The Mergers & Acquisitions Review: Vietnam
Overview of M&A activity
Foreign investment remains a driving force of the Vietnamese M&A market in 2019 and first eight months of 2020. According to statistics of the Foreign Investment Agency under the Ministry of Planning and Investment of Vietnam (FIA Annual Report),2 there were 14,646 acquisition and subscription transactions by foreign investors and foreign entities that were registered nationwide in 2019 and the first eight months of 2020 for a total transaction value of US$20.4 billion (this figure, however, may exclude foreign subscription and acquisition transactions in public companies), 41.2 per cent of which flowed into the manufacturing industry and 19.5 per cent of which flowed into the real properties sector.
Domestic M&A activity3 included some notable deals. Vietnam giants, Masan and VinGroup, completed the merger of their retail and consumer goods segments at the end of 2019; and Vinamilk acquired Moc Chau milk. According to Mergermarket, there were 22 domestic M&A deals in 2019 and the first eight months of 2020. The transaction value of 19 of those deals was disclosed and totalled approximately US$1.85 billion, equal to roughly 2.5 times of that in 2018.
Certainly the covid-19 pandemic, first reported in China in December 2019, has severely affected M&A activity globally and Vietnam has been no exception. According to the FIA, there were 4,804 acquisition and subscription transactions by foreign investors and foreign entities that were registered nationwide in the first eight months of 2020 representing a total transaction value of US 4.93 billion, which reflects an 8.2 per cent decrease in deal volume and a 48.2 per cent decrease in value in comparison to figures of the same period in the preceding year. However, the World Bank's April 2020 East Asia and Pacific Economic Update projected that Vietnam, given its strong resilience, is among the few countries that could experience a positive growth rate this year in all scenarios, though lower than in 2019. Namely, Vietnam's growth will likely decline from 7 per cent to 4.9 per cent in the base case scenario, or to 1.5 per cent in the worst case scenario.4
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General introduction to the legal framework for M&A
M&A activity has developed markedly in Vietnam during the past 13 years as a result of the government's issuance of a large number of new legal regimes, which issuance was considered to be 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 activity, and investors need to consider the requirements, guidance and other information concerning the interpretation or practice regarding investments found in different pieces of legislation. The principal regulations for M&A activity may be classified under the following main categories:
- international treaties and agreements to which Vietnam is a contracting party, which include Vietnam's commitments to the WTO applicable to foreign investment in Vietnam from other state party investors, and other mutual agreements between Vietnam and a specific countries;5
- general regulations, including 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 based on equality, freedom of will, independence of property and self-responsibility';6
- with respect to non-public target companies, 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 activity within Vietnam);7
- land regulations, including the Law on Land 2013;8
- regulations on specialised business areas, which specifically govern the relevant investment businesses of investors in, for instance, the areas of finance, education, pharmaceutical, distribution or restaurant services;
- regulations applicable to public companies,9 such as the Law on Securities 2006 (as amended in 2010) and its implementing decrees and circulars, with respect to M&A, takeover bids/tender offers, initial public offerings (IPOs) and private placements;10
- regulations on competition, such as the Law on Competition 2018, which came into effect on 1 July 2019, Decree 35/2020/ND-CP, which came into effect on 15 May 2020 and other implementing decrees and circulars;11
- with respect to companies wholly or partly owned by the state, the Law on Management and Utilisation of State Capital Invested in Companies' Manufacturing and Business Activities and its guidelines; and
- regulations on other relevant matters, including foreign exchange management and labour.
Some parts of the above regulations are insufficiently developed. For example, there are overlapping and inconsistent regulations between the Law on Enterprises and the Law on Investment, as well as regulations on securities and on competition. However, Vietnam's global integration commitments under the CPTPP and EVFTA have stimulated efforts to further develop the regulatory framework to improve the investment and business environment in general and M&A activity specifically, including the adoption of the new Law on Investment, Law on Enterprises, Law on Securities and Labour Code, which will each come into from 1 January 2021.
Strategies to increase transparency and predictability
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Developments in corporate and takeover law and their impact
i The Law on Enterprises 2014 and the Law on Investment 2014
Under the previous legal regime (i.e., before 1 July 2015), upon establishment, all companies, including domestic companies, had to be issued a business registration certificate (or, after 1 June 2010, an enterprise registration certificate), except where foreign investors invested in Vietnam for the first time and were issued an investment certificate that concurrently acted as their business registration certificate.
The Law on Enterprises 2014 and the Law on Investment 2014, which have been in effect since 1 July 2015, introduced a new legal regime. Under such new legal regime, an enterprise registration certificate will be required for the establishment of any company with or without foreign capital. In addition, foreign investors must apply for and obtain an investment registration certificate. Specifically, foreign investors (i.e., foreign individuals or foreign organisations incorporated under foreign laws) who wish 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 must carry out the establishment procedure for the issuance of an enterprise registration certificate. These steps are also applicable if a company in which foreign shareholders together hold (directly and indirectly) 51 per cent or more of the total shares or equity wishes to set up a subsidiary in Vietnam.
In the case of a share acquisition or subscription involving an existing non-public Vietnamese company, foreign investors must register the proposed acquisition or subscription with and get approval therefor from the investment licensing authority if the target company engages in any 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 in other acquisition or subscription situations. Upon completion of the registration, the target company must amend its enterprise registration certificate or enterprise registration details in accordance with the Law on Enterprises 2014 to address changes in the foreign shareholders of the company or the charter capital of the company, or both. This procedure is also applicable when the acquirer or subscriber is a foreign-invested company12 based in Vietnam.
The new Law on Enterprises and Law on Investment were adopted in June 2020 and will come into effect from 1 January 2021.
The new laws present significant changes for the purpose of improving the investment environment of Vietnam, including the following notable changes to the M&A legal framework:
- the new Law on Investment will, among other things:
- narrow the scope of acquisition and subscription transactions by foreign investors that must be registered and approved in advance to those that result in (1) an increase of foreign shareholding in target companies engaging in conditional business; or (2) an increase of foreign shareholding in the target company to more than 50 per cent, even if current foreign shareholding in the target company exceeds 50 per cent;13
- not require an investment registration certificate in the case where a foreign investor establishes a small or medium-sized creative start-up enterprise or a creative start-up investment fund in accordance with the law on support for small or medium-sized enterprises; and
- the new Law on Enterprises, among other things:
- allows the acquirer or subscriber, immediately upon reaching a shareholding threshold of 10 per cent of the total shares, to exercise its right to (1) nominate board members and inspection committee members and (2) monitor the operation of the board and the inspection committee as discussed above;14 and
- introduces the concept of non-voting depositary receipts (NVDR) for the first time, which is aimed at attracting more foreign investment capital in conditional sectors;15 and
- provides for a new definition of state-owned enterprise (SOEs) that is much broader than the current definition and therefore encompasses a greater number of enterprises that are not SOEs under the current legislation (e.g., joint venture companies between the state and private investors in which the state holds more than 50 per cent).
ii The Law on Land 2013
The Law on Land 2013 allows foreign-invested companies to use land in allocation form16 where foreign-invested companies develop residential homes for sale or for lease.17 Nevertheless, domestic entities still have more mechanisms and options to acquire land use rights than foreign-invested companies. Specifically, domestic economic organisations, households and individuals may obtain a land use right by:
- being allocated land from the state;
- leasing land from the state;
- receiving a transfer, donation or inheritance of land use rights;
- receiving land use rights as an 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.
Foreign-invested companies are not eligible to acquire land under method (c) and (e) above.
Real estate M&A transactions in Vietnam are not commonly conducted in the form of asset or direct land transfers because such transfers involve rather complicated processes that can be obviated by structuring the transaction differently. Moreover, where the transferee is a foreign-invested company, the land must be returned to the government before being transferred to the transferee. In practice, real estate M&A transactions in Vietnam are normally structured in the form of project or asset holding companies, the equity shares of which are transferred. This saves the acquirer from having to re-obtain the necessary licences for the real estate project's development (if the permits and licences have already been obtained), and it offers more options for tax planning.
If a project or asset holding company undergoes a change from a domestic private company into a foreign-invested one as a result of an M&A transaction, such company may still retain the licences and permits and the rights of land use over the target land or asset that were obtained as before the transaction.
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. Additionally, with respect to a foreign-invested company being a land user in Vietnam, there is no difference whether it is a 1 or a 100 per cent foreign-invested company.
iii The Law on Securities
Decree 60/2015/ND-CP, which took effect on 1 September 2015 and provides guidance on the Law on Securities, relaxed the restrictions imposed on foreign investment in public companies. Foreign ownership in a public company is broadly regulated as follows:
- if an international treaty to which Vietnam is a party has provisions governing 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 ratios, then those provisions apply, but if there is not yet any specific provision on the foreign ownership ratios, 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 must not exceed the lowest relevant ratio 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.
The new Law on Securities adopted in November 2019 will come into effect on 1 January 2021 and replace the existing Laws on Securities. The new law introduces, among others, the following significant points:
- foreign investors and foreign-invested companies that invest or operate in the securities market must comply with the provisions on foreign investment caps, investment conditions and procedures specifically outlined by the government;
- a joint stock company that either (1) has a minimum charter capital of 30 billion dong and at least 10 per cent of its voting shares are held by at least 100 non-major shareholders; or (2) has successfully carried out an initial public offering (IPO) registered with the State Securities Commission, qualifies as a public company;
- the tender offer rules will be triggered by any subsequent share acquisition that causes the acquirer's ownership, whether direct or indirect, to reach or pass 35, 45, 55, 65 or 75 per cent of the total voting shares in the public company target, and the shareholding ratio of certain related persons of an acquirer will be counted in all tender offer triggering events, regardless of an initial or subsequent acquisition; and
- the scope of eligible investors in private placements of shares and bonds by a public company are limited to strategic investors and 'professional securities investors',18 and a stricter lock-up requirement of three years is applicable to strategic investors.
Us antitrust enforcement: the year in review
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Foreign involvement in M&A transactions
Based on the statistics promulgated by the Ministry of Planning and Investment of Vietnam,19 investors from Hong Kong appear to be the most active inbound M&A investors in Vietnam in 2019, with total M&A inflow investments of over US$ 4.45 billion, accounting for over 28 per cent of all inbound M&A activity in the country in the year. Not surprisingly, Hong Kong investors also made some of the largest M&A deals in 2019. Behind Hong Kong are Singapore (US$2.691 billion, accounting for 17.4 per cent of the total M&A inflow value) and Korea (US$2.667 billion, accounting for 17.24 per cent of the total M&A inflow value).
Meanwhile, in terms of deal volume in 2019, South Korean, Chinese and Japanese investors, via small and medium-sized deals, have contributed the largest number of deals, being 30.07 per cent; 19.56 per cent and 8 per cent of total deal number, respectively.
The covid-19 pandemic has beset the first eight months of 2020, and thus 2020 has seen a significant decrease in foreign M&A investment value to almost half that as compared to the same period in the previous year. Moreover, 2020 has thus far seen a shift in the rank of foreign investors involved in inbound M&A deals in Vietnam, with Singaporean investors (US$1.405 billion, 28.50 per cent) and Japanese investors (US$856.21 million, 17.37 per cent) contributing the highest amount of foreign capital via M&A inflow. Korea still leads in terms of the number of deals with 1,459 registered deals for at total of US$658.91 million invested capital in the first eight months of 2020.20
From a general perspective, inbound M&A in 2019 and the first eight months of 2020 saw a preference of foreign investors to acquire minority stakes in Vietnam-domiciled giants, such as Vingroup's affiliates (Vingroup, Vinhomes, VCM Services, and Trading), BIDV, OCB, Minh Phu, DHG, etc.
Significant transactions, key trends and hot industries
As with last year, manufacturing, real estate, and trading (retail and wholesale) have remained most attractive for M&A investment in 2019 and the first eight months of 2020. The following are some of the more notable transactions in 2019 and the first eight months of 2020, divided by sector.
i Manufacturing and processing
Vietnam registered 2,261 foreign M&A transactions amounting to US$7.086 billion in 201921 and 1,132 transactions amounting to US$1.325 billion in the first eight months of 2020 in the manufacturing and processing sector.22
The following are some of the more notable deals, the details of which are available to the public:
- SK Group of Korea, via its group company, SK Investment Vina II Pte Ltd, acquired 205.7 million shares (equivalent to 6.15 per cent of the total shares) in Vingroup Joint Stock Company, the listed holding entity of one of the biggest conglomerates operating in multiple sectors in Vietnam, for approximately US$1 billion in 2019. The proceeds were to be poured into various business lines of Vingroup, such as its auto company, Vinfast, technology firm, VinTech, smartphone maker, Vinsmart, and to restructure debts;23
- BeerCo Ltd (Hong Kong), a subsidiary of Thai Beverage Public Co Ltd,24 purchased a substantial stake in Vietnam Beverage Co Ltd for US$3.85 billion in the beginning of 2019;25
- MPM Investments Pte Ltd, a subsidiary of Japan's Mitsui & Co Ltd, acquired over 30 per cent of the shares in Minh Phu Seafood Joint Stock Company for over US$150 million;26
- Stark Corporation Public Company Limited (Thailand) purchased all of the shares in Thinh Phat Cables JSC and Dong Viet Non-Ferrous & Plastic JSC for US$240 million;27 and
- Yamato Kogyo Co Ltd (Japan) acquired 49 per cent of the shares in Posco SS Vina Joint Stock Company for US$100 million.28
ii Real estate
Kohlberg Kravis Roberts, leading an investor consortium that included Temasek, purchased 6 per cent of the shares in Vinhomes, the biggest integrated real estate developer in Vietnam with a focus on residential and office property, for approximately US$650 million.29
Of note, GIC's acquisition of Vinhomes in 2018 was also a significant deal with a value of approximately US$853 million. Vingroup and its affiliates (including Vinhomes) have been among the most attractive targets for foreign funds and investors since 2018.
As a part of the manufacturing and processing sector, 2019 also saw some notable deals in the pharmaceuticals sector. Taisho Pharmaceutical Manufacturing Joint Stock Company (Japan), for example, acquired 20.6 million shares in DHG Pharmaceutical Joint Stock Company for a minimum US$ 105.84 million, to bring its total shareholding to nearly 66.4 million shares, representing a 50.78 per cent stake in the target.30 In 2020, two notable deals thus far have been the acquisition of nearly 25 per cent of the shares in Imexpharm Corporation by SK Investment III (Korea), a subsidiary of South Korea's third-largest conglomerate SK Group,31 and the acquisition of 24.9 per cent of the shares in Ha Tay Pharmaceutical JSC by Japan-based pharmaceutical company ASKA Pharmaceutical Co Ltd.32
iv Wholesale and retail
In the wholesale and retail sector, M&A activities in Vietnam were bolstered by local retailers, as they have had the edge in expanding their reach via M&A amid fierce competition. Specifically, they are closer to local consumers and not subject to the requirement of an economic needs test. These reasons, however, have not made foreign investment in this sector less active in 2019 and the first eight months of 2020.
In December 2019, Vincommerce (owning more than 3,000 Vinmart and Vinmart+ stores) and VinEco, which used to be Vingroup's subsidiary focusing on the retail business and agricultural business, was consolidated with Masan Consumer Holding, a top consumer company in Vietnam, to form an exceptional retail – consumer group company in Vietnam.33
In September 2019, prior to the consolidation of Vincommerce, VinEco, and Masan Consumer Holding, GIC Private Limited (a Singapore government fund) acquired minority shares of VCM Services and Trading Development Joint Stock Company, which wholly owned Vincommerce, for US$500 million.34
In early 2020, Power Buy Company Limited, a member of Central Group (Thailand), acquired a further 51 per cent of the shares in NKT New Solution and Technology Development Investment Joint Stock Company, which controls a well-known electronics store chain in Vietnam, Nguyen Kim, for approximately US$115 million.35
v Banking and finance
Thanks to strong growth and positive business results in the banking and finance sector in recent years, M&A deals in this sector in 2019 and 2020 have received strong attention from foreign investors. Another factor that made this sector so active was the fact that commercial banks needed to raise their capital to meet the Basel II standards by 1 January 2020 as required by the State Bank of Vietnam. It is also expected that M&A in this sector will be busier in the next few years due to the government's policy of gradually reducing state ownership in state-owned banks to 65 per cent and then to 51 per cent by 2025.36 In 2019 and the first eight months of 2020, there were four notable deals in this sector:
- Hana Bank (a Korea-based bank) acquired a 15 per cent stake in BIDV for US$878 million;37
- GIC Private Limited (Singapore), together with Mizuho Bank Ltd. (Japan), acquired around 111 million shares, accounting for an approximately 3 per cent stake in Vietcombank for US$265 million;38
- Aozora Bank Limited (Japan) acquired 15 per cent of the shares in Orient Commercial Joint Stock Bank for US$139 million;39 and
- Warburg Pincus LLC (America) invested US$100 million in MoMo, one of the largest e-wallets in Vietnam.40
Vietnam's increasing need for energy and favourable feed-in tariff for renewable energy projects have made it an attractive destination for foreign investment in this sector, especially in recent years with the deadlines for the application of a favourable feed-in tariff approaching. As a result, 2019 and the first eight months of 2020 saw an increase in the number of deals in the energy sector, mainly headed by Thai investors, including:
- Banpu Pcl, a Thai investor, via BRE Singapore Pte Ltd, acquired the El Wind Mui Dinh Wind Farm from Ven-wind, a subsidiary of Eab New Energy and wind turbine maker Enercon GmbH;41
- Gunkul Engineering Public Co Ltd (Thailand), via its subsidiary namely Bright Green Power Company Limited, purchased the Tri Viet 1 Solar Power Plant and the Bach Khoa A Chau 1 Solar Power Plant for US$60.6 million;42
- Super Energy (Thailand acquired 100 per cent of Thinh Long Phu Yen Solar Power JSC for US$51.158 million;43 and
- Gulf International Holding Pte (Thailand) will purchase up to a 100 per cent stake in Dien Xanh Gia Lai Investment Energy JSC for US$200 million in order to acquire two wind farms in the central highlands, Ia Pech 1 and Ia Pech 2 (50MW each) located in Ia Grai district of Gia Lai.44
The insurance sector of Vietnam witnessed two notable deals:
- FWD Life Insurance Company (Bermuda) Limited acquired all of the shares in Vietcombank – Cardif Life Insurance Co Ltd for US$400 million, whose name was later changed to FWD Assurance VietNam Company Limited;45 and
- Sumitomo Life (Japan) purchased 41.4 million in shares, or a 4.61 per cent stake, in Bao Viet Holding for US$173 million, raising its existing stake to 22.09 per cent.46
With respect to the equitisation and divestment of state-owned capital, the process continues to face obstacles due to many factors, such as valuation of state-owned capital, foreign ownership limitations in several sectors, lack of transparency and consistency in the process, and other complicated procedures. Based on various reports, it appears that the equitisation and state divestment cases actually carried out in recent years has been no more than 30 per cent of the total divestments originally planned and even appear in some sectors to be below 10 per cent.47 Such difficulties, together with external complications, such as the covid-19 pandemic, have caused further delays in the equitisation plans of the government. The government and responsible state authorities are now preparing alternative plans for the equitisation of the remaining state owned enterprises for the upcoming period.48
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 inject it into the domestic market. The largest transactions in Vietnam have largely tended to be financed by loans. However, Japanese investors, one of the largest investors in Vietnam for several years, are different inasmuch as they seem to prefer financing their acquisitions of Vietnamese companies by using their existing equity capital and retained profits.
Local investors, by contrast, rarely disclose the source of their purchase financing, unless otherwise required by law. For example, in the largest M&A deal by a local investor in 2019, Vinamilk succeeded in acquiring additional stakes in GTNFoods, which is the majority shareholder of Moc Chau Milk, raising its holding in GTNFoods to 75 per cent. The deal is estimated to be worth about 3.4 trillion dong without any information of the source of financing.49 Considering that Vinamilk is the leader in the Vietnamese dairy industry with owner's equity of about 25 trillion dong as recorded in its audited financial statements for fiscal year 2018,50 it is assumed that the acquisition was funded by internal resources. Another notable domestic deal in 2019 were the serial acquisitions of Viglacera's stake conducted by the Gelex Group, which raised its ownership holding to about 25 per cent. This deal was valued at about 1.5 trillion dong.51 The source of financing was not explicitly disclosed; however, based on information the Gelex Group provided to the competent authority, the financing of these acquisitions came from owner's equity and some other resources of the Gelex Group.52
Offshore loan arrangements appear to be gaining some attention from local acquirers as a means of financing M&A transactions as Vietnamese parties have become more familiar in recent years with the typical provisions applicable to such 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 wish to exercise the right to acquire secured shares in the event of default if a target company is operating in areas that are conditional or restricted for foreign investment. In addition, offshore creditors are not allowed to hold collateral over a land use right in Vietnam. Moreover, offshore loans with terms of more than one year are subject to registration with the SBV, which registration requirement is an administrative tool employed by the SBV to manage and control the flow of foreign exchange currencies in Vietnam.
The existing Labour Code53 has been effective since 1 May 2013. However, as mentioned, Vietnam's commitments under the CPTPP and EVFTA have stimulated a recent evolution in the labour regulatory framework. Accordingly, the new Labour Code was adopted in 2020 and will come into effect from 1 January 2021 to ensure Vietnam's strict compliance with its commitments under the CPTPP and EVFTA.
Key provisions of the new Labour Code include:
- the state's recognition of representative organisations of employees that exist independently from the Vietnam General Confederation of Labour, which is under the leadership of the Communist Party;
- the expansion of what constitutes a 'labour contract' so as to cover any agreements, whether labelled as labour contracts or otherwise, that contain terms describing what is essentially an employment arrangement, including the work/job to be done, salary or remuneration, and designated management and supervision by one party, so as to encapsulate arrangements that can be used through artifice to avoid or minimise the protection of employees' statutory rights, such as services agreements, agency contracts, and consulting contracts;
- the limitation of an individual employee's overtime to 40 hours per month and 200 hours per year, except under certain exceptional circumstances where an employer may arrange for employees to work up to 300 hours of overtime per year (e.g., (1) where urgent jobs cannot be delayed due to the seasonality or the timing of raw materials; (2) situations involving the production and processing for export of electrical products, electronic products, and salt products; or (3) jobs requiring high levels of professional or technical qualifications, but where the labour market cannot sufficiently and promptly supply such employees);
- the increase in the number of public holidays per year from 10 to 11; and
- the exemption of any foreigner working in Vietnam from the requirement of obtaining a work permit where such foreigner:
- is the owner or a capital-contributing member of a limited liability company having a minimum amount of contributed capital as prescribed by the government;
- is the chairman or a member of the board of directors of a joint-stock company having a minimum amount of contributed capital as prescribed by the government;
- is the chief of a representative office, director of a project or a person in charge of the activities of an international organisation or non-governmental organisation in Vietnam;
- will stay in Vietnam for less than three months to offer services for sale;
- will stay in Vietnam for less than three months to deal with complicated technical or technological problems that adversely affect or are at risk of adversely affecting production and business activities where such problems cannot be handled by Vietnamese experts or foreign experts who are currently in Vietnam;
- is a foreign-qualified lawyer possessing a professional practice licence in Vietnam in accordance with the law regulating lawyers;
- is exempt from obtaining a work permit pursuant to an international treaty to which Vietnam is a contracting party or the governmental instruction; or
- is married to Vietnamese citizen and living in Vietnam.
In general, resident corporate sellers are taxed at the rate of 20 per cent for any capital gain arising from the sale of capital contributions in a limited liability company (LLC) or shares in a joint-stock company (JSC). Resident individual sellers, however, are taxed at the rate of (1) 0.1 per cent on the gross transfer price for sale of shares in a JSC in Vietnam; and (2) 20 per cent for any capital gain in sale of capital contribution it owns in a LLC.
Non-resident corporate sellers are taxed at the rate of (1) 0.1 per cent on the gross sales price for any sale of shares in a JSC; and (2) 20 per cent on any income earned arising from sale of capital contributions in an LLC. Non-resident individual sellers are taxed at the rate of 0.1 per cent on the gross sales price in any sale of capital contributions in an LLC or shares in a JSC.
As for the sale of other property (i.e., other than securities and capital interests) in asset deals, in general, resident corporate sellers are taxed at the rate of 20 per cent of the capital gain, while non-residents are taxed at rate of 1 per cent of the gross sale price.
The Law on Competition 2018 came into effect from 1 July 2019, and recent guidance from the government under Decree 35/2020/ND-CP, dated 24 March 2020, has updated the law.
In general, M&A transactions that fall within the scope of 'economic concentration' and satisfy one of the four threshold tests will trigger filing obligations. 'Economic concentration' is determined by the acquirer's ability to 'control or govern' the target; and an acquirer is deemed to control or govern the target if: (1) it acquires more than 50 per cent of charter capital or total voting shares of the target; (2) it acquires more than 50 per cent of the assets in one or all business lines of the target; (3) it acquires the right (i) to directly or indirectly appoint, dismiss, or discharge the majority of the members of the governing board, the chairperson of the members' council, or director or general director of the target; or (ii) to make any amendment to the target's corporate charter or any decision on the target's important business matters (such as its form of business organisation, its business activities, changes in its business size and activities or industries, its forms and methods of mobilisation, and distribution and investment of its capital).
Unlike its predecessor, which set the threshold for the merger filing requirement based on the combined market share of the parties concerned, the new law and Decree 35 set out the following four thresholds, any one of which if met will trigger the filing requirement:
|Insurance companies||Securities companies||Credit institutions||Others|
|Total assets54||15 trillion dong or more||15 trillion dong or more||20 per cent of the total assets of the credit institution system in Vietnam or more||3 trillion dong or more|
|Total revenue55||10 trillion dong or more||3 trillion dong or more||20 per cent of the total revenue of the credit institution system in Vietnam or more||3 trillion dong or more|
|Transaction value||3 trillion dong or more||3 trillion dong or more||20 per cent of the total charter capital of the credit institution system in Vietnam or more||1 trillion dong or more|
|Combined market share56||20 per cent of the relevant market or more|
If the merger filling requirement is triggered, the parties involved in the M&A transaction will have to submit a number of documents to the National Competition Committee (NCC) for the purpose of the notification. The NCC will then carry out a two-phase appraisal: a preliminary one, which may take up to 30 days, and, if a notice of non-approval of the transaction is issued, an official one, which will take up to 90 or 150 days, depending on the complexity of the case.
An M&A transaction will be prohibited by the NCC if it significantly restricts or is capable of significantly restricting competition in the market. The significant competition-restraining impact or the ability to cause a significant competition-restraining impact will be assessed based on any or a combination of the following factors:
- the combined market share of the parties participating in the contemplated transaction;
- the extent of concentration in the relevant market before and after the contemplated transaction;
- the relationship of the parties participating in the contemplated transaction;
- the competitive advantages brought by the contemplated transaction in the relevant market;
- the ability of the company formed from the contemplated transaction to significantly increase prices or the rate of return on sales;
- the ability of the company formed from the contemplated transaction to exclude or hinder other businesses from entering or expanding the market; and
- special factors in the industry or sector in which the companies taking part in the contemplated transaction operate.
A transaction may still be carried out if the NCC determines that it will have a competitive-restraining impact, provided that the parties concerned undertake to conduct one or more of the following pre-closing or post-closing measures, as directed by the NCC:
- divide, separate, or sell part of the shares or assets of the companies participating in the transaction;
- control the price of goods or services and other terms and conditions in contracts signed by the company formed from the transaction; or
- conduct other measures to overcome the effect of restricting competition in the market or to enhance the positive impact of the transaction.
The Grab/Uber case
Grab Inc's acquisition of Uber's business remains the most recent notable merger control case in Vietnam (it was handled under the Law on Competition 2004, which was replaced by the new Law on Competition 2018).
On 25 March 2018, Grab Inc announced its acquisition of all of Uber's assets and operations in South East Asia. As part of the deal, GrabTaxi Company Limited (GTVN) and Uber Vietnam Company Limited entered into an agreement under which Uber Vietnam Company Limited transferred to GTVN all of its assets, operations, and interests in Vietnam. On 16 April 2018, the Vietnam Competition Authority (VCA) (the predecessor to the NCC) issued a decision to conduct a preliminary investigation into the acquisition. In an explanatory document submitted to the VCA, the parties claimed that as their combined market share in Vietnam was less than 30 per cent, they did not need to comply with the merger notification requirement. However, an official investigation was carried out from May 2018, and the investigation results were issued on 30 November 2018. Through the investigation, the VCA found signs of violations of the competition law, including a failure to notify the VCA of an economic concentration under Article 20 of the Law on Competition 2004, causing the deal to fall into the prohibited category of economic concentration under Article 18 of the Law on Competition 2004. In addition, it was held that Grab and Uber had market power and competed directly with each other. Therefore, Grab's acquisition of Uber's business in Vietnam would change the market structure, undermine competition, and potentially result in a powerful enterprise that might abuse its dominant market position.
The VCA delivered the investigation results to the Competition Council, which subsequently established a sub-council to deal with the case. By law, the Council was authorised to decide within 30 days from the receipt of the file whether to conduct an investigative hearing, return the file for additional investigation, or suspend the case. After the discovery of new evidence, the file was returned to VCA for further investigation on 1 February 2019 and a hearing on 11 June 2019. Following the hearing, the Council held57 that the transaction between GTVN and Uber Vietnam Company Limited did not constitute an economic concentration governed by the Law on Competition 2004. Consequently, on 28 June 2019, VCA appealed the Council's decision. Since the Council has ceased its operation and the NCC has not yet been established, there have been no further developments on the handling of this case to date.
Vietnam maintained strong economic growth in 2019, with gross domestic product (GDP) reaching 7.02 per cent (exceeding its target of 6.8 per cent), making it the second year in row that Vietnam's GDP growth exceeded 7 per cent since 2011. According to the Annual Report of the General Statistics Office,58 foreign direct investment reached US$38 billion59 and Vietnam's total import and export turnover exceeded US$517 billion.60 As such, Vietnam remains a very attractive place for investment in the private sector. By the end of January 2020, the covid-19 pandemic was wreaking havoc on the global economy, which reduced Vietnam's GDP growth to 1.81 per cent in the first six months and 0.36 per cent in the second quarter61 of 2020 (the lowest rate since 2011).
Despite the difficulty of the worldwide pandemic, Vietnam's market is still considered one of the most popular destinations for foreign investment flows. The World Bank's April 2020 East Asia and Pacific Economic Update projected that growth in the region would decline significantly in all scenarios, but Vietnam, given its strong resilience, is among the few countries that could actually experience a positive growth rate in all scenarios, though lower than in 2019.62 Euromonitor International projected that Vietnam M&A activities in 2021 would reach a 94.6 score, ranking second among 50 countries and after the US.63 According to the Euromonitor M&A Investment Index, Vietnam's strong growth in investment and M&A activity is forecasted based on (1) domestic political and economic reforms as well as the fallout from disputes between the US and China; (2) Western economies diversifying their supply and value chain strategies away from China; and (3) low borrowing costs and depressed asset values, which will present acquisition opportunities for businesses from the US and Western Europe.
The banking sector could be quite active as well as the government is working to reform the banking system. Foreign ownership limits relating to the restructuring of weak commercial banks may be relaxed by the Prime Minister on a 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 of property mortgages by banks. This is also one of the key factors facilitating M&A in the real estate sector, as banks will find it easier to sell mortgaged properties and real estate development projects.
Renewable energy is expected to continue its strong growth in Vietnam M&A market, which is being stimulated by Vietnam's global integration commitments under the CPTPP and EVFTA. Vietnam now is obligated to reduce its traditional coal-fired power plants in favour of renewable energy sources. Substantial investments have been made via the CPTPP (notably from Japan and Korea).
Retail and fast-moving consumer goods will continue to lure foreign investments. There are also opportunities in high-tech agriculture and other high-tech industries.
Finally, the acceleration of the privatisation of state-owned companies offers foreign investors many more opportunities to enter the market through M&A.
1 Taro Hirosawa is a local partner and Ha Hoang Loc is a Vietnam partner at Nishimura & Asahi.
2 Foreign Investment Agency under the Ministry of Planning and Investment, Foreign Investment Attraction in 2019, 1 January 2020, at https://dautunuocngoai.gov.vn/tinbai/6318/Tinh- hinh-thu-hut-dau-tu-nuoc-ngoai-nam-2019.
3 Domestic M&A deals herein only cover deals wherein buyers are Vietnamese individuals or organisations.
4 World Bank, East Asia and Pacific in the Time of Covid-19, East Asia and Pacific Economic Update, April 2020, at https://www.worldbank.org/en/region/eap/publication/east-asia-pacific-economic-update.
5 Notably, Vietnam recently signed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) in 2018, the EU Vietnam Free Trade Agreement (EVFTA) and the EU Vietnam Investment Protection Agreement (EVIPA) in 2020, which are considered the largest new-generation free trade agreements containing loftier and broader commitments of Vietnam.
6 Article 1 of the Civil Code 2015.
7 The new Law on Enterprises and Law on Investment were adopted on 17 June 2020 and will completely replace the existing laws from 1 January 2021.
8 Ownership of all land lies with the entire population, with the state acting as the representative owner. Therefore, no enterprise, whether a domestic private enterprise, state-owned enterprise or foreign private enterprise, may be the actual owner of any land. Investors may only use land through a land use right.
9 Under Article 25 of the Law on Securities 2006, a public company is a joint-stock company that has conducted a public offering of its shares, has its shares listed on a stock exchange or at the Securities Trading Centre, or whose shares owned by at least 100 investors, excluding professional securities investors, and has a contributed charter capital of 10 billion dong or more.
10 In 2015, total foreign investment in public companies was relaxed by the government (see Section III. iii).
11 See, e.g., Section IX on the Law on Competition.
12 A foreign invested company is one in which 51 per cent or more of its total shares are held (directly and indirectly) by foreign shareholders.
13 In the case of a foreign investor's acquisition or subscription involving a target company that holds a certificate of land use rights with respect to any islands, border districts, coastal districts or other areas that have an impact on national defence and security, the new law mandates registration and approval in advance. This requirement is also applicable when the acquirer or subscriber is a company based in Vietnam in which 50 per cent or more of the total shares are held (directly and indirectly) by foreign shareholders.
14 The current law requires a six-month shareholding period to expire before the acquirer or subscriber may exercise such rights.
15 In general, NVDR holders will enjoy economic rights and obligations similar to those of ordinary shareholders, except they will not have voting rights.
16 Because private land ownership does not exist in Vietnam, the state grants land use rights to individuals and entities in the form of leases or allocations.
17 Article 55.3 of the Law on Land No. 45/2013/QH13.
18 A 'professional securities investor' is an investor who has financial capability or professional expertise in securities, comprising: (1) commercial banks, foreign bank branches, finance companies, insurance business organisations, securities companies, securities investment fund management companies, securities investment companies, securities investment funds, international financial institutions, off-budget state financial funds, and state financial institutions permitted to purchase securities in accordance with relevant law; (2) companies with paid-up charter capital of 100 billion dong or more; (3) listed companies and UPCoM-traded companies; (4) persons having a securities business practising certificate; (5) any person holding a portfolio of listed and UPCoM-traded securities with a value of at least 2 billion dong (supported by documentary evidence); and (6) any person having taxable income of at least 1 billion dong in the most recent tax year (supported by documentary evidence).
19 Department of Foreign Investment under Ministry of Planning and Investment, Report on direct foreign investment situation in 2019, Ministry of Planning and Investment Portal, December 27, 2019, at
20 Department of Foreign Investment under Ministry of Planning and Investment, Foreign investment situation in the first eight months of 2020, Ministry of Planning and Investment – Foreign Investment Agency (FIA), 28 August 2020, at https://dautunuocngoai.gov.vn/tinbai/6379/Tinh-hinh-Dau- tu-nuoc-ngoai-8-thang-nam-2020.
21 Department of Foreign Investment under Ministry of Planning and Investment, Situation of foreign investment attraction in 2019, Ministry of Planning and Investment - Foreign Investment Agency (FIA), 7 January 2020, at https://dautunuocngoai.gov.vn/tinbai/6318/Tinh-hinh-thu-hut-dau- tu-nuoc-ngoai-nam-2019.
22 Department of Foreign Investment under Ministry of Planning and Investment, Foreign investment situation in the first eight months of 2020, Ministry of Planning and Investment – Foreign Investment Agency (FIA), 22 September 2020, at https://dautunuocngoai.gov.vn/tinbai/6379/Tinh-hinh-Dau-tu-nuoc-ngoai-8-thang-nam-2020.
23 Minh Son, South Korean SK Group at major Vingroup shareholder, VnExpress, 28 May 2019, at
24 Thai Beverage Public Co., Ltd also contributed to a large M&A deal in 2018 with its acquisition of a stake in Sabeco.
25 Le Hoang, Beerco's Vietnam Beverage stake acquisition sends foreign investment surging, The Saigon Times, 1 March 2019, at https://english.thesaigontimes.vn/66522/beerco%E2%80%99s-vietnam-beverage-stake-acquisition-sends-foreign-investment-surging.html.
26 Sophie Dao, Vietnam's outstanding M&A deals in 2018-2019, Vietnam Insider, 30 July 2019, at
27 Kim Oanh, Thai Stark Corporation PCL swallows Vietnamese cable manufacturers for $240 million, Vietnam Investment Review, 7 April 2020, at https://www.vir.com.vn/thai-stark-corporation-pcl-swallows- vietnamese-cable-manufacturers-for-240-million-75395.html.
29 Bich Phuong, KKR-led consortium enters into a $650mln investment in Vinhomes, Nhip Cau Dau Tu Magazine, 16 June 2020, at https://e.nhipcaudautu.vn/market/kkr-led-consortium-enters-into-a-650mln- investment-in-vinhomes-3335514/.
30 Hai Yen, Japan's Taisho Group takes control of Vietnam's DHG Pharmaceutical, Ha Noi Times, 25 April 2019, at http://hanoitimes.vn/japans-taisho-group-takes-control-of-vietnams-dhg-pharmaceutical-1076.html.
31 Nguyen Huong, SK Group acquires 25 per cent of Imexpharm, Vietnam Investment Review, 1 June 2020, at https://www.vir.com.vn/sk-group-acquires-25-per-cent-of-imexpharm-76721.html.
32 Phuong Dong, Japan's Aska buys 24.9 stake in Vietnam drug company, VnExpress, 24 August 2020, at https://e.vnexpress.net/news/business/companies/japan-s-aska-buys-24-9-stake- in-vietnam-drug-company-4151244.html.
33 Dat Nguyen, Masan takes over Vingroup retail subsidiary, VnExpress, 2 January 2020, at https://e.vnexpress.net/news/business/companies/masan-takes-over-vingroup-retail-subsidiary-4036157.html.
34 GIC, GIC-led consortium enters into US$500 million investment in VCM Services and Trading Development Joint Stock Company, GIC, 9 September 2019, at https://www.gic.com.sg/news-and-resources/gic-led-consortium-enters-into-us500-million-investment-in-vcm-services-and- trading-development-joint-stock-company/.
35 VNS, Electronic retailer Nguyễn Kim acquired by Central Group, Viet Nam News, 28 February 2020, at https://vietnamnews.vn/economy/652846/electronic-retailer-nguyen-kim-acquired-by-central-group.html.
36 Decision 986/QD-TTg of the Prime Minister and Decision 34/QD-NHNN of the State Bank of Vietnam.
37 Hung Cao, Banking M&As set to flourish, Vietnam Economic Times, 24 November 2019, at
38 GIC, GIC and Mizuho jointly acquire stake in Vietcombank, GIC, 9 January 2019, at https://www.gic.com.sg/wp-content/uploads/2019/01/GIC-and-Mizuho-jointly-acquire-stake-in-Vietcombank2.pdf.
39 Van Linh, OCB's General Meeting of Shareholders: Completion of selling shares to Aozora and listing on HoSE after several years of postponement, Bao Dau Tu, 30 June 2020, at https://baodautu.vn/dhcd-ocb- hoan-tat-ban-von-cho-aozora-niem-yet-san-hose-sau-nhieu-nam-tri-hoan-d125001.html.
40 Mars Woo, Vietnamese fintech startup Momo bags US$100m from Warburg Pincus, Kr Asia, 18 January 2019, at https://kr-asia.com/vietnamese-fintech-startup-momo-bags-us100m-from-warburg-pincus. https://news.crunchbase.com/news/warburg-pincus-bets-on-vietnamese-mobile-payment-market- leader-momos-series-c.
41 Ficus Capital, Ficus Capital acted as exclusive M&A advisor to ven-wind New Energy regarding
the sale of Mui Dinh project, a 37.6 MW wind farm in Vietnam, Ficus Capital, at
42 Gunkul Engineering Public Co., Ltd, Letter regarding the information on investment projects in the Tri Viet 1 Solar Power Plant and the Bach Khoa A Chau 1 Solar power Plant in Vietnam, sent to the President and Managing Director and the Stock Exchange of Thailand, Gunkul Engineering Public Co., Ltd's website, 5 February 2020, at https://gunkul.listedcompany.com/newsroom/060220201705060251E.pdf.
43 Luu Huong, Thailand-based Super Energy invests in solar power plant in Vietnam,
Vietnam Investment Review, 2 March 2020, at https://www.vir.com.vn/thailand-based-super- energy-invests-in-solar-power-plant-in-vietnam-74425.html.
44 Kim Luu, Gulf Energy buys local firm to acquire two wind farms, Vietnam Investment Review, 7 July 2020, at https://www.vir.com.vn/gulf-energy-buys-local-firm-to-acquire-two-wind-farms-77554.html.
45 Manuel Baigorri, FWD Nears $400 Million Insurance Deal With Vietcombank, Bloomberg, 24 September 2019, at https://www.bloomberg.com/news/articles/2019-09-24/fwd-is-said-to-near- 400-million-insurance-deal-with-vietcombank; Linh San, M&A activity up in value in 2019, Vietnam Economic Times, 6 January 2020, http://vneconomictimes.com/article/business/m-a-activity-up-in- value-in-2019.
46 Ngoc Thuy, Sumitomo Life spends US$173 million for 5% stake of Vietnamese insurer Bao Viet,
Ha Noi Times, 19 December 2019, at http://hanoitimes.vn/sumitomo-life-spends-us173-million-for-5-stake-of-local-insurer-bao-viet-300538.html.
47 Anh Minh, State-owned enterprises are still making slow progress in equitization, Online Newspaper of the Government of the Socialist Republic of Vietnam, 11 December 2019, at http://baochinhphu.vn/Tai-co-cau-doanh-nghiep/Tien-do-co-phan-hoa-doanh-nghiep-nha-nuoc-van-cham/382280.vgp.
48 Notification No. 306/TB-VPCP of the Government Office dated 20 August 2020.
49 Minh An, Vinamilk Spent VND 3,400 Billion to Acquire 75% Capital of GTNFoods, Vietnam Daily, December 22, 2019, at https://vietnamdaily.net.vn/tai-chinh-ngan-hang/vinamilk-da-chi-khoang- 3400-ty-dong-de-thau-tom-75-von-gtnfoods-79505.html.
50 Vinamilk JSC, Audited Statements For The Fiscal Year, 31 December 2018, at https://www.vinamilk.com.vn/static/uploads/article/1553165196-86e2152e3dd15abb83d9e2da2db04f519f637e4ab701e6ab611411 49966b65ae.pdf.
51 Linh Dan, What Is Gelex Scheme Regarding Viglacera's Acquisitions?, STOCKBIZ, 6 July 2020, at
52 Gelex JSC, Resolutions of the Board of Directors, June 30, 2020, at https://static2.vietstock.vn/data/HOSE/2020/NGHI%20QUYET%20HDQT/VN/20200702_20200701---GEX---NQ-HDQT-Thong- Qua-Chao-Mua-Cong-Khai-VGC.pdf.
53 Labour Code 10/2012/QH13.
54 This test is calculated based on the total assets of the parties to the M&A transaction and their affiliated companies (if any) in the fiscal year immediately preceding the contemplated transaction.
55 This test is calculated based on the revenue of the parties to the M&A transaction and their affiliated companies (if any) in the fiscal year immediately preceding the contemplated transaction.
56 This test is calculated based on the market share of each of the parties to the M&A transaction in the fiscal year immediately preceding the contemplated transaction.
57 Decision No. 26/QD-HDXL dated 17 June 2019.
58 General Statistics Office report, Socio-economic situation in the fourth quarter and the whole year 2019, 27 December 2019, at https://www.gso.gov.vn/en/data-and-statistics/2020/01/socio-economic-situation- in-the-fourth-quarter-and-the-whole-year-2019/.
59 Foreign Investment Agency under the Ministry of Planning and Investment, Foreign Investment Attraction State in 2019, 7 January 2020, at https://dautunuocngoai.gov.vn/tinbai/6318/Tinh-hinh-thu-hut-dau- tu-nuoc-ngoai-nam-2019.
60 General Statistics Office report, Socio-economic situation in the fourth quarter and the whole year 2019, 27 December 2019, at https://www.gso.gov.vn/en/data-and-statistics/2020/01/socio-economic-situation- in-the-fourth-quarter-and-the-whole-year-2019/.
61 General Statistics Office report, Socio-economic situation in the second quarter and six months of 2020, at https://www.gso.gov.vn/en/data-and-statistics/2020/07/socio-economic-situation-in-the-second-quarter-and-the-first-6-beginning-months-of-2020/.
62 World Bank, East Asia and Pacific in the Time of Covid-19, East Asia and Pacific Economic Update, April 2020, at https://www.worldbank.org/en/region/eap/publication/east-asia-pacific-economic-update.
63 Joao Luiz Machado Paschoal, Euromonitor M&A Investment Index, Euromonitor International,
September 2020, at https://go.euromonitor.com/rs/805-KOK-719/images/ wpConsultingMAIndex.pdf?mkt_tok=eyJpIjoiWWpVMU1qQmhNbU00WkRVMyIsInQiOiJ qbmxlMEtjeHNGSHFkUU9LcjN5NHFEeGFaNzhBXC9WZkkxUXUxT1E5RURXaGQ5SDF pQnJadEtEdnFMSHpPQVVxUVl6ekJpUjBVeHNHMVFkdG1JS3g2XC9EUEhISWcrY2x3Vm1 HRUFDdnhmb1E5V2wxQlZmbU55NHFrY1llbXNjK1ZaIn0%3D.