender offer requirements
Under Article 35.2(b) of the Securities Law, a tender offer is not required if waived by the general meeting of shareholders of the target public company (GMS). Article 84 of Decree No. 155 now clarifies that the GMS waiver is passed if approved by more than 50% of the shareholders entitled to vote (or such other threshold set out in the target company’s charter). Interested shareholders (being those who are a purchaser or seller in the underlying transaction and their related persons) do not have the right to vote.
- Economic concentration clearance
Under Article 85.1 of Decree No. 155, if economic concentration clearance from the National Competition Committee is required, this clearance must be included in the application to register the tender offer with the State Securities Commission (SSC). This means that the merger filing process (if it applies) must be completed before the tender offer application can be lodged with the SSC.
Foreign ownership limits
With the aim of allowing the Government to regulate foreign ownership in conditional business sectors in accordance with the new Investment Law,2 the Securities Law tasked the Government with responsibility for issuing detailed regulations on foreign ownership limits for public companies. Decree No. 155 now sets out this detailed guidance:3
- Where foreign ownership limits in a business sector have been agreed by Vietnam under an international treaty, public companies are subject to the ownership limits set out in those treaties.
- Where foreign ownership limits in a business sector are set out in Vietnamese law, those limits also apply to public companies.
- If a public company operates in a business sector that is subject to foreign investment market access restrictions,4 those access restrictions will apply. If the market access list does not specify the foreign ownership limit in any sector, the maximum foreign ownership for a public company operating in that sector is 50% of the company’s charter capital.
- If none of the above circumstances apply, the foreign ownership is unlimited.
- A public company may elect to apply a different foreign ownership cap (that is lower than the statutory cap), provided that it is approved by the GMS and specified in its charter.
Decree No. 155 introduces the following key changes to public companies’ corporate governance:
- Members of the board of management (“Board“) and board of controllers must attend the annual GMS to answer shareholders’ questions.5
- If the audited financial statements of the public company have any material qualifications, a representative of the auditor must attend the annual GMS.6
- Decree No. 155 requires the Board of a listed company to have:
- at least one independent Board member (if there are from three to five Board members in total);
- at least two independent Board members (if there are from six to eight Board members); or
- at least three independent members (if there are from nine to 11 Board members).7
- Chapter VIII of Decree No. 155 sheds light on the composition, rights and duties of the internal audit committee (which is under the auspices of the Board). In particular, the audit committee must have at least two members and the chairperson must be an independent Board member. The committee’s operating rules must be approved by the Board and consistent with the model rules issued by the Ministry of Finance.8
- In addition to those related-party transactions required to be approved by the GMS under the Enterprise Law, Decree No. 155 requires GMS approval of any related party-transaction with a value of 35% or more of the total assets of the public company (based on the value recorded in its latest financial statements), whether in a single transaction or series of transactions over a period of 12 months.9
On 16 November 2020, the Ministry of Finance issued Circular No. 96/2020/TT-BTC (effective from 1 January 2021) that provides guidance on information disclosure in the securities market (“Circular No. 96“). Key measures introduced by this circular include the following:
- Disclosures relating to “major shareholders” must now be made within five business days (instead of seven calendar days) from completion of the relevant transaction. This circular also clarifies that a group of related persons who together own 5% or more of the voting shares in a public company are subject to the same disclosure obligations as major shareholders.
- The insiders of a public company (and their related persons) must disclose information about their trading and submit reports to the SSC and the relevant stock exchange, both before and after trading, if the estimated transaction value reaches VND 50 million in a day or VND 200 million in aggregate in a month.
For further information, and to discuss what this development might mean for you, please contact us.
1 Competition Law No.: 23/2018/QH14 passed by the National Assembly on 12 June 2018.
2 Investment Law No. 61/2020/QH14 passed by the National Assembly on 17 June 2020 (“Investment Law”).
3 Decree No. 155, Article 139.1.
4 This market access list is promulgated under Decree No. 31/2021/ND-CP guiding the implementation of the Investment Law.
5 Decree No. 155, Article 273.4.
6 Decree No. 155, Article 273.4.
7 Decree No. 155, Article 276.4.
8 Decree No. 155, Articles 282 – 284
9 Decree No. 155, Article 293.4(b)