The capital market working group proposed the best solution to remove problems of loosening foreign shareholding ratio threshold for investors in listed companies in Vietnam.
While domestic companies often look to bank capital to invest in production and business, foreign investors have different views. With recommendations on sustainable development policies for Vietnam, the World Bank expert said that it was necessary to strengthen a more effective financial intermediary system to diversify capital sources for businesses. Currently, the burden of capital supply was being set for the banking system, while there was no source of long-term capital mobilisation for production, business and infrastructure investment.
Kim Han Yong, Chair of Korean Business Association in Vietnam (Kocham), said that the application of Basel II standard in 2020 would force commercial banks to raise safety standards, thereby being more cautious in giving loan to ensure risk prevention. Therefore, the government needed to attract foreign capital as well as mobilise private capital through channels such as stock market, corporate bond, etc.
In particular, developing the corporate bond market was a potential channel. The Korean Business Association in Vietnam proposed to attract credit rating agencies (CRA) with foreign trust to participate in the development of Vietnam’s corporate bond market.
According to Kim Han Yong, the prime minister’s Directive on the plan to develop the corporate bond market had set the target of that market size reaching seven percent of GDP by 2020 and reaching 30 percent of GDP by 2030. However, the condition for developing corporate bond market was to simultaneously evaluate and provide accurate information about businesses.
Currently, Phat Thinh Rating was the first credit rating company licensed in Vietnam. However, with the aim of developing the corporate bond market and attracting foreign capital, the participation of foreign trusted CRAs was necessary and required accompanying policies.
Kim Han Yong cited that if the Korean CRAs were granted an Independent Credit Assessment License or in the form of a joint venture in Vietnam and carry out Vietnamese business assessment, the content of that review could be very helpful in attracting Korean investors. At the same time, in addition to the corporate bond market, in Vietnam, the participation of private companies was also expected to be more exciting with the recently announced PPP Law. At that time, foreign CRAs were expected to play an important role in attracting investors.
In addition, to develop the market of corporate bonds, the capital market working group of Vietnam Business Forum (VBF) also proposed some legal issues to be removed. Specifically, Decree 163/2018/ND-CP required the disclosure of details of bond conditions and terms at least 10 working days before the issuance was unreasonable and difficult to carry out in practice. The reason was because of the issuer and investors often completed bond conditions and terms shortly before release. Especially for secured bonds, because of complicated legal documents, the parties usually ended the negotiation of guaranteed contracts before only one or two days of issuance.
“Obviously, the disclosure of detailed information has hindered the issuance of corporate bonds, and at the same time makes businesses fall into difficulties because they cannot be implemented”, report of the working group indicated the reality.
Therefore, the group proposed to amend the decree allowing the issuer to publish only the basic terms and conditions of the bonds (term, par value, interest rate, principal and interest payment) the corporate bond page (currently not available).
In addition, the compulsory regulation of disclosing information about bondholders on individual issued bonds was contrary to the nature of bond issuance and negatively affected the information security of bond investors and their portfolios. The group proposed to abolish that provision in Decree 163.
Kien Nguyen, VBF’s capital market working group, pointed out the inadequacies on another important capital attraction channel, the stock market. According to him, the policy for indirect investment in this market still needs many improvements. Currently investors participate in the stock market is very limited due to the lack of some long-term funds. The formation of voluntary additional pension fund is an important factor in the development of investors organised on Vietnam’s stock market.
In May 2019, the Ministry of Finance issued a license to provide voluntary retirement fund management services. However, the public offering of voluntary additional retirement packages has not been implemented due to the lack of detailed tax guidelines for these products.
Specifically, there were no guidelines on tax exemption or reasonable preferential tax rates applicable to the fund’s investment results, payments from funds to investors in different cases (withdraw before the retirement age, withdraw once or many times when reaching the retirement age, stop participating in the programme, change the workplace, etc.). In addition, the tax incentive level for fund contributions was considered the most important factor to ensure the development of voluntary supplemental pension funds, which was inadequate to encourage participants. Kien Nguyen asked the Ministry of Finance to soon issue tax policy guidelines for voluntary additional pension funds to quickly add other large companies in the stock market.
Besides, it was the optimal solution to remove problems of loosening foreign ownership cap in listed companies in Vietnam. It was the application of the Non-Voting Depositary Receipt (NVDR). Vietnam should open up the mechanism for NVDR to operate, because it solved both problems: The government could restrict foreign ownership rate in accordance with current laws, as well as international treaties; At the same time, it could not change the legal status (domestic or foreign investors) of the enterprise when the foreign ownership ratio exceeded 51 percent. That new mechanism would allow foreign investors to invest in public companies and listed companies when the foreign ownership ratio reached the maximum level prescribed by law.
