Merger and acquisition in Vietnam

Introduction

Alongside with the Vietnam’s economy being integrated into the global economy, merger and acquisition (“M&A”) have occurred in Vietnam recently. Currently, most of major M&A transactions are in the cases of offshore investment funds acquiring the business together with the controlling rights in private equity deals and some other cases by local businesses. M&A leading to “economic concentration” has not yet happened in Vietnam.

Legally speaking, M&A are not regulated by a single legal framework but by various laws and regulations.

In Vietnam, M&A often falls into one of the following circumstances:

• Sale / purchase of shares (of joint-stock companies) or contributed capital (of limited liability companies). This kind of transaction includes the direct contribution to the enterprise via contribution to the charter capital or purchase of newly-issued shares, or purchase of the contributed capital or shares from existing members and shareholders. Both methods result in changing the capital and equity structure in the company;
• Sale and purchase of the entire enterprise: only applies to sale and purchase of private enterprise or of a number of state owned enterprises, or a part of them permitted for sale pursuant to the Government’s regulation on transfer, sale or lease of state owned enterprises;
• Division, separation of company or merger or consolidation of a company:
• Division of company means a company being divided into two or more companies of the same type. The divided company will cease to exist and a number of new companies will appear from the divided company.
• Separation of company means a company transferring part of its assets to form one or more new companies of the same type. Separated company continues to exist alongside with the new company.
• Consolidation of enterprises means two or more companies of the same type consolidating into one new company, all companies before the consolidation will cease to exist.
• Merger means one or more companies of the same type merging into another company, the merged companies will cease to exist.
• Acquiring equity capital via directly or indirectly buying back of debt means a party acquiring the controlling rights or equity capital of a company by settlement of debt on behalf of such company, and in return, the debt-paying party shall be entitled to manage or acquire the company’s capital;
• Purchasing the assets or an independent business division of a company (but not the whole company) means a company acquires in whole or in part or some of independent business division or manufacture facility of another company. In practice, this kind of transaction is quite common in the new emerging market like Vietnam to avoid implicit risks when purchasing an enterprise;
• The foreign party (or Vietnamese party) in a joint venture company purchases the shares/capital contribution of the other party; thus converting it into a company wholly owned by the purchasing party;
• Public tender means the sale offer of voting preferential shares which may lead to the ownership of 25% or more shares of a public company or the purchase offer by which the offered party shall sell its shares;
• Offshore M&A. This type occurs only with joint venture companies, where all or the majority of the equity ownership of the foreign party is acquired by a third party outside Vietnam, thus the purchasing party indirectly becomes the “foreign party” by possessing or controlling the capital or management of such foreign party .

Merger and acquisition in Vietnam

Notes to foreign investors

The laws of Vietnam and a number of bilateral or multilateral agreements between Vietnam and other countries, especially Vietnam’s Commitments to WTO, impose some restrictions on foreign investors in various sectors. Foreign investors should pay attention to the following restrictions:

• Restriction on holding of equity ownership. Currently, foreign investors can hold up to 49% shares of public companies unless otherwise provided by law in some sectors. For example, the total shares of all foreign investors and their related persons are limited at 30% of the charter capital of a bank or other cases (see Part X – Financial Service).
• Restriction on transfer of shares. Within the first 3 years upon the issuance of the Business Registration Certificate, founding shareholders in a joint stock company can only transfer their shares to a party which is not a founding shareholder if the transfer is approved by the General Shareholders’ Meeting.
• Restriction on the transferee. In a few sectors, such as in securities companies, only the foreign securities company can buy shares or contribute capital to a domestic securities company or a securities company which has the license in fund / asset management, or an insurance company can buy shares or contribute capital to a fund management company, with a cap of 49% of equity of respective company.
• In some other particular circumstances, there are some restrictions on the form of investments, the ownership right or the right to use particular assets which prevent foreign investors from owning 100% of the capital of a company.

In addition to the above-mentioned key matters, foreign investors should also pay attention to labor, tax and land use right issues in M&A deals. The use of legal and financial consultants is very important in the context that the legal framework in Vietnam changes frequently, and that the laws and regulations on M&A are not yet stabilized.