I OVERVIEW OF M&A ACTIVITY
According to the Institute of Mergers, Acquisitions and Alliances (IMAA), an institution that monitors M&A deals globally, the total value of M&A deals in 2017 reached the record-breaking high of US$8.4 billion, a 45 per cent increase compared to 2016. Although the number of M&A deals decreased by 23 per cent compared to 2016, this was offset by several large-value transactions in 2017. These reported figures have delivered encouraging news to investors and the authorities. Foreign investors continue to see an opportunity to acquire attractive projects at good prices given the recent developments in investment regulations and conditions.
According to the Ministry of Industry and Trade, 58.4 per cent of the total registered foreign investment direct capital of US$318.72 billion in 2017 flowed to the processing and manufacturing industries sector, and key M&As were in this sector. Real estate, essential goods and energy sectors were also active in 2017. See Section IV for further discussion on specific deals.
II GENERAL INTRODUCTION TO THE LEGAL FRAMEWORK FOR M&A
M&A activity has developed in Vietnam during the past 11 years following the government's issuance of a large number of new legal regimes, which was considered the government's preparation for Vietnam's official accession to the World Trade Organization (WTO) on 11 January 2007. However, there is no united legal platform for M&A activities, and investors need to consider requirements, guidance and other information as to the interpretation or practice of investment in different pieces of legislation. The principal regulations for M&A activities may be classified under the following main categories:
- international treaties and agreements to which Vietnam is a contracting party include Vietnam's commitments to the WTO applicable to foreign investment into Vietnam from other state parties' investors and other mutual agreements of Vietnam and a specific country or countries;
- general regulations include the Civil Code 2015, which is the key general law regulating the 'legal status and standards for conduct of individuals and legal entities, the rights and obligations of individuals and legal entities in property and personal relations arising from relations established on the basis of equality, freedom of will, independence of property and self-responsibility' (Article 1 of the Civil Code 2015);
- the primary sources for regulating M&A activities are the Law on Enterprises 2014 (which governs the establishment, management, organisation and operation of enterprises) and the Law on Investment 2014 (which mainly focuses on investment activities within Vietnam);
- regulations on land include the Law on Land 2013. Ownership of all land lies with the entire population, with the state acting as the representative owner. Therefore, no enterprise, whether domestic private enterprise, state-owned enterprise or foreign private enterprise, is the actual owner of land. Investors may use land through a land use right;
- regulations on specialised business areas, which specifically govern the relevant investment businesses of investors; for instance, the areas of finance, education, distribution or restaurant services;
- regulations applicable to public companies, including the Law on Securities 2006 (as amended in 2010) and its implementation decrees and circulars. In 2015, total foreign investment in a public company was relaxed by the government (see Section III.iii). According to Article 25 of the Law on Securities 2006, a public company is a joint-stock company that has already conducted the public offering of its shares, has its shares listed at the Stock Exchange or the Securities Trading Centre, or has its shares owned by at least 100 investors, excluding professional securities investors, and has a contributed charter capital of 10 billion dong or more;
- regulations on competition, including the Law on Competition 2004 and its implementation decrees and circulars (Section IX on the Law on Competition); and
- regulations on other relevant matters, including foreign exchange management and labour.
Some parts of the above regulations are not well enough developed, such as the overlapping and inconsistent regulations between the Law on Enterprises and the Law on Investment, as well as regulations on securities and on competition. In addition, similar to other new market economies, foreign restrictions still play an important part, and foreign investors should look at both domestic laws and international treaties, including bilateral and multilateral, to understand the differences and decide the most appropriate M&A arrangement. In addition, if state-owned enterprises (SOEs) are involved in contemplated transactions, investors should also pay attention to the regulations applying to those SOEs, which sometimes prolong the closing of an M&A deal.
III DEVELOPMENTS IN CORPORATE AND TAKEOVER LAW AND THEIR IMPACT
i The Law on Enterprises 2014 and the Law on Investment 2014
According to the old regime (before 1 July 2015), upon establishment, all companies, including domestic companies, had to be issued with a business registration certificate (or, after 1 June 2010, an enterprise registration certificate), except in cases where foreign investors invested in Vietnam for the first time and were issued with investment certificates that concurrently acted as their business registration certificates.
For instance, foreign investors (i.e., foreign individuals or foreign organisations incorporated under foreign laws) that want to set up a new entity in Vietnam will first need to apply for investment approval from the investment licensing authorities (under the form of an investment registration certificate) for their investment projects in Vietnam. Upon issuance of the investment approval, the foreign investors will carry out the establishment procedure to set up the new entity in Vietnam. These steps are also applicable if a company of which foreign shareholders together hold (directly and indirectly) 51 per cent or more of total shares or equity wants to set up its subsidiary in Vietnam.
In the case of a shares acquisition or subscription of an existing Vietnamese company, foreign investors must register the proposed acquisition or subscription with the investment licensing authority if the target company engages in conditional business sectors, or the proposed transaction would result in 51 per cent or more of the total shares being held (directly or indirectly) by foreign investors. This registration step is not required for other acquisition or subscription cases. Upon completion of the registration, the target company shall amend its enterprise registration certificate in accordance with the Law on Enterprises 2014. This procedure is also applicable when the acquirer or subscriber is a foreign-invested company based in Vietnam of which 51 per cent or more of the total shares are held (directly and indirectly) by foreign shareholders.
ii The Law on Land 2013
In general, domestic economic organisations, households and individuals may obtain land use rights by:
- being allocated land from the state;
- leasing land from the state;
- receiving transfer, donation or inheritance of land use rights;
- receiving land use rights as in-kind capital contribution from a lawful land user (applicable to economic organisations);
- recognition by the state of land use rights;
- leasing and subleasing land from a developer of an industrial zone, high-technology zone or economic zone;
- receiving the transfer of an ongoing project using land; or
- receiving land use rights in accordance with the result of a land dispute settlement.
In contrast, foreign-invested companies are only allowed to obtain land use rights by one of the following methods:
- directly leasing the land from the state or from a developer of an industrial zone, high-technology zone or economic zone;
- being allocated land from the state;
- receiving land-use rights as in-kind capital contribution from a lawful land user;
- receiving the transfer of investment capital being land use rights;
- receiving the transfer of an ongoing project using land; or
- receiving land use rights in accordance with the result of a land dispute settlement.
M&A transactions may change the status of the target company from a domestic private company into a foreign-invested one. In such a case, the target company shall have the rights of a land user as those of a foreign-invested company if foreign investors together hold 100 per cent or controlling shares. Otherwise, the rights of the target company will remain unchanged (Article 183.4 of the Law on Land 2013).
Another key point under the Law on Land 2013 relates to the definition of 'offshore entity', under which it is clear that an offshore entity itself may not obtain a land-use right.
iii The Law on Securities
Decree 60/2015/ND-CP guiding the Law on Securities took effect on 1 September 2015, thereby relaxing the restrictions imposed on foreign investment in public companies. Foreign ownership in a public company is regulated as follows:
- if an international treaty to which Vietnam is a party has provisions on the foreign ownership ratio, then such provisions apply;
- if a public company operates in a business investment line for which the law on investment and other relevant laws have provisions on foreign ownership ratio, then those provisions apply. If a public company operates in a business investment line with conditions applicable to foreign investors, but there is not yet any specific provision on the foreign ownership ratio, then the maximum foreign ownership ratio is 49 per cent;
- if a public company operates in several business lines with different provisions on the foreign ownership ratio, then the foreign ownership ratio shall not exceed the lowest ratio of the business lines (in which the company operates) wherein there are provisions on foreign ownership, unless otherwise provided in international treaties; and
- for public companies not falling into any of the above scenarios, foreign ownership is unrestricted, unless otherwise provided in the company charter.
To attract further foreign investments in the stock market, in 2017, the Ministry of Finance introduced draft amendments to the Law on Securities to lift the maximum foreign ownership ratio of 49 per cent mentioned above, thereby allowing 100 per cent foreign ownership with respect to business investment lines that are not stipulated in Vietnam's WTO Commitments. Subject to the approval of relevant ministries, this draft submission is scheduled to be referred to the government in the fourth quarter of 2018, in preparation for approval by the National Assembly in 2019.
IV FOREIGN INVOLVEMENT IN M&A TRANSACTIONS
According to the Ministry of Planning and Investment, Japan was ranked first on the list of countries investing in Vietnam in 2017 in terms of capital (US$9.11 billion: 25.4 per cent of the total), followed by Republic of Korea (US$8.49 billion: 23.7 per cent of the total) and Singapore (US$5.3 billion: 14.8 per cent of the total). China was placed fourth with investments worth US$2.17 billion. During 2017, Japan continued to be most active in M&A in the real estate and retail sectors, but also made significant investments in the power industry (Marubeni's US$2.79 billion coal power plant in Nghi Son, Thanh Hoa Province and Sumitomo Corporation's US$2.58 billion coal plant in the central province of Khanh Hoa).
The wave of Japanese investment in Vietnam is expected to continue for the following reasons:
- the economic growth of companies in Japan, although upbeat, is still slower than estimated, and investment into South East Asian countries may improve this;
- the continuing relocation of Japanese investment out of China; and
- the similarity between Japanese and Vietnamese culture.
With a population of more than 95 million, an expanding middle class and strong domestic demand, Vietnam remains an attractive destination for investors in manufacturing and processing industries, power production and distribution, and real estate.
Outbound M&A investment from Vietnam to other countries is strictly managed by the licensing authorities, especially in the banking and financial sector. Accordingly, to conduct an outbound M&A project, a Vietnam-based company will need to seek approval by the centre-level licensing authority, the Ministry of Planning of Investment, which considers applications on a case-by-case basis. The number of licensed offshore investment projects to date has been limited compared with the number of licensed onshore investment projects, and most are made by large state-owned enterprises, such as Viettel, Vietnam's largest mobile network operator. However, offshore investments are expanding to new markets. In addition to South East Asian countries such as Laos, Cambodia and Myanmar, investments have been made in Cuba (in consumer goods, tourism, renewable energy) and are expanding in the telecommunications sector in several African countries and Peru.
V SIGNIFICANT TRANSACTIONS, KEY TRENDS AND HOT INDUSTRIES
Highlighted M&A deals during 2017 focused on food and beverages and real estate, as these were the most active sectors.
Particular highlights in the food and beverages sector include:
- the purchase by Thailand-based Thai Beverage Pcl (through its subsidiary in Vietnam, Vietnam Beverage Company Ltd) of 53.59 per cent of shares in Saigon Beer Alcohol Beverage Corporation (Sabeco), a leading brewery in Vietnam, for an estimated US$4.89 billion, which was the highest-value deal in 2017;
- the US$250 million investment by Asian Fund II (of Kohlberg Kravis Roberts & Company LP) in Masan Group by purchasing secondary shares worth US$100 million in Masan Group from private equity firm PENM Partners and by primary investment of US$150 million for a 7.5 per cent equity in Masan Nutri-Science, the branded meat unit of Masan Group;
- the acquisition by Platinum Victory Pte Ltd (owned by Singapore-based Jardine Cycle & Carriage) of a 3.33 per cent stake in Vietnam Dairy Products Joint-Stock Company (Vinamilk) for US$400 million;
- the increase by South Korea's CJ CheilJedang's of its equity in Cau Tre Export Goods Processing JSC to 71 per cent by purchasing US$12.4 million worth of shares and its purchase of 64.9 per cent of Minh Dat Food for US$13.44 million; and
- the merger of sugar companies Thanh Thanh Cong Tay Ninh and Bien Hoa, creating the biggest sugar producer in Vietnam with capitalisation estimated at US$438.6 million.
The real estate sector continues to remain highly attractive to offshore investors, and in 2017 it was one of the most active in M&A although the value of many transactions were kept confidential. The physical transfer of land, buildings and other types of real estate property, however, is a problematic issue and can take a long time, especially if it is a transfer to a foreign investor. In particular, an offshore investor may need to (1) set up its subsidiary in Vietnam, (2) apply to the licensing authorities to implement projects in connection with the use of the real estate properties to be transferred and (3) register the physical transfer of the real estate properties with the relevant authorities. Therefore, in practice, foreign entities often consider acquiring vendors' shares in the project company that owns the real estate properties. The procedure for shares acquisition is much simpler and the offshore investors still own the real estate properties through the project company. Highlight transactions in 2017 include the following:
- the acquisition of Dai Phuoc Lotus Project, with a total area of 198.5 hectares, by VNIC Investment 1 Company Ltd, a subsidiary of China-based China Fortune Land Development Company Ltd, for US$65.3 million;
- Elite Capital Resources Limited acquired Times Square Project, with a total area of 4 hectares in Hanoi City, from VinaLand Limited for US$41 million;
- Van Phat Hung transferred Lacasa Project, a seven-block complex condominium project in District 7, Ho Chi Minh City, to An Gia Investment and Creed Group for US$40 million;
- CapitaLand purchased a condominium project in District 4, Ho Chi Minh City next to the Saigon river, with a total area of 1.45 hectares, from Viet Hung Phu Real Estate Business Investment JSC for US$40 million;
- Krystal Investments Pte Ltd, which is owned by Keppel Land, acquired the Saigon Center project, one of the 'golden' projects in Ho Chi Minh City, from Southern Waterborne Transport Corporation for US$37 million; and
- Japanese companies Hankyu Realty and Nishi-Nippon Railroad, in cooperation with Nam Long Group, invested in Kikyo Residence, a real estate project in Ho Chi Minh City comprising villas and apartments with total investment of US$27.72 million.
The M&A market in 2017 recorded an increase in the number of transactions in the insurance sector, including:
- the acquisition by South Korea's Mirae Asset Life from Groupe Prévoir of a 50 per cent stake in Prevoir Vietnam Life Insurance Company Ltd for US$52.6 million;
- the purchase by Samsung Fire & Marine Insurance Company Ltd of a 20 per cent stake in Petrolimex Insurance Corporation for around US$23.45 million; and
- the purchase by Aviva Insurance of a 50 per cent stake in VietinBank Aviva Life Insurance Company Ltd from Vietnam Joint Stock Commercial Bank for Industry and Trade (VietinBank).
One of the notable transactions in the banking and finance sector in 2017 is the ongoing negotiations for the sale of 100 per cent of the capital contribution of Oceanbank to a foreign investor. Oceanbank was acquired by the State Bank of Vietnam in 2015 for 0 dong. If successful, it would be the first deal wherein a 0 dong-bank is wholly acquired by a foreign investor. Other highlights include (1) the purchase by Sinshei Bank of 49 per cent stake in MB Finance Limited Liability Company from Military Bank for around US$27 million, (2) ANZ's transfer of its retail portfolio to Shinhan Bank Vietnam, (3) the acquisition by Commonwealth Bank of Australia of Vietnam International Bank's Ho Chi Minh City branch and (4) the acquisition of a 49 per cent stake by Sumitomo Mitsui Trust Bank in BIDV Financial Leasing Company from the Bank for Investment and Development of Vietnam. The value of the latter three deals has not been disclosed.
Among the highlights in other sectors are:
- the acquisition by SCG Cement-Building Materials Vietnam LLC (owned by Siam Cement Group, a Thailand-based company) of a 25 per cent stake in QPI Vietnam, a subsidiary of Qatar Petroleum International Ltd, for US$36.1 million, to increase its investment in Long Son Petrochemical Project, and its full ownership of Vietnam Construction Materials JSC for US$156 million;
- the purchase by Earth Chemical of a 100 per cent stake in A My Gia JSC for an estimated US$80 million; and
- CJ Logistics (formerly known as CJ Korea Express and owned by CJ Group) acquired a 50.9 per cent stake in both Gemadept Shipping Holding Company Ltd and Gemadept Logistics Holding Company Ltd from Gemadept JSC for an estimated US$85 million total for both deals.
According to Notice No. 72/TB-VPCP issued by the government dated 14 February 2018, 69 state-owned enterprises underwent equitisation in 2017. The equitisation process continues to face the obstacle of incomplete legal regulations because of the delay in issuance of regulations related to equitisation. The following factors also discourage the participation of foreign investors in the equitisation process: lack of accuracy in evaluating the state-owned enterprises, the foreign ownership limitations in several sectors, lack of transparency in the process, and the complicated procedure.2 The government's goal is, by 2020, to retain only 150 state-owned enterprises in the vital sectors of electricity transmission, cartography related to national security and military, railway infrastructure, air traffic services, post, irrigation management, lending for socioeconomic development, banking safety and lottery.
VI FINANCING OF M&A: MAIN SOURCES AND DEVELOPMENTS
Foreign investment is the main factor driving M&A in Vietnam. Foreign investors may mobilise capital from overseas countries and pour it into the domestic market. In the highest value deal for 2017, the entire purchase price of US$4.89 billion paid by Vietnam Beverage Company Ltd for 53.58 per cent of the total shares in Sabeco came from loans, with Thai Beverage (parent company of Vietnam Beverage Company Ltd) borrowing US$3.05 billion from Thai banks and BeerCo (a Hong Kong subsidiary wholly owned by Thai Beverage) obtaining a US$1.95 billion syndicated loan from the Singapore branches of Mizuho Bank and Standard Chartered Bank as arrangers and lenders. As regards Japanese acquirers, they seem to prefer to finance their acquisitions of Vietnamese companies by using their existing equity capital and retained profits.
In contrast, local buyers rarely disclose the source of the purchase price. In 2017, Mobile World Investment Corporation, one of the largest companies in Vietnam, sought its shareholders' approval to raise its budget for M&A to US$110.3 million sourced from loan capital, bond proceeds and undistributed profit. Other domestic acquirers tried to mobilise capital from their shareholders and foreign investors to fund M&A deals.
In the middle of 2017, for the first time in three years, the State Bank of Vietnam reduced its lending interest rate by 0.25 per cent to 6.25 per cent to boost economic growth.3 However, enterprises, especially small and medium-sized ones, continue to face difficulties in approaching financial sources from domestic banks because of high rates of interest.
Vietnamese parties are familiar with typical clauses applicable to offshore loan arrangements such as financial covenants and security requirements. However, while an offshore creditor's right to collect payment from debtors in the event of default is protected, enforceability of some terms may in practice be questionable. For instance, offshore creditors may face challenges if they want to exercise the right to acquire secured shares in the event of default if the project company is operating in areas that are conditional or restricted for foreign investment. In addition, offshore creditors are not allowed to have collateral over a land use right in Vietnam.
According to foreign exchange management regulations, offshore loans with terms of more than one year are subject to registration with the central bank of Vietnam (the State Bank of Vietnam). However, the loan registration requirement is just an administrative tool for the State Bank of Vietnam to manage and control the flow of foreign exchange currencies in Vietnam from time to time; it is not a confirmation or certification of the state that the agreement is legally recognised.
VII EMPLOYMENT LAW
The current Labour Code 10/2012/QH13 has been effective since 1 May 2013. According to Article 106, the number of overtime hours worked by employees must not exceed 50 per cent of the normal working hours in one day. In the case of working on a weekly basis, the total of normal working hours plus overtime hours must not exceed 12 hours in one day, 30 hours in one month and 200 hours in one year. The previous law simply provided that the number of overtime hours must not exceed four hours per day and 200 hours per year.
Key provisions of the current Labour Code also include:
- adding one more day off during the lunar new year period (Article 115);
- extending the maternity leave period for female employees from four to six months in general (Article 157);
- extending the limitation period for dealing with breaches of labour discipline from three to six months, or 12 months in some special cases (Article 124); and
- providing more details regarding cases in which foreign workers are exempted from work permit requirements (Article 172). In particular, exemption cases include:
- capital-contributing members or owners of limited liability companies;
- members of the board of directors of joint-stock companies;
- chiefs of representative offices and directors of projects of international organisations or non-governmental organisations in Vietnam;
- those who stay in Vietnam for less than three months to offer services for sale;
- those who stay in Vietnam for less than three months to deal with complicated technical or technological problems that adversely affect or are at risk of exerting adverse effects on production and business activities where these problems cannot be handled by Vietnamese and foreign experts who are currently in Vietnam;
- foreign lawyers possessing a professional practice licence in Vietnam in accordance with the Law on Lawyers;
- cases that are in accordance with a treaty to which Vietnam is a contracting party;
- those who are studying and working in Vietnam, provided that their employer shall notify their employment to the provincial level state management agency of labour seven days in advance;
- internal transfer within an enterprise and within the scope of the 11 services on the List of Commitment on Services of Vietnam with the WTO, namely, business, information, construction, distribution, education, environment, financial, medical health, tourism, culture and entertainment, and transportation;
- entering Vietnam to provide expert technical consultancy services or to undertake other tasks servicing the work of research, formulation, evaluation, monitoring and assessment, management and implementation of a programme or project using official development assistance (ODA) in accordance with an international treaty on ODA signed by the competent authorities of both Vietnam and the foreign country; and
- entering Vietnam to work as an expert, manager, executive director or technician for a working period of less than 30 days and for a total cumulative period not exceeding 90 days in any one year.
VIII TAX LAW
Law No. 71/2014/QH13 on amending a number of articles of tax laws (Law No. 71) became effective from 1 January 2015. Some of the key amendments are outlined below.
The list of deductible expenses of companies used for the calculation of taxable income is expanded to include expenditure on vocational education.4 On the other hand, the list of non-deductible expenses shall exclude expenditure on advertising, marketing, promotion, commissions, receptions, conferences, support for marketing and expenses directly related to business that exceed 15 per cent of deductible expenses.5
A tax rate of 10 per cent for 15 years is expanded to include a company's income from execution of a new investment project in:
- the manufacturing of products on the list of ancillary products given priority and satisfying one of the following conditions:
- ancillary products supporting high technology as defined in the Law on High Technologies; or
- ancillary products serving manufacturing in the following industries: textiles, leather, electronic, automobile manufacturing and assembly, and mechanical engineering, provided the products could not be manufactured in Vietnam until 1 January 2015, or can be manufactured in Vietnam and satisfy technical standards established by the European Union or equivalent; and
- manufacturing, except for manufacturing of products subject to a special excise tax and mineral extraction, the capital investment in which is not less than 12,000 billion dong, the technologies applied are assessed in accordance with the Law on High Technologies and the Law on Science and Technology, and the registered capital is disbursed within five years of the day on which the investment is permitted as prescribed by regulations of the Law on Investment.6
In 2017 and early 2018, the Ministry of Finance submitted draft proposals that will introduce significant changes to the laws on tax duties which may have a negative impact on tax payers. Key proposals include:
- corporate income tax on transfers by a foreign enterprise of its capital in a company in Vietnam may be calculated on the transfer price at a rate of 1 per cent, instead of 20 per cent on the income arising from the transfers;
- personal income tax on transfers by individuals, irrespective of whether they are residents or non-residents, of their capital in a company in Vietnam may be calculated on the transfer price at a rate of 1 per cent;
- for value-added tax, it is proposed that the current ordinary rate of 10 per cent is increased to 12 per cent from 1 January 2019;
- an excise tax amount at a rate of 10 per cent may be levied on sweet drinks from 2019, except for 100 per cent natural fruit or vegetable juices, milk and milk products;
- organisations and individuals having use rights over land or ownership of houses, facilities constructed on land and other properties in Vietnam (such as aeroplanes, cruise ships and automobiles valued at 1.5 billion dong or more) may be levied a new tax called property tax; and
- as regards environmental protection tax, most of the current taxable products, including petroleum (excluding ethanol), diesel fuel, lubricant and coal, may be subject to the maximum tax rate level.
IX COMPETITION LAW
There has been no change to the Law on Competition to date. Under the current regulations, the following key points should be noted.
'Economic concentration' is defined in Article 16 of the Law on Competition as any of the following transactions: merger, amalgamation, acquisition, joint venture and other forms as stipulated in law.
An economic concentration is prohibited if the participating enterprises have a combined market share of more than 50 per cent of the relevant market (the relevant market consists of the relevant product market and the relevant geographical market), except for certain cases under Article 19 of the Law on Competition, which include cases where the enterprise (or enterprises) is at risk of being dissolved or of becoming bankrupt, and the economic concentration has an effect on the extension of exports, or contributions to socioeconomic development or to technical or technological progress.
An economic concentration to be conducted by enterprises with a combined market share in the relevant market of 30 to 50 per cent must be notified to the state authority (i.e., the Vietnam Competition and Consumer Protection Agency (VCCPA), formerly known as the Vietnam Competition Agency) in advance. As set forth in Article 24 of the Law on Competition, enterprises may only carry out the concentration after receiving a written reply from the VCCPA confirming that the concentration is not within a prohibited category.
A company with a dominant position in the market (i.e., holding a market share of 30 per cent or more), or a company with a monopoly position, will also be subject to certain restrictions and prohibitions to prevent the abuse of its dominant or monopoly position, including, inter alia, price dumping, price limiting, exclusive dealing and price discrimination in accordance with Articles 13 and 14 of the Law on Competition.
Finally, an ordinary company is prohibited from entering into anticompetitive agreements for the restriction of the entry of another enterprise into the market, the elimination of an enterprise from the market or bid rigging as set forth in Article 9 of the Law on Competition. A group of companies with a combined market share of 30 per cent or more are prohibited from entering into other anticompetitive agreements such as price fixing, dividing territories and exclusive dealing in accordance with Article 9.
The new Law on Competition was approved by the National Assembly on 12 June 2018 and will take effect on 1 July 2019.
The case of Grab/Uber
Grab's acquisition of Uber's business is a recent notable competition case in Vietnam.
On 26 March 2018, Grab officially announced that it had acquired Uber's business in South East Asia, including Vietnam, wherein Grab will receive the ride-sharing service and food transport business of Uber in South East Asia and merge them into Grab's multimodal transportation and fintech platform. In exchange, Uber will hold a 27.5 per cent stake in Grab.
Pursuant to the Law on Competition and its guiding regulations, if enterprises fail to notify the VCCPA (in the case of combined market share in the relevant market of 30 to 50 per cent), they shall be fined up to 10 per cent of the total revenue of each participating enterprise in the financial year prior to the year in which the breach was committed. By law, the transaction may even be prohibited if the combined market share exceeds 50 per cent. The VCCPA decided to conduct a preliminary investigation to determine whether Grab has formed a monopoly in Vietnam. It was Grab's position that since its combined market share with Uber in Vietnam is less than 30 per cent, it does not have to inform the VCCPA before proceeding and completing this transaction. On 16 May 2018, the VCCPA announced that the Grab/Uber deal has shown signs of breach of the Law on Competition, exceeding a 50 per cent market share in Vietnam. Two days later, the VCCPA issued a decision to conduct an official investigation into this matter.
Vietnam experienced strong economic recovery in 2017, with growth in gross domestic product (GDP) at 6.81 per cent (exceeding its target of 6.7 per cent), record high foreign direct investment and US$400 billion in trade, and it remains a very attractive place for investment in the private sector. Vietnam is expected to benefit greatly from the Comprehensive and Progressive Agreement for Trans-Pacific Partnership it signed in March 2018, which, according to the World Bank, is estimated to increase Vietnam's GDP from 1.1 per cent to 3.5 per cent by 2030.
The banking sector could be more active than ever as the government works hard to reform the banking system. Foreign ownership limits relating to the restructuring of weak commercial banks may be relaxed by the Prime Minister on case-by-case basis, allowing for greater participation by foreign investors under a restructuring plan approved by the State Bank of Vietnam.
Real estate will remain one of the most attractive sectors for foreign investors, given the speed of the country's urbanisation with the rise of the middle-income class. In 2017, the National Assembly issued a resolution aimed at easing the procedures for enforcement by banks of property mortgages. This is also one of the key factors to facilitate M&A in the real estate sector as banks will find it easier to sell mortgaged properties and real estate development projects.
Both foreign and domestic deal-makers continue to seek to acquire pharmaceutical distribution chains. Given the existing stringent restrictions on foreign investments in this sector, foreign deal-makers should structure the deals creatively.
Retail, energy and fast-moving consumer goods will continue to lure foreign investments. There are also opportunities in renewable energy projects, high-tech agriculture and other high-tech industries.
The speeding up of privatisation of state-owned companies offers foreign investors many more opportunities to enter the market through M&A. The government is planning to divest from around 180 companies in 2018 alone, followed by divestments from 100 companies in the next two years. The equitisation of the following may draw the attention of foreign investors: Airports Corporation of Vietnam, Vietnam Pharmaceutical Corporation (Vinapharm), Vietnam Machinery Installation Corporation (LILAMA), Viglacera Corporation, Vietnam National Textile and Garment Group (Vinatex), Vietnam Steel Corporation (VNSteel), and Foreign Trade Freight Forwarding and Warehousing Joint Stock Company (Viettrans).
According to Nikkei Asian Review, as efforts by manufacturers to establish a business in Vietnam has stabilised, infrastructure exports are creating a new wave of investment as Vietnam lures private sector funding in infrastructure development, with an anticipated need for US$400 billion in infrastructure spending over the next 10 years.
1 Hikaru Oguchi is the partner in charge of the Vietnam practice, Taro Hirosawa is a local partner and Ha Hoang Loc is a Vietnam partner at Nishimura & Asahi.
3 VN Express International, available at https://e.vnexpress.net/news/business/vietnam-cuts-lending-interest- rate-to-spur-economic-growth-3611173.html.
4 Article 1.3 of Law No. 71/2014/QH13.
5 Article 1.4 of Law No. 71/2014/QH13.
6 Article 1.5 of Law No. 71/2014/QH13.