omass - addressing and overcoming investment and m&a difficulties : from vietnam to thailand...

www.duanemorris.com

AGENDA:

• INVESTMENT LAW, ENTERPRISE LAW AND THEIR

IMPLEMENTING DECREES – WHAT IS NEW?

• NEW M&A PROCEDURES

• FOREIGN EQUITY CAP LIFITED UNDER DECREE NO.

60/2015/ND-CP

• VIETNAM’S RECENT INTEGRATION TO REGIONAL

AND INTERNATIONAL ECONOMY

• CONCLUSION 2

www.duanemorris.com

Vietnam 2015 Economy at a glance • GDP: US$204 billion

• GDP per capita: US$2,109

• GDP Growth: 6.68 % (compared to 5.98%

in 2014, highest in the past 5 years)

• Inflation: 0.63% (lowest in the past 10

years)

• Population: About 91.70 million

• Labor force aged 15 and above: 54.61 million

• Total export and import turnover: : US$

$327.76 billion (10% increase)

• Minimum wage: VND 3.5 million (US$ 156)

per month (Jan 2016)

3

www.duanemorris.com

Number of deals and deal value

4

Source: StoxPlus

www.duanemorris.com

Deals overview in 2015

• Foreign investment accounts for 46% of the total deal value

(~USD 2 billion)

• Main foreign investors in M&A deals: Hong Kong, Thailand,

Japan, Korea, United States, Malaysia and Singapore.

• Small and medium sized M&A deals account for 84% of the total

number of deals.

• M&A deals in real estate sector top sectors attracting foreign direct

investment with 20 deals.

• M&A in industrial goods and services (logistics, plastics packaging,

transport, electronic devices, commercial vehicles), construction

and construction materials, food and beverage, retail sectors … are

also active. 5

www.duanemorris.com

Notable M&A deals in Vietnam in 2015

• Power Buy (Central Group) bought 49% shares of Nguyen Kim JSC in

January 2015.

• Sacombank acquired Southern Bank in May 2015, bringing Sacombank

to be the top 5 Vietnamese commercial bank

• Muong Thanh Hospitality acquired 53.4% of Phuong Dong Petroleum

and Tourism JSC in June 2015

• GamudaLand bought 100% of Celadon real estate project from Sai Gon

Commercial Real Estate JSC in June 2015 at VND1,400 billion (around

USD61.2 million)

• Creed Group bought 50% of An Gia Real Estate Company in July 2015

at USD 200 million)

• Vingroup bought 89.42% shares in Vietnam Exhibition Fair Center in

June 2015 6

www.duanemorris.com

Catalyst of Vietnam M&A 2015

• New Investment Law and New Enterprise Law

• Revision of foreign real estate investment

• Easing of WTO restrictions on foreign investment

(e.g., restaurant, logistics, foreign ownership of public companies)

• New FTAs (AEC, TPP, EU-VN FTA)

7

www.duanemorris.com

INVESTMENT LAW, ENTERPRISE

LAW AND THEIR IMPLEMENTING

DECREES – WHAT IS NEW?

8

www.duanemorris.com

Investment environment in Vietnam

• Main governing laws: Investment Law, Enterprise Law and their

implementing documents

• Forms of doing investment in Vietnam:

– Economic entity establishment;

– Business cooperation contract: a contractual arrangement

between two or more investors without creating a legal entity

– Public-Private Partnership; a contractual agreement

between competent state authorities and investors, an

enterprise project in order to implement an investment

project;

– purchase of shares or capital contribution.

9

www.duanemorris.com

Investment environment in Vietnam • Forms of enterprises in Vietnam

– Limited liability company: members are liable to the extent of their

capital contributed

– Shareholding Company: charter capital (authorized share capital) is

divided into shares and members are liable to the extent of their capital

contributed

– Partnership: established between two or more partners;

– Business Cooperation Contract: an agreement without constituting a

legal entity and each party is individually responsible for paying taxes.

– Branch: a branch of a foreign company permitted to conduct

commercial activities

– Representative Office: represents the parent company, no actual

business operations. A suitable tool for market research 10

www.duanemorris.com

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

11

www.duanemorris.com

• Prohibited business activities:

– Trade in the narcotic substances as specified;

– Trade in the chemicals and minerals as specified;

– Trade in specimens of wild flora and fauna as specified in

Appendix 1 of Convention on International Trade in

Endangered Species of Wild Fauna and Flora; specimens of

rare and/or endangered species of wild fauna and flora as

specified;

– Prostitution;

– Human trafficking; trade in human tissues and body parts;

– Business pertaining to human cloning.

Prohibited business activities

12

www.duanemorris.com

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.1,

Decree 5 law on new investment

• Reduction of conditional and prohibited activities –Old Law

conditional activities: 386・prohibited activities: 51

–New Law

conditional activities: 267・prohibited activities: 6

13

www.duanemorris.com

Foreign investors – Who are they?

• Foreign nationals and foreign corporate entities

• Foreign Invested Economic Organizations (FIEO):

those whose members or shareholders are foreign

investors

• FIEO under the M&A rules: narrower scope (see

next slide)

14

www.duanemorris.com

FIEO under the new M&A procedures

15

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

www.duanemorris.com

16

www.duanemorris.com

Investment procedure under new 2014 Investment Law

• Under the Investment Law and Enterprise Law: 2 separate steps - Application for

Investment Registration Certificate (“IRC”) and Application for Enterprise Registration

Certificate (“ERC”)

• Step 1: IRC

– IRCs for projects required to obtain preliminary approval of the National Assembly/ People’s

Committee are issued within 05 working days upon issuance of such approval

– For other projects, IRCs are issued within 15 days (instead of 35 days as in the old law) upon

receipt of the application dossier

• Step 2: ERC

– Submit an application dossier to the licensing authority upon issuance of the IRC

– ERCs are issued within 03 working days upon receipt of the application dossier

• Under recent Decree guiding the Investment Law: 2 steps can be combined and

application dossiers for IRC and ERC can be submitted at the same time to the

investment registration authority only.

• The IRC and ERC will be given to the investors at the same time at the investment

registration authority.

17

www.duanemorris.com

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)

18

www.duanemorris.com

19

www.duanemorris.com

20

www.duanemorris.com

FOREIGN EQUITY CAP LIFTED IN

PUBLIC COMPANIES

21

www.duanemorris.com

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%.

22

www.duanemorris.com

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 recent failed

IPOs of Vietnam Airlines and other big companies).

• Accelerate companies’ restructuring and equitization of state-

owned enterprises 23

www.duanemorris.com

How the new foreign equity cap be

implemented until now • MFO in public securities companies and fund management

companies (up to 100%) can be implemented immediately

without further guiding documents

• Circular No. 123/2015 guiding the procedures to

implement the MFO in securities companies has been

issued on 18 August 215 and takes effect from 01 October

2015. However, the MPI has not issued any document

guiding the specific MFO in other conditional business

sectors. foreign investors now cast certain doubts about

the implementation feasibility of Decree 60.

24

www.duanemorris.com

But MFO is not the only hindrance for foreign

investment …

• Limited stakes offered for sale in state-owned

enterprises, especially large SOEs (only 3-5%)

• Financial statements not in compliance with

international accounting and auditing standards

difficulties for investors to evaluate the real value of

the target company

• Lack of transparency in company management

25

www.duanemorris.com

What steps investors should take to determine MFO in

a target company • Step 1: Whether the MFO in business activities of the target company

is specified in international treaties to which Vietnam is a party (for

example, WTO, TPP)

– If Yes: such cap applies

– If No: move to Step 2

• Step 2: Whether the MFO in business activities of the target company

is specified in the Investment Law, on the National Information Gate

on foreign investment or in any relevant Vietnamese law

– If Yes: Such cap applies

– If No: Move to Step 3

• Step 3: Whether the remaining business activities of the target

company is conditional for foreign investors

• If Yes: 49% MFO applies - If No: up to 100% MFO applies 26

www.duanemorris.com

How to go beyond the MFO in public companies

• Seek a fund management company to purchase shares of

the target company, hold such shares on trust for the

foreign investors and sell the shares back to foreign

investors when the room for foreign investment is more

open. This approach is recognized under Vietnam laws; or

• Find a local individual or corporate entity to act as a trusted

nominee. This approach does not expressly provide for

such nominee arrangement but is preferred by foreign

investor in practice as it helps to circumvent market access

restrictions.

27

www.duanemorris.com

High expectation in foreign investment surge

• Foreign investment in public companies will increase

after relaxed MFO in Decree 60

• Combined effects with the AEC, TPP and EU- Vietnam

FTA

28

www.duanemorris.com

VIETNAM’S RECENT INTEGRATION

TO REGIONAL AND

INTERNATIONAL ECONOMY

29

www.duanemorris.com

AEC Market Snapshot – Asia’s main

investment hub

• GDP: US$2311.3 billion (2012)

• GDP per capita: US$3748.4 (2012)

• Population: 620 million, 60% under the age of 35

• AEC % of world GDP: ~3.3%

• AEC % of world population: 9%

• AEC’s merchandise exports: US$1.2 trillion - ~54% of total

ASEAN GDP and 7% of global exports

• If ASEAN were one economy, it would be the 7th largest in

the world – 4th largest by 2050 if growth trends continue

30

www.duanemorris.com

Key characteristics of AEC

31

www.duanemorris.com

EU – Vietnam Free Trade Agreement

(EVFTA)

32

www.duanemorris.com

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

33

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)

www.duanemorris.com

EVFTA – Benefits for Vietnam

• Vietnam’s annual economic expansions rate may grow an additional 15%

every year (said Tomaso Andreatta, representative of the European Business

Association in Vietnam (EuroCham), at the Vietnam Business Forum 2014)

• Tariffs for most of Vietnamese export product to the EU will gradually

reduce to 0% and Vietnam’s export to EU is expected to grow about 35%

for next few years

• The real wages of skilled laborers may increase by up to 12% while real

salary of common workers may rise by 13%

• The EVFTA is the legal framework for a more stable relationship in bilateral

trade for Vietnam when competing in the international market

• The EVFTA will generate greater effects, e.g. increased quality of

investment flows from EU, acceleration of the process of sharing expertise

and transfer of green technology and the creation of more employment

activities

34

www.duanemorris.com 35

www.duanemorris.com

How will TPP benefit Vietnam? 70% 70% of the total export value of Vietnam’s textile industry is from TPP countries. By participating in

the TPP, the market is expected to double. Export turnover to the US may reach USD55 billion in 2025

0% The average tax rate on textile products into

the US market is currently 17.5%, after TPP

it falls down to 0%

0% The whole import tariffs on footwear currently

from 3.5% to 57.4% also falls down to 0%

USD 335.7 billion According to a study by East – West Centre (USA), Vietnam’s GDP may increase by USD35.7 billion,

equivalent to 10.5% until 2025. At the same time, Vietnam’s exports also increase by 28.84%, equivalent

to USD67.9 billion

Investment increases by 9.2% TPP helps Vietnam’s GDP increase by 1-2%/year as a result of an increase in investment by 9.2% (mostly

inbound investment), consumption increase by USD6.9 billion and production increase by USD2.4 billion

Opportunities to

export flagship

products

Create more than 6

million jobs in textile

industry until 20

Liberalizing investment

environment among TPP

countries

Expectation on more competitive business

environment, cheaper goods and services at

higher quality

TPP offers free market access for enterprises

operating in service sectors

36

www.duanemorris.com

TPP and AEC intersection

39

Thailand

Malaysia

Brunei

Canada Australia

Cambodia

Indonesia Myanmar

Peru

Philippines

Japan

Laos

Mexico New Zealand

Singapore

The United States

Vietnam

Chile

www.duanemorris.com

Investing in Thailand

40

www.duanemorris.com

Investing in Thailand

• A foreigner may wholly own a business in Thailand,

unless the specific activity of that business is

restricted under the Foreign Business Act or is

otherwise prohibited by another law.

• Foreign companies are those whose 50% or more

share capital belongs to foreign individuals or juristic

entities; thus mainly subject to Foreign Business Act

• Limitation on foreign ownership in certain sectors:

banking, insurance, hotels, pharmaceuticals, etc.

41

www.duanemorris.com

Investing in Thailand (cont.)

• Enterprises operating in Investment Promotion Zones and

priority sectors are granted special incentives

• Corporate forms:

– Limited liability companies: either public or private, the capital

is divided equally into shares

– Partnerships: either ordinary or limited, two or more parties

join to do business

– Branch Offices

– Representative Offices: limited scope of activities

– Regional Offices: not allowed to generate profit

– Joint ventures 42

www.duanemorris.com

Investment incentives in Thailand • Tax incentives:

– Exemption/reduction of import duties on machinery.

– Reduction of import duties for raw or essential materials.

– Reduction of juristic person’s income tax and dividends.

– Double deductions from the costs of transportation, electricity and water

supply.

– Additional 25 percent deduction of the cost of installation or construction

of facilities.

– Exemption of import duty on raw or essential materials for use in

production for export.

• Non-tax incentives:

– Permit to bring into the Kingdom foreign nationals, skilled workers and

experts for investment studies and investment promoted activities

– Permit to remit money overseas in foreign currency

– Land ownership

43

www.duanemorris.com

Investment Guarantee

Guarantees against:

• nationalization,

• competition from state enterprises and monopolies

on the sale of similar products,

• price controls,

• export restrictions, and

• duty-free imports by government agencies or state

enterprises.

44

www.duanemorris.com

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

www.duanemorris.com

World Bank - Doing Business 2016

46

www.duanemorris.com

Outlook – Vietnam M&A hits record in 2016

(Bloomberg) • M&A in 2016 would mostly be in the consumer goods sector

• Real estate sector, esp. commercial real estate, is attracting much foreign

investment as the Law on Real Estate Business begins to take effect from 01

July 2015.

• Capital inflow from Japan will bounce back as a result of the TPP. Due to TPP

and removed tariffs, trade activities will likely increase, especially seafood

exported from Vietnam and plastic products imported from Japan to Vietnam.

• Thai companies will increase their investment in Vietnam, especially in

industrial goods and retail.

• Likely more deals in the textiles, footwear, construction and machinery sectors

as other 11 TPP members want to position themselves before Vietnam

• Government’s relaxation of foreign equity cap will also boost the M&A market

in the next year. 47

www.duanemorris.com

Questions & Answers

www.duanemorris.com

DUANE MORRIS VIETNAM LLC

Thank you very much!

HANOI OFFICE HO CHI MINH CITY OFFICE

Pacific Place, Unit V1307/08, 13th Floor, Suite 1503/04, Saigon Tower

83B Ly Thuong Kiet, Hoan Kiem District 29 Le Duan Street, District 1

Hanoi, Vietnam Ho Chi Minh City, Vietnam

Tel.: +84 4 39462200 Tel.: +84 8 3824 0240

Fax: +84 4 3946 1311 Fax: +84 8 3824 0241

Contact email:

[email protected]

49

mailto:[email protected]

mailto:[email protected]

www.duanemorris.com

References (1)

50

www.duanemorris.com

References (2)

51

www.duanemorris.com

References (3)

52

www.duanemorris.com

References (4)

53