Capital market of Vietnam includes primary and secondary market under management and control of State Securities Commission
Post date: 14-09-2013
1. Overview of the Vietnamese Capital Markets
The Law on Securities provides the broad framework for securities regulation in Viet Nam, specifically legislating in the areas of:
- Public offers of securities (which, in Viet Nam, are distinguished from listings);
- Public companies (which include but are not limited to listed companies);
- The securities trading markets (both the stock exchanges and the unlisted market);
- Securities registration, depositary, clearance and payment facilities;
- Securities businesses including securities companies, fund management companies, securities investment companies and custodian banks;
- Public funds and members funds; and
- disclosure of information.
In Vietnam, the State Securities Commission ("SSC") is the State Body which manages and controls all operations of the Vietnamese capital markets.
Capital market of Vietnam
The capital markets in Vietnam are divided into 2 categories:
(i) the primary market, where newly issued securities are sold and bought; and
(ii) the secondary market, where securities are sold or bought after the stock is sold at the primary market.
Secondary markets in Vietnam include the Hanoi and Ho Chi Minh city Stock Exchanges and the OTC trading market, where sellers negotiate directly with buyers outside of the stock exchange system. The securities traded on the OTC trading market are usually those of small and medium companies that do not satisfy requirements for listing.
2. Key bodies in the securities industry
All public companies must register their securities with the Viet Nam Securities Depository. Listed securities are traded on one of Viet Nam”s two stock exchanges and there is also an unlisted public companies market
a. State Securities Commission (SSC)
The key securities regulator in Viet Nam is the SSC, whose work is overseen by the Ministry of Finance (MOF). The SSC is the body that licenses securities businesses, approves public offers of securities and takeovers, oversees management of the markets and market players and investigates breaches of, and enforces, the securities laws.
b. Ho Chi Minh City Stock Exchange (HOSE) and the Ha Noi Stock Exchange (HNX)
Vietnam’s capital markets are still in a relatively nascent stage. To date, two securities trading centres have been established in Ho Chi Minh City (in 2000) and Hanoi (in 2005). In August 2007, the Ho Chi Minh City Securities Trading Centre was renamed the Ho Chi Minh City Stock Exchange, and the Hanoi Securities Trading Centre was reconstituted as the Hanoi Stock Exchange in January 2009. The Ho Chi Minh City Stock Exchange is to serve as the country’s primary stock exchange. A market for securities of unlisted public companies (UpCOM) was opened in the Hanoi Stock Exchange in June 2009.
Beyond listing and trading securities, the HOSE also offers an official mechanism through which new government bonds are issued and is the secondary market for existing bonds.
To qualify for admission on either exchange, a company must first conduct an approved public offer of shares. Both exchanges also apply various listing criteria including minimum capital requirements, required periods of profitable activities prior to listing, minimum number of shareholders (”spread”) and commitments by management to retain their interests in the company for a minimum specified period.
Both exchanges also apply trading rules and restrictions, including trading price bands to minimise price fluctuations.
The types of securities that are traded on the two exchanges are limited to ordinary shares, fund certificates and bonds. The Law on Securities contemplates other types of securities such as options, forward contracts, warrants and securities indices which can be publicly offered but it will take some time before the securities market reaches an appropriate level of maturity to accommodate the offer of these more sophisticated instruments.
The securities law also contemplates the ability for offshore issuers to publicly offer their securities to Vietnamese investors as well as listing the securities on the HOSE or HNX. This concept is relatively new and is likely to require further regulation by the MOF.
c. The Unlisted Public Companies Market (UPCoM)
The UPCoM is a market recently established by the MOF, SSC and HNX to regulate ”over the counter” shares and convertible bonds of unlisted public companies. Admission of a public company”s shares or convertible bonds for trading on UPCoM is, by default, mandatory for all public companies because, by law, they must all register with the Viet Nam Securities Depository (VSD) (see below) and the VSD will not accept share transfers which have not been transacted via UPCoM or a regulated market. ”Listing” on UPCoM provides the advantages of a central, transparent trading platform, but also means that certain trading rules and restrictions apply, including a requirement that all trades be put through UPCoM (except for public offers or takeovers) and a trading price band.
d. Viet Nam Securities Depository (VSD)
The VSD is the single central securities depository of Viet Nam. The law requires all public companies to register their securities with the VSD. VSD is a limited liability company owned by the State whose principal functions include:
- to register and deposit securities which are publicly issued and listed and traded on the stock exchanges and UPCoM;
- clear and settle transactions of securities traded on the stock exchanges and UPCoM; and
- act as a transfer agent and handle corporate actions for issuers which have securities that are publicly issued, registered and listed on the stock exchanges and UPCoM.
e. State Capital Investment Corporation (SCIC)
The SCIC is Viet Nam”s sovereign wealth manager, the official entity assigned to manage State capital freed up by the ”equitisation” of State-owned enterprises.
The SCIC holds and manages state owned shares (making it the ”state shareholder”) of state-owned enterprises that have been transformed into shareholding companies.
3 Key features of the Vietnamese securities market
a. Public Companies
A public company is any shareholding company which meets one or more of the following criteria:
- has issued shares via a public offer;
- has its shares listed on one of the Stock Exchanges;
- has its shares owned by more than 100 investors (excluding institutional investors) with paid-up charter capital of more than 10 billion Vietnamese dong.
Public companies are subject to filing and disclosure requirements, and there are also disclosure requirements for major shareholders (being those holding at least 5%).
In addition, SSC registration and approval rules apply to private placements (being offers which are not public offers) by public companies and an SSC approved ”public offer to acquire” securities (effectively a takeover offer) is mandatory where an offer to purchase voting shares in a public company would lead to the offer or owning 25% or more of the shares in that company.
b. Public offer and Listing
In Viet Nam, the processes of a public offer and listing are different, although both may be conducted simultaneously.
A public offer, which must precede or coincide with any application to list, is an offer to sell share, bonds or fund certificates via the mass media or to at least 100 investors (excluding institutional investors).
A public offer:
- must be approved by the SSC;
- is made by way of a prospectus, which is registered with the SSC as part of the approval process; and
- must denominate the securities offered in Vietnamese dong.
Listing is the process of taking a privately-owned organisation (including a company that has previously conducted a public offer or a State Owned Company undergoing the equitisation process) and making it available to the public via trading on a stock exchange.
Market disclosure rules apply to public companies, bond issuers, listed companies, securities companies, funds management companies, securities investment companies and stock exchanges.
Public companies are required to make both periodic disclosures, such as annual audited financial information, and ”extraordinary” disclosures to the SSC and to the relevant exchange if the company is listed. The rules specify particular circumstances and events which must be disclosed as well as an overriding requirement to make timely disclosure of any information which impacts on the price of their securities.
d. Insider trading
Vietnamese law prohibits the use of inside information (information not publicly disclosed which could have a major impact on the price of securities) to purchase or sell securities for oneself or for a third party (or advise another to do so).
4. Public Offer of Securities
Under the Law on Securities (as amended on 24 November 2010), in order to offer securities to the public, an enterprise must meet certain conditions regarding its charter capital, financial standing and its plan to use the capital raised. Such requirements for different types of securities are set out in the table below.
Type of Securities
■ have a minimum paid-up charter capital of VND10 billion;
■ must be profitable in the year immediately preceding
Being one of following types enterprises: shareholding enterprise, state own entities in process of conversion into limited liablility company or shareholding enterpris, and foreign inveted enterprise in Vietnam.
Having been in operation for at least one year;
Having audit financial report for the year preceding year of bond issue.Not have any accumulated losses calculated up to the year of registration of the offer; and must have an issuance plan and a plan for utilization of the proceeds earned from the offer, passed by a general meeting of shareholders have a minimum paid-up charter capital of VND10 billion; must be profitable in the year immediately preceding the year of registration of the offer, and not have any accumulated losses calculated up to the year of registration of the offer; and must have an issuance plan and a plan for utilization of and repayment of the proceeds earned from the offer, passed by the board of management or the member”s council or the company owner
The total value of the fund certificates registered for the offer must have a minimum value of VND50 billion; and must have an issuance plan and a plan for investment of the funds obtained from the offer consistent with the applicable laws and regulations
5. Registration for public offers of Securities with the SSC
A public offer of securities in Vietnam must be registered with the SSC, except where the public offer falls under the following circumstances:
(i) an offer of bonds of the Government of Vietnam;
(ii) an offer of bonds of an international financial institutions approved by the Government of Vietnam;
(iii) a public offer of shares by a State-owned enterprise during the process of conversion to a shareholding company (also known as equitization); and
(iv) The sale of securities pursuant to a verdict or decision of a court, or the sale of securities by the manager or receiver of assets in a case of bankruptcy or insolvency.
After completion of the public offering, the issuing company is required to report to the SSC on the result of the offering.
Registration of securities requires the submission of a dossier of registration.
A dossier for registration of securities must include (amongst other things) a prospectus and decision of the shareholders” general assembly adopting the issuance plan.
A dossier for registration of bonds needs to include (amongst other things) a prospectus and decision of the Board of Directors, the Council of Members or the company”s owner, adopting the issuance plan.
6. Foreign Investment in Capital Markets
A common method for foreign investors to indirectly invest in Viet Nam is via the securities market, particularly the stock exchanges.
Foreign investors wishing to invest in listed or unlisted securities must first:
- obtain a securities trading code from the VSD; and
- open an indirect investment capital account at an appropriately authorised bank in Viet Nam.
An investor may trade through a securities company, authorised transaction representative or local fund manager depending on the investor”s desired level of supervision of their investments.
Foreign organisations and individuals must obtain a securities trading code to sell and purchase securities in Vietnam’s securities market
A. Restrictions on foreign Investment
There are certain restrictions relating to foreign investment in securities on the securities market and shares and bonds issued by enterprises in Vietnam.
Regarding securities on the securities market of Vietnam, foreign investors are only permitted to purchase and sell:
(i) a maximum 49% of the total number of shares in a public shareholding company in general;
(ii) a maximum 49% of the total number of investment fund certificates of any one public securities investment fund;
(iii) a maximum 49% of the charter capital of any one public securities investment company;
Regarding bonds, the issuing organization may regulate the limits on the percentage of ownership of circulating bonds of such issuing organization.
Regarding shares and bonds issued by Vietnamese enterprises, the percentage of such securities that foreign investors are permitted to hold are subject to specialized laws on the business sectors of issuing organizations.
Other than above cases, foreign investors shall be permitted to purchase shareholding in Vietnamese enterprises without any restrictions.
Orders from foreign investors will not be put through the trading system if there is no room for foreign investors in relation to the particular listed company. Additionally, lower caps, such as those applying to banks, will apply even where an entity is listed.
Specific limitations apply to joint stock commercial banks which have been listed or have registered for trading on a Stock Exchange.
Foreign securities service suppliers are permitted to establish representative offices and may enter into joint ventures with Vietnamese partners, but the foreign capital contribution may not exceed 49% of the charter capital of the joint venture.
B. Consequences of Acquisition of Securities by Foreign Investors
After acquisition of shares in a company, investors will obtain the right to manage such company either directly or indirectly. Under Vietnamese laws, they will also have certain other rights and obligations, including:
(i) to receive dividends;
(ii) to pay for the debts of the company to the extent of the shares they are holding;
(iii) to attend the Shareholders” Meeting to decide on the important matters concerning the company;
(iv) to register with the relevant business registrar within 7 days from the date of acquiring shares in respect of the shareholders owning 5% or more of the total number of shares.
Individual investors are subject to personal income tax in respect of income earned from the trading of securities in Vietnam. Personal income tax is imposed at the rate of 5% on any payment of dividends (on shares or fund certificates) or interests (on bonds). Regarding the transfer of securities, personal income tax is imposed in one of two ways:
(i) at the rate of 20% of any capital gains earned on any safe of securities, or
(ii) at the rate of 0.1% of the value of the sale, irrespective of whether there is any capital gain.
Corporate investors are exempted from tax payments of dividends (dividends distributed from activities being capital contribution, joint venture [and/or] association with a domestic enterprise after payment of corporate income tax in accordance with this Law) But they are subject to 0.1% tax imposed on interests earned on bonds. Regarding the transfer of securities, proceeds of "such transfer received by foreign corporate investor shall be charged at the rate of 0.1%, irrespective of whether there is any capital gain.
7. Listing of Securities in Foreign Stock Exchanges
Vietnamese enterprises are permitted to list securities on foreign stock exchanges, as long as they satisfy certain conditions, including but not limited to the following:
a. Not be on the list of businesses and trades in which participation by foreigners is prohibited, and it must satisfy the foreign ownership ratio stipulated in regulations.
b. The issuing organization listing the base securities on the foreign Stock Exchange is doing so in association with an offer to sell securities overseas.
c. There is a decision approving listing on the foreign Stock Exchange passed by the general meeting of shareholders (in the case of a shareholding company), by the members” council (in the case of a multiple member limited liability company) or by the company owner (in the case of a single member limited liability company).
d. It satisfies the conditions for listing on the foreign Stock Exchange stipulated by the home country in the co-operative agreement between the SSC or a Stock Exchange of Vietnam with the Securities Market Regulator or Stock Exchange of such home country.
e. It complies with the provisions of Vietnam on foreign exchange control.
f. If the issuing organization conducts business in a conditional line, then it must have consent from the State administrative authority [Regulator] for such specialized branch.
g. The State Securities Commission approves the application file for registration.
8 Private Placement of bonds
A Vietnamese enterprises includes shareholding and limited liability companies shall be permitted to issue bonds via private placement in the domestic and international market for the following objectives:
a. To implement investment programs and projects of the enterprise.
b. To increase the operational capital scale of the enterprise.
c. To restructure the debts of the enterprise
Enterprise bond has two types, the nonconvertible and convertible bonds. It may be issued under forms of certificates, book entries or electronic data. Enterprise bonds shall have a term of one year or more.
9. Securities businesses
Special licensing procedures under the SSC apply to various securities businesses including:
- Securities Companies: which engage in securities brokerage, selftrading, underwriting and securities investment consultancy;
- Funds Management Companies: which manage funds and investment portfolios; and
- Securities Investment Companies: shareholding companies which invest in securities, including holding shares in Vietnamese companies. These are akin to an incorporated fund investing in securities. Currently, no securities investment companies have been licensed.
Licensing requirements include minimum legal capital requirements, infrastructure requirements (for example computer systems) and staff qualifications.
10. Securities investment funds
Viet Nam”s securiries investment funds includes both public funds and members” funds.
Public funds, which may be ”closed” or ”open” to redemption requests, must comply with various requirements as to the number of investors and the minimum subscriptions. Their operations, including the nature and percentage of their investments, is also regulated.
Members” funds are subject to less regulatory scrutiny and investment restrictions than public funds, being largely governed by the agreement of the members in the fund”s Charter. Such funds also require fewer investors and simpler internal management structures.
11 Violations of the Law on Securities
Any organization or individual who breaches the provisions of the Law on Securities and other provisions of laws relating to securities and the securities market, depending on the nature and seriousness of the breach, shall be disciplined, be subject to an administrative penalty, or be criminally prosecuted. If they cause loss and damage, they must pay compensation in accordance with law.
Under the law, penal liability can take the form of either administrative or criminal liability depending on the nature and seriousness of the breach. With respect to administrative liability, the law provides for penalty of up to a fine of VND70 million. In addition, the offender may also be subject to an order to compulsorily implement the law; to compulsorily rescind or rectify incorrect or false information; to compulsorily recall securities which have been issued, and to refund deposits or the purchase price of securities to investors.