New Vietnam investment law won't help public sector

1. New Vietnam investment law won't help public sector
"As only a minority of the shares is offered for sale, the investors are not quite interested."
Oliver Massmann, General Director, Duane Morris Vietnam LLC
A new investment law that took effect in July is likely to keep investment flowing to Vietnam's
private sector but won't help Prime Minister Nguyen Tan Dung achieve this year's target for
selling minority stakes in several hundred public-sector firms.
Prime Minister Nguyen Tan Dung's push to sell minority stakes and reduce bloat in nearly 300
Vietnamese state-owned firms by the end of the year is unlikely to be successful despite recent
reforms in business laws implemented in July that make it easier for foreign investors to acquire
companies.
"This seems to be an ambitious target as the number of privatized enterprises is only 61 in the
first six months of 2015," Oliver Massmann, general director at the Hanoi office of corporate law
firm Duane Morris LLP, tells MGO via email. "Moreover, as only a minority of the shares is
offered for sale, the investors are not quite interested in the transaction, especially when they
would not have any decision-making power or their involvement in the management of the
enterprise is very limited."
Public sector firms account for 30 percent of Vietnam's GDP, and the country has been seeking
to privatize and restructure them in order to reduce their debt, confine spending to core business
activities, and help them acquire strategic foreign partnerships. According to a piece Mr.
Massmann wrote for industry magazine The Asia Miner last year, state enterprises own 70
percent of property in Vietnam and account for 60 percent of commercial bank credit.
But despite initiating the process of restructuring and reforming public firms several years ago,
Vietnam has been unable so far to address a number of factors that are hampering the divestment
process.
Vietnam law continues to cap foreign ownership at 49 percent in listed firms, which many public
sector enterprises are. And in most cases Vietnam is not selling stakes anywhere near the 49
percent limit -- or even large enough to give investors decision-blocking powers.
In addition, it remains difficult for investors to value the shares that are being offered, given the
lack of adequate audit reports. As a result, the Vietnamese Ministry of Finance is carrying out
valuations of each firm. As recently as last month, Asian Development Bank's chief economist
Aaron Batten noted that only 8 percent of state firms publish financial reports on their websites,
according to a report in the English-language daily Viet Nam News.
Due to these unresolved factors, Vietnam also fell short of its disinvestment target in 2014. Now,
with stock markets in the region wobbly, public sector firms are likely to have an even harder

2. time than they did last year, when as many as 143 firms were able to privatize some shares,
according to Vietnamese media reports.
Mr. Massmann clarified, however, that the lack of investor interest in public enterprises comes
against the backdrop of an improved overall investment and business climate in the country.
The 2014 Investment Law, which went into effect July 1, does away with something called an
investment certificate, a business registration for foreign investors that was supposed to be
approved in 45 days but in practice took four to six months to process, according to Mr.
Massmann's firm.
The law has also reduced the number of "conditional" business activities, areas of the economy
in which investors have to seek approval with provincial planning departments. Construction,
urban planning and education continue to remain conditional activities, but even in these sectors,
acquisitions should become much easier, business analysts say.
Meanwhile, earlier tax law changes have also drastically cut the hours businesses spend on tax
preparation and filing,
Vietnam has made "positive changes to improve the business environment and strengthen the
economy's ability to compete in 2015 and 2016," Mr. Massmann tells MGO.
The apparel and textile manufacturing sector has drawn a large share of investment this year and
is likely to continue to do so. Seafood processing, electronics manufacturing and retail and
banking are also likely to attract investment into next year.
Mr. Massmann also foresees that the government will try to make investing in state firms more
attractive by increasing the share of equity for sale, something that has so far been resisted by the
management of many state firms, who perhaps fear that equity shares that allow for closer
scrutiny of corporate governance could expose poor management or even corruption.
***
Please do not hesitate to contact Mr. Oliver Massmann under omassmann@duanemorris.com if
you have any questions on the above. Oliver Massmann is the General Director of Duane Morris
Vietnam LLC.