SBV Proposes New Regulations for FDI in Credit Institutions

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By Francesca Grassi

Sept. 14 – The State Bank of Vietnam (SBV) has recently elaborated a (third) “Draft Decree” regulating foreign shares in Vietnamese commercial banks: if the new guidelines receive the placet of the government, Decree 69/07 ND-CP (dated April 20, 2007) on foreign investors’ acquisition of shares in Vietnamese institutions will be superseded and current legislation on credit institutions and on enterprises will inevitably be shattered.

In particular, the SBV Draft Decree introduces debatable core “novelties” affecting regulations on:

  • Mandatory authorization of the SBV Governor in order to purchase a larger quantity of shares by foreign owners; and
  • A three-year lock-up rule for foreign share transfers.
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New Art.4.1 (c) misfits Art. 29.1 (dd) of Law of Credit Institutions (n.47/2010/QH12)
The SBV suggests that the government should adopt the requirement of approval by the SBV Governor under new circumstances when: “A foreign investor who has already owned 5 percent or more of the chartered capital […] acquires additional shares” (Art.4.1 (c) emphasis added).

However, this provision mismatches with current legislation as the latter narrows cases of written approval to “Transfers of equity capital by equity owners; transfers of shares by major shareholders; or transfers of shares resulting in a major shareholder becoming an ordinary shareholder and vice versa” (Art. 29.1 dd ), leaving scenarios of share acquisition (being different from share transfer) out of the picture.

Moreover, it is noteworthy that Art.4.1(a) and Art.4.1(b) of the Draft Decree already require foreign investors to apply for authorization in order to hold 5 percent of the chartered capital thus, it is not understandable why the procedure shall be repeated a second time when more shares are to be added.

Unfortunately, further administrative approval can delay investors’ operations of acquisition over the 5 percent threshold, consequently deterring foreigners’ willingness to do so.

New Art. 9.2 goes beyond Art. 84.5 of Law on Enterprises (n.60/2005/QH11)
As far as share transfers are concerned, the Draft Decree is intended to establish a three-year lock-up period for share transfers operated by all foreign shareholders when owning more than 10 percent of charter capital of the Vietnamese credit institution.

“A foreign investor who holds more than 10 percent of the charter capital in a Vietnamese credit institution shall not be permitted to transfer their shares […] within three years since the date on which they own more than 10 percent […]” (Art. 9.2).

Instead, current legislation makes a sharp distinction between founding shareholders and non-founding shareholders applying the three-year “locker” only to ordinary shares owned by the former when transferred to the latter.

“Within a period of three years from the date of issuance of the business registration certificate to the company, ordinary shares of founding shareholders may be freely assigned to other founding shareholders, but may only be assigned to persons not being founding shareholders if approved by the General Meeting of Shareholders” (Art.84.5).

Targeted to prevent major distortion of shareholding “pattern,” the law is very sensitive in selecting cases to be affected by the rule: this is the reason why only investors with a “solid” position in the company (founders) have been looked after. At the opposite, a rule tout court (applicable to all shareholders) as the SBV recommends, can dangerously discourage foreigners to invest in Vietnamese institutions even when non-significant stock share participations are at stake.

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