On 26 November 2019, the National Assembly adopted the Law on Securities in 2019 (“Securities Law 2019”), which will replace the Law on Securities 2006 amended and supplemented in 2010 (“Securities Law 2006”), and come into effect from 1 January 2021. Below are some key changes which investors should pay attention:
1. New conditions for public offerings
Securities Law 2019 differentiates between conditions for an initial public offering (“IPO”) of joint-stock companies and conditions for subsequent offering of public companies compared to the current Law. Securities Law 2019 also amends and supplements some criteria for public offerings in order to ensure that capital mobilization of enterprises must be associated with efficient use of capital. These new conditions for public offerings are as follows:
(i) Regarding an IPO of joint-stock companies[1]
- The company must has a paid-up charter capital of at least VND 30 billion (as compared to VND 10 billion under Securities Law 2006);
- The company has profit over the last 02 consecutive years and has no accumulated loss on the offering (as compared to one year under Securities Law 2006)
- At least 15% or 10% (in case the company has a charter capital of VND 1,000 billion or more) of the company’s voting shares must be sold to at least 100 investors who would not become major shareholders following the IPO. If this condition is not satisfied, then the IPO will be cancelled[2] and the company will be required to refund all payments to the respective investors within 15 days from the cancellation[3];
- Before the offering date, the major shareholders must enter into a commitment to hold at least 20% of the issuer’s charter capital for at least 01 year from the end of the offering;
- The company commit and must have its shares listed or registered on the securities trading system after the end of the offering;
- The company is not undergoing criminal prosecution and does not have any unspent conviction for economic crimes;
- The offering is consulted by a securities company, unless the issuer is already a securities company;
- The company must has an escrow account to receive payments for the offered shares.
(ii) Regarding additional offerings of public companies[4]
- The company has at least VND 30 billion of paid-up charter capital (as compared to VND 10 billion under Securities Law 2006);
- The total par value of the offered shares must not exceed the total par value of the outstanding shares in circulation, unless the company issues shares to: (i) raise capital using the owner's fund, (ii) convert, consolidate or merge companies, or (iii) has an underwriter that undertakes to purchase all shares of the company for resale, or purchase the shares of the company that have not been allotted;
- If the public offering is to raise capital to execute a project of the issuer, at least 70% of the offered shares must be sold to the investors. The company shall have a plan to make up for the shortage in case the capital generated by the offering is inadequate. If this condition is not satisfied, the subsequent public offering will be cancelled[5] and the company will be required to refund all payments to the respective investors within 15 days of the cancellation[6];
- The company commit to have its shares listed or registered on the securities trading system after the end of the offering;
- The company is not undergoing criminal prosecution and does not have any unspent conviction for economic crimes;
- The offering is consulted by a securities company, unless the issuer is already a securities company;
- The company must has an escrow account to receive payments for the offered shares.
In conclusion, the conditions for an additional public offering of shares in the Securities Law 2019 are also strictly regulated as the initial issuance to ensure the quality of the shares on the stock market and limit risks for investors.
2. New conditions for private placements
Under the Securities Law 2019, a private placement of securities is defined as an offering of securities to: (i) fewer than 100 investors, not including professional investors; (ii) professional investors only[7], which means that the new Law removes the method of “not using mass media or Internet” and adds one more case of private placements.
Additionally, Securities Law 2019 expands the definitions of professional investors. Not only organization but also individual is considered as professional investor if they satifies some certain conditions. In particular, professional investors are investors that have adequate financial capacity or securities qualifications, including:
(i). Commercial banks, branches of foreign banks, finance companies, insurers, securities companies, fund management companies, securities investment funds, international financial institutions, off-budget financial funds, state-owned financial institutions permitted to buy securities as prescribed by relevant laws;
(ii). Any company whose contributed charter capital exceeds 100 billion VND; every listed or registered organization;
(iii). Individuals holding securities practicing licenses;
(iv). Any individual holding a quantity of listed or registered securities that is worth at least 02 billion VND as confirmed by the securities company;
(v). Any individual whose taxable income in the latest year is at least 01 billion according to his/her submitted tax return or tax deduction documents of his/her income payer[8].
The Securities Law 2019 also specifies that only strategic investors and professional investors are eligible for private placement of shares by a public company[9]. As compared to the current Law, the definition of strategic investors is changed. Specifically, strategic investors are investors selected by the General Meeting of Shareholders according to their financial capacity, technological capability and commitment to cooperate with the company for at least 03 years[10].
Further, the transfer of privately placed shares, convertible bonds and warrant-linked bonds is limited to 03 years for strategic investors and 01 year for professional investors from the ending date of the private placement, except for transfer between professional investors, transfer under an effective court judgment or decision, arbitrary decision, and transfer due to inheritance as prescribed by law[11].
The Securities Law 2019 also adds some conditions for private placements (private placement of shares, convertible bonds, warrant-linked bonds, a private placement of bonds) corresponding to each type of companies (public companies, securities companies, fund management companies)[12]. This is an addition not only to the number of companies involved, but also to the types of securities offered as compared to the Securities Law 2006 which allows only public companies to offer shares and convertible bonds for private placements.
3. New conditions for becoming a public company
According to Article 32 of the Securities Law 2019, a joint-stock company will become a public company in one of the following cases:
- The company has a contributed charter capital of at least VND 30 billion and at least 10% of the voting shares are being held by at least 100 non-major shareholders;
- The company has successfully conduct an IPO in accordance with the law.
Comparing to the current Law, condition for a joint stock company to have shares listed on the Stock Exchange or the Securities Trading Center is removed under the Securities Law 2019.
4. Foreign investors’ participation
The Securities Law 2006 is silent on foreign investment activities in the Vietnamese securities market. Instead, conditions for foreign investment activities are prescribed in some by-law documents, including Decree No. 58/2012/ND-CP and Circular No. 123/2015/TT-BTC. Thus, it is the first time that an article is included in Sercurities Law about foreign investors’ participation in securities market in Viet Nam, which shows the policy of opening the stock market in Vietnam to foreign investors. In particular, issues of foreign ownership ratio, investment conditions, participation of foreign investors or foreign-invested business organizations in the Vietnam’s securities market will be provided by the Government[13]. This provision not only allows the Government to effectively manage ownership of foreign investment in conditional business lines but also ensures transparency and helps foreign investors save time and costs when conducting investment procedures, which will promote development of securities market in Vietnam.
5. Procedures and permits for securities activities
According to the current Law, securities companies and investment fund management companies must only apply for establishment license from State Securities Commission. However, pursuant to the Securities Law 2019, these companies must carry out additional registration procedures under the Law on Enterprises after having license from State Securities Commission[14]. Regarding securities companies, investment fund management companies established before the Securities Law 2019 takes effect, it must still apply for a enterprise registration certificate within 2 years from the date of the Securities Law 2019 comes into effect[15].
Further, conditions for establishment of securities companies and fund management companies are more clearly regulated. Each type of companies has to meet its certain criteria such as capital requirements, shareholders, capital-contributing members; shareholder structure; facilities and personnel[16]. The current Law also adds regulations related to branches of foreign securities companies and fund management companies in Vietnam and limits the number of branches which allows only one branch to be established in Vietnam[17].
6. Stock Exchange
The Securities Law 2019 stipulates that there is only one Stock Exchange in order to ensure consistency and transparency when implementing law. According to Article 43 of the Securities Law 2019, Vietnam Stock Exchange is an enterprise established and operated in accordance with the Securities Law 2019 and the Law on Enterprises. Over 50% of charter capital or voting shares of Vietnam Stock Exchange shall be held by the State.
7. Sanctions programs
The Securities Law 2019 not only supplements the prohibited acts in securities activities but also provides sanctions for these acts. Specifically, individual or organizations committing one of the following acts shall be imposed of the maximum fine level in sanctioning administrative violations 10 times the illegal revenues obtained from violations[18]:
- Use of internal information to buy or sell securities to oneself or another person; disclosure or provision of internal information; advising another person to buy or sell securities based on internal information.
- Use of one or several accounts of oneself or another person, trading securities in a manner that creates artificial demand or supply; collaborating with another person in trading securities to manipulate securities prices; use of other methods, with or without false information, to manipulate securities prices.
In case there is no illegal revenue or the fine based on the illegal revenue is smaller than the maximum fine, then the maximum fine shall apply[19]. The maximum fine for other securities offences is VND 03 billion for organizations and VND 1.5 billion for each individual[20].
Updated by Pham Van Thao.
[1] Article 15.1 the Securities Law 2019. [2] Article 28.1(b) the Securities Law 2019. [3] Article 28.3 the Securities Law 2019. [4] Article 15.2 the Securities Law 2019. [5] Article 28.1(b) the Securities Law 2019. [6] Article 28.3 the Securities Law 2019. [7] Article 4.20 the Securities Law 2019. [8] Article 11 of the Securities Law 2019. [9] Article 31.1(b) the Securities Law 2019. [10] Article 4.17 the Securities Law 2019. [11] Article 31.1(c) the Securities Law 2019. [12] Article 31 the Securities 2019. [13] Article 51 the Securities Law 2019. [14] Article 71 the Securities Law 2019. [15] Article 135.2 the Securities Law 2019. [16] Article 74, 75 the Securities Law 2019. [17] Article 76.3 the Securities Law 2019. [18] Article 132.3 the Securities Law 2019. [19] Article 132.3 the Securities Law 2019. [20] Article 132.4, 132.5 the Securities Law 2019.
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