M&A in Vietnam: addressing key issues that arise under the enterprise law and the investment law

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DR. OLIVER MASSMANN - Partner, General Director
DUANE MORRIS VIETNAM LLC
M&A IN VIETNAM: ADDRESSING KEY ISSUES
THAT ARISE UNDER THE ENTERPRISE LAW
AND THE INVESTMENT LAW
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AGENDA:
• OPPORTUNITIES AND CHALLENGES IN VIETNAM UNDER
THE ECONOMIC BOUNDARIES
• MAJOR M&A TRENDS AND DEVELOPMENT IN VIETNAM
• UPDATES ON NEW INVESTMENT LAW, ENTERPRISE LAW
AND THEIR IMPLEMENTING DECREES
• VIETNAM’S RECENT INTEGRATION TO REGIONAL AND
INTERNATIONAL ECONOMY
• SEALING THE DEAL
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WHICH COUNTRY HAS ITS TWO MAJOR CITIES
RANKED AS MOST DYNAMIC CITIES
ON THIS PLANET EARTH ?

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Welcome to the most dynamic country on this
planet : Vietnam!
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Higher taste for foreign
brands by Vietnam’s
middle class

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Change of consumption habit
Traditional market Supermarket / Shopping mall
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Increasing Foreign Direct Investment
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Vietnam M&A during 2013-2016
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Source: IMAA

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Deals overview in 2016
• Main foreign investors in M&A deals: Thailand, Japan, Korea,
United States, and other European countries to prepare for the
new trade agreements
• Retail and real estate are the most attractive sectors to investors
in terms of deal value
• M&A in industrial goods, retail sector, consumer goods, real
estate, agriculture sector, pharmaceuticals, technology … are
also active.
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Notable M&A deals in Vietnam in 2016
• In April 2016, Central Group (Thai Group) bought BigC Vietnam at
USD1.1 billion
• TTC Holdings (Thailand) bought Metro Vietnam at USD710 million
• In December 2016, Fraser & Neave ( a Singaporean beverage
company) bought 5.4% of Vinamilk’s shares at USD500 million
Note: Owner of Fraser & Neave is also owner of TTC Holdings
• In January 2016, Mobifone bought 95% of AVG’s shares at USD400
million
• In April 2016, Mirae Asset (a Korean securities company) together
with AON BGN Investment Company (an UK company) bought
Keangnam Hanoi Landmark Tower at USD350 million
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Main drivers of Vietnam M&A 2016
• New Investment Law and New Enterprise Law
• Foreign equity cap lifted in public companies
• Revision of foreign real estate investment
• New FTAs (AEC, TPP, EU-VN FTA)
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INVESTMENT LAW, ENTERPRISE LAW
AND THEIR IMPLEMENTING DECREES
EFFECTIVE FROM 01 JULY 2016
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Definition of foreign investor
• New Investment Law: Very simple definition!
Foreign investor is any foreign individual or
organization incorporated under foreign law doing
business investment activities in Vietnam
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New Negative List!
• All non-prohibited business activities are permitted
“Investors are entitled to conduct business investment activities in
industries and trades which are not prohibited by this Law.” (Art. 5.1,
new Investment Law)
• Removal of many baby permits
• Reduction of conditional and prohibited activities
–Old Law
conditional activities: 386・prohibited activities: 51
–New Law
conditional activities: 267・prohibited activities: 6
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Types of Foreign Invested Economic Organization
(FIEO) under the new M&A procedures
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A
Offshore Investor
F1
Company in Vietnam
with 51%+ ownership
by A
F2
Company in Vietnam
with 51%+ ownership
by F1
F3
Company in Vietnam
with 51%+ ownership by
A and F1
F1, F2 and F3 are considered
as FIEO and subject to
investment requirements
applicable for Offshore
Investor
Others: subject to
requirements applicable for
domestic investor

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M&A procedures for foreign investors under new 2014
Investment Law
• Appears to be simple!!! Only registration required, no more IRC
 Satisfying the requirements for investment
 Submitting application dossier
 Assessment by the licensing authority and decision making after 15 days
 Save up to 4-6 months
• Subjects:
 foreign investors making investment in conditional business activities for
foreign investors;
 F1, F2 or F3 holding 51% or more of the targeted economic enterprise after
the M&A
 Exclusion: Company other than F1, F2 and F3:
 Registration to amend the ERC (for LLCs)
 Notification of the change in foreign shareholders (for JSCs)
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FOREIGN EQUITY CAP LIFTED IN
PUBLIC COMPANIES
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Rules on foreign ownership in a listed company
• If Vietnamese law, including international treaties, provides for a specific
ownership cap, the maximum foreign ownership (MFO) must not exceed such a
cap.
• If Vietnamese law treats a business activity as conditional on foreign investment
(pursuant to the list of conditional sectors under the Investment Law) but does
not yet provide any ownership limit, MFO must not exceed 49%.
• If Vietnamese law provides ownership limit for public companies in specific
business sectors (for example, 30% for banking), MFO must not exceed such
limit.
• If a public company conducts different business activities in which MFOs have
been provided differently, the MFO will not exceed the minimum ratio
specified in relation to the business activities which such company is
conducting, unless otherwise stipulated in any applicable international treaty
• In cases that do not fall within the above 4 groups, MFO can be up to 100%.
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Positive effects of the relaxed foreign equity cap
• Foreign investors are no longer restricted from investing in public
listed companies
• More investment opportunities for foreign private equity investors
to invest in majority stakes in companies. However, the
Government still takes certain control over conditional business
sectors where MFO is still limited in the Investment Law and the
company’s charter (if any).
• Enhance market liquidity and capitalization levels.
• Easier to find strategic investors (lessons learned from failed IPOs
of Vietnam Airlines and other big companies).
• Accelerate companies’ restructuring and equitization of state-
owned enterprises
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State-owned enterprises open up to foreign investors
(Decision No. 58/2016/QD-TTg)
Sectors in which the state will retain ownership of over 65% (there are
4 companies in total) include:
• Operation management of airports; operating flight area services;
• Navigation information services, surveillance, aviation meteorological
services;
• Mineral mining of large scale according to current regulations on
classification of mine scale;
• Exploration, development and exploitation of oil and gas mines; and
• Finance and Banking (excluding insurance, securities and fund
management companies, finance companies and financial leasing
companies).
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State-owned enterprises open up to foreign investors
(Decision No. 58/2016/QD-TTg) (cont.)
Sectors in which the state will retain ownership of 50%-65% (there are 27 companies in
total):
• Production of basic chemicals;
• Air carriage;
• Enterprises whose market share is 30% or higher, having a role to ensure major balance of the
economy and stabilize the market, operating in the following areas:
a) Rice wholesale;
– b) Focal petroleum imports.
• Production of cigarettes;
• Provision of telecommunications services with network infrastructure;
• Growing and processing rubber, coffee in strategic areas, mountainous and remote area linked
to national defense and security;
• Enterprises ensuring basic needs for the development of production and improving material
life, spirit of ethnic minorities in mountainous, remote and isolated area;
• Electricity retail business (consistent with the formation and development of the electricity
market levels).22

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VIETNAM’S RECENT INTEGRATION
TO REGIONAL AND
INTERNATIONAL ECONOMY
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TPP is back without the US
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EU – Vietnam Free Trade Agreement
(EVFTA)
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EVFTA – Comprehensive agreement
• Trade in goods
Market access for goods – tariffs
Rules of Origin
Export duties
Technical Barriers to Trade (TBT)
Sanitary and Phytosanitary Measures
Customs and Trade Facilitation
Administrative Cooperation in Customs Matters
• Services and investment:
National treatment
Liberalisation commitments / market access
Investment to state dispute settlement
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Cross-cutting issues
Dispute Settlement and Investment
Dispute Settlement
Government Procurement
State Owned Enterprises & Subsidies
Intellectual Property Rights
Geographical Indications
Trade and Sustainable Development
Cooperation and Capacity building
Annexes (car; green tech and pharma)

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EVFTA – High protection for investors
• Improvement of intellectual property rights
• Better access to EU’s third important trading partner - ASEAN
• EVFTA secures a modern reformed investment dispute resolution
standard – Investor-State Dispute Settlement (ISDS)
– Independent International Tribunal will be competent to all conflicts about
investment protection provisions (5 year transitional period for Vietnam)
– A court of Appeal will be established
– UNCITRAL rules on transparency in treaty-based investor-state arbitration
are implemented which guarantees a high standard of juridical transparency
– The decisions of the tribunal are enforceable and cannot be questioned by
local jurisdiction
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WTO ANALYSIS OF LIBERALIZATION
OF MARKET ACCESS
• Typical restrictions: number of opened sectors, JV requirement,
limits on foreign-owned shares, permission requirement
Copyright Oliver Massmann - All rights reserved
Country Limitation of
market access*
Country Limitation of
market access*
Malaysia medium Myanmar high
Indonesia medium Cambodia medium
Philippines medium Laos medium
Singapore low India high
Thailand medium China medium
Brunei high Vietnam low

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Sealing the deals
• Conduct a careful Due Diligence
(including legal and financial)
• Make sure all business lines of the target entity are
transferred to the new entity upon the deal completion
• Note that M&A activities are administered by the
Foreign Department under the Department of Planning
Investment and dossiers are subject to very strict
examination
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M&A Outlook 2017
• Simplified M&A procedures under new Investment Law, relaxed foreign cap
in listed companies, equitization plan and high protection for investors in the
EVFTA will boost M&A process this year.
• Start-up trends in Vietnam will drive more M&A, especially in technology, e-
commerce and financial sectors
• Planned IPO of Dung Quat Oli Refinery Plant and Electricity Generation
Corporations (GENCOs) under the Electricity of Vietnam
• Real estate sector will continue to see a number of M&A big deals, especially
in sale and purchase of real estate projects (FDI in real estate sector in 2016
ranks No. 3, an increase of 12% compared with 2015)
• There is great room for growth in the retail and consumer goods sectors.
Modern trade channels such as supermarkets and convenience stores only
account for less than 30% of sales, while the government targets a double
number within the next 4 years.
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Questions & Answers
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References (1)
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References (2)
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References (3)
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References (4)
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