As investors wait for implementing guidelines on Decree 60 to be issued there are other obstacles that need to be addressed before they look to acquire larger holdings in listed Vietnamese enterprises.
For Mr. Bill Stoops, Chief Investment Officer at Dragon Capital, the introduction of Decree No. 60/2015/ND-CP was a positive sign for foreign investors as it permits them to increase their holdings in listed Vietnamese enterprises. But nearly two months have now passed and he believes the biggest question is what will happen next. Dragon Capital has approximately $1.15 billion in investments and 90 per cent of that is invested in equities. Therefore, what he is concerned about now is when the government will issue regulations and what shape they will take.
Watching & waiting
Decree No. 60 took effect on September 1 but it is necessary to have circulars from the Ministry of Finance (MoF) and Ministry of Planning and Investment (MPI) for it to truly come into being. The MoF has issued Circular No. 123/2015 /TT-BTC providing implementing details for specific provisions of the Law on Securities and Decree No. 60, while the MPI is still to categorize foreign ownership ratios in enterprises.
According to Mr. Kevin Snowball, CEO of PXP Vietnam Asset Management, foreign investment banks or investment funds in emerging markets will probably buy more shares in domestic enterprises if they are permitted to and if the way is made clear he believes Vietnam will welcome a large number of potential investors.
However, having to wait for guidelines from the government makes many investors question implementation. Mr. Andy Ho, Managing Director and Head of Investment at VinaCapital, said that foreign investors want a higher percentage of ownership in State-owned enterprises (SOEs) and participation in corporate governance. But the percentage of shares being sold to foreign investors in most large-scale SOEs is small, from only 3 to 5 per cent.
This obviously affects the SOE equitization process and finding strategic investors. The case of the Bank for Investment and Development of Vietnam (BIDV) is a good example. Long after its IPO, Mr. Tran Phuong, Deputy General Director of BIDV, said that the bank is yet to find foreign strategic shareholders and most are still conducting research.
Vietnam Airlines also conducted its IPO a year ago but is yet to find a foreign strategic partner. In an updated report on the economic situation in East Asia - Pacific, the World Bank noted that divestment by SOEs has been proceeding slowly.
The absence of specific foreign ownership ratios is not the only barrier. Even when this is issued, Mr. Sandeep Mahajan, Chief Economist at the World Bank in Vietnam said, foreign investors wishing to increase their ownership will have difficulties analyzing the financial statements of enterprises because international accounting standards are not followed.
This concern was also reflected in a survey by Grant Thornton in the second quarter of the year, which showed that 20 per cent of investors consider corporate governance to be the greatest concern when investing in Vietnam, closely followed by transparency, at 19 per cent. These two problems have been identified in its previous surveys and must be improved if enterprises want to become more attractive in the eyes of investors.
Mr. Mahajan believes that upgrading financial reporting standards is necessary if domestic enterprises wish to attract more capital inflows from foreign investors.
Mr. Adam McCarty, Chief Economist at Mekong Economics in Hanoi, is concerned that it may take decades before accounting standards in Vietnam improve. If reports are not in accordance with international standards it is difficult for investors to assess the true state of the business.
- Decree No.60/2015/ND-CP
- foreign ownership
- Bill Stoops
- Andy Ho
- World Bank
- Grand Thornton