Vietnam foreign ownership limit in listed firms

Vietnam foreign ownership limit rules for public companies changed in 2015. The old blanket cap of 49 percent no longer applies to most listed firms. Many companies can now have foreign owners hold more, and some have no state cap at all. Caps still apply in certain sectors, and a company's own charter can set one. This guide is general information, not legal or financial advice.

Source: Government of Vietnam, Decree No. 60/2015/ND-CP of 26 June 2015.

What the old 49 percent cap was

For years, foreign investors as a group could hold at most 49 percent of the shares of a Vietnamese public company. A public company here means a firm whose shares are listed or widely held. The cap was a single number for nearly every company, no matter its industry.

That rule made it hard for foreign funds and strategic buyers to take large stakes. Some firms stayed near the ceiling for long periods. Foreign buyers who wanted more had to look at private deals instead of the stock market.

The Government changed the rule on 26 June 2015. It issued Decree No. 60/2015/ND-CP, which amends Decree No. 58/2012/ND-CP, the decree that explains Vietnam's Law on Securities. Law firms described the change as a relaxation of the 49 percent cap.

Sources: Baker McKenzie, client alert of July 2015; Clifford Chance, briefing of July 2015.

What Decree 60 changed

Decree 60 took effect on 1 September 2015. It replaced the single cap with a short list of cases. The first case that fits a company decides its limit.

• If a treaty that Vietnam has joined sets a foreign ownership rate, the treaty applies.
• If the investment law or another law sets a rate for the company's sector, that law applies.
• If the sector has conditions for foreign investors but no stated rate, the limit is 49 percent.
• If the company works in several sectors with different rates, it cannot go above the lowest one, unless a treaty says otherwise.
• In all other cases, the foreign ownership rate is unlimited, unless the company's charter says otherwise.

So the 49 percent figure did not vanish. It became the default only for a narrow group: sectors that carry conditions for foreign investors without a rate of their own. Most other public companies moved from a fixed cap to no cap.

Sources: Decree No. 60/2015/ND-CP, Article 1 (new Article 2a of Decree 58/2012/ND-CP), as published in English by LuatVietnam; Baker McKenzie, client alert of July 2015.

Sectors that still have caps

The new rules point back to sector laws. If a law sets a foreign ownership rate for an industry, a public company in that industry follows it. Baker McKenzie gave airlines as an example. In July 2015, the rules limited foreign investment in an airline to 30 percent of its charter capital.

Treaties can go the other way. Baker McKenzie noted that Vietnam's World Trade Organization commitments allow more than 49 percent in some business lines. Its examples were 65 percent for certain telecommunication services and 100 percent for catering services. In those lines, foreign investors may hold shares up to the treaty rate.

If your target company has several lines of business, check each one. The lowest rate wins. A firm that wants more foreign money may have to sell or close the part of its business with the lowest cap.

Source: Baker McKenzie, client alert of July 2015, on the rules as they stood at that date.

The charter can set its own limit

A company that falls into the "unlimited" group is not always open to any amount of foreign money. Decree 60 lets the company's charter set a different rate. The charter is the company's founding rulebook, and shareholders vote on it.

That means two firms in the same sector can have different limits. One may have no limit. The other may keep a cap in its charter to protect local control. Before you buy shares, read the current charter and any recent shareholder resolutions.

State firms that sell shares to the public are a special case. For a state enterprise that is being equitized through a public offering of securities, the foreign rate follows the equitization rules. If those rules are silent, the cases above apply.

Sources: Decree No. 60/2015/ND-CP, new Article 2a; Duane Morris, blog post of 1 July 2015.

What is still unclear

Decree 60 left one real gap. It refers to sectors with "conditions applicable to foreign investors", but it does not give a list. Baker McKenzie pointed out that the Law on Investment of 2014 lists 267 conditional business lines. It said it was unclear whether that list is the one the decree has in mind.

The decree also defines "foreign ownership ratio" in a broad way. It counts the voting shares held by all foreign investors, and by companies in which foreign investors hold 51 percent of the charter capital or more. Baker McKenzie noted that the decree does not say whether a further layer of ownership counts.

Because of these gaps, the same facts can lead to different answers. Foreign investors should ask for written confirmation of the limit from the company and from a Vietnamese securities lawyer, ahead of any large purchase.

Source: Baker McKenzie, client alert of July 2015.

A quick checklist

Use these steps to find the Vietnam foreign ownership limit for a listed company.

• Find the company's business lines in its registration and annual report.
• Check whether a treaty or a sector law sets a rate for any of them.
• If a line has conditions but no rate, assume 49 percent until a lawyer says otherwise.
• Read the charter for its own limit.
• Confirm the current foreign holding with the company before you buy.

The short version is simple. The old single cap is gone for most companies, but limits now depend on the sector, the treaties and the charter. Check all three.

Sources

• Government of Vietnam, Decree No. 60/2015/ND-CP of 26 June 2015, amending Decree No. 58/2012/ND-CP (English text, LuatVietnam).
• Baker McKenzie, "Relaxation of the 49% Cap on Foreign Ownership in Vietnamese Public Companies", client alert, July 2015.
• Clifford Chance, "Vietnam: foreign equity cap for public companies lifted", briefing, July 2015.
• Duane Morris Vietnam blog, "More room for foreign investors in Vietnam's securities market", 1 July 2015.