Deficient law deters firms from listing
Deficient law deters firms from listing
While the stock market is an effective channel for both domestic and foreign-invested enterprises (FIEs) to raise funds, few FIEs have been listed due to the inadequacy of the law.
Only eight of 704 listed companies on the two national stock exchanges were FIEs with a combined registered capital of over VND4 trillion (US$190.4 million), accounting for 14 per cent of the total capital of joint stock FIEs.
"The capital of listed FIEs occupied a very small percentage of the billions of foreign direct investment into Viet Nam, while it will continue to grow fast," said the State Securities Commission's head of market development department Nguyen Son.
Some FIEs had converted into public companies, listed shares and raised an abundance of funds, he said.
In the two years of 2006 and 2007, Taiwan-invested construction firm Full Power, which delisted on August 11, succeeded in issuing an addition of 23 million shares. Meanwhile, casino chain Royal International (RIC), also invested by a Taiwanese organisation, and Malaysian International Food (IFS), issued 5.7 million and 4.8 million shares, respectively.
Son said that legal procedures for an FIE to become a joint stock company had been much simpler under the regulations of Decree 101/2006/ND-CP on registration and conversion of foreign investment certificates. However, there were still some contradictions in Decision 55/2009/QD-TTg relating to the percentage of foreign ownership allowed in public companies.
The cap of 49 per cent on foreign ownership in joint stock FIEs was inconvenient for companies that wanted to sell more stocks to foreign investors, Son told the Investment Securities
"Not only does it violate the rights of foreign shareholders, it also causes foreign divestments."
Many foreign shareholders of unlisted FIEs had asked investment licensing agencies to sell part of their stakes, making them less than 49 per cent, he added.
"However, if FIEs can easily convert themselves into joint stock companies according to Decree 101, there will be a risk of transfer pricing to the market," he said.
To improve the situation, according to the commission official, the cap on foreign ownership of converted FIEs should be removed. "Only specialised industries should be limited this way," he said.
Although it might cause some inequalities between FIEs and domestic companies, in which foreign investors can contribute a maximum of 49 per cent, these two kinds of business differed in terms of capital and established methods.
In addition, Son suggested some criteria for transforming FIEs into joint stock companies in order to assure long-term and effective investment.
The conditions he advised included at least five years of operation in the Vietnamese market with a charter capital of $10 million or more, a return on equity ratio of 5 per cent in three years preceding the conversion and no accumulated losses, and commitment to hold at least 30 per cent within three years from the conversion or one year after listing.
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