17 December, 2019
Right after the conclusion of the 14th National Assembly’s eighth session, the Ministry of Planning and Investment (MPI) gathered businesses, state agencies, economists, and lawyers at last week’s workshop to get their comments on the public’s most-noted issues regarding the draft amendments to the Law on Enterprises 2014 and the Law on Investment 2014. Currently, various issues would need to be solved, such as protection of individual shareholders, the stake-holding of state-owned enterprises (SOEs), household businesses, new investment mechanisms and incentives, and SOE acquisitions.
“It is urgent for Vietnam to amend the laws due to emergence of new economic models, wide impacts of Industry 4.0, and stiffening competition from regional countries like Thailand, Malaysia, and China which have revised the regulations to attract international backers,” stated MPI Deputy Minister Vu Dai Thang.
Fiery issues for SOEs
The concept of state-owned enterprises based on state stake-holding was strongly discussed at the NA session, once again tabled at the workshop with a series of comments from state agencies and businesses.
Vietnam Posts and Telecommunications Group (VNPT), in which the state holds a 100 per cent stake, will have to equitise by the end of the year when it plans to sell 35 per cent of stakes.
A VNPT representative said that the company might find it hard to locate strategic investors as regulations state that SOEs are those with over 50 per cent of state stake. “Foreign financiers often want to hold a controlling stake when spending money to buy stakes, thus enabling them to have the right to vote and the right to make decisions,” he said.
A similar view was mooted by State Capital Investment Corporation (SCIC), currently managing a portfolio of over 500 enterprises operating in various sectors such as financial services, energy, manufacturing, telecommunications, transport, consumer products, healthcare, and IT. A representative of SCIC’s Legal Department said it is necessary to clarify what the state stake belongs to, and who the representative of the state stake is. “We have parent companies, state-owned corporations, and one-member limited companies with 100 per cent state ownership which have different representatives of state stake, including state agencies, SOEs, the Committee for the Management of State Capital at Enterprises, and others.”
She added, “This regulation might make international businesses hesitate to purchase stakes in SOEs as they are often concerned about the state holding in these firms.”
According to Phan Duc Hieu, deputy director of the Central Institute for Economic Management and a member of the compiling committee, the state holding rate of over 50 per cent is proposed in the draft amendments because it is the most optimal choice to ensure the state’s right to make important decisions about business operation. This aligns it with other prevailing laws which also classify SOEs into the rate of 50 per cent and 100 per cent.
No new agreement yet
Besides this regulation, others on household businesses, corporate seals, and individual small shareholders in the draft amendments to the Law on Enterprises also invited ideas of support and disagreement, just like at the NA session and other conferences.
For individual small shareholders, which attracts strong attention among businesses, Hieu explained that the regulation which requires individual small shareholders to hold at least 3 per cent of a company’s stake is suitable. It is because under the draft amended Law on Securities, 5 per cent owners are classed as major shareholders. On the other hand, the 3 per cent rate is popular in many countries worldwide. In regards to investment incentives, stake acquisitions, and investment conditions for foreign investors, the workshop's participants also raised varying and contradictory ideas, in part because of differences between ambition and reality.
They also consented that the draft amendments should further clarify some concepts, and be revised towards simplifying administrative procedures, and managing business performance more suitably.
Phan Thi Thu Hang, head of the Investment Promotion Division of the Industrial Parks Management Board in Hoa Binh, cited a case in her locality as an example for the loose regulations on investment incentives. One investor received a land use right certificate and a 15-year tax exemption and then halted his project after seven years. As a result, state coffers suffered losses.
For further information, please contact:
Dang The Duc, Partner, Indochine Counsel
duc.dang@indochinecounsel.com
