Room Widening to Create Many Economic Growth Momentums

For the time being, a company established with 51 percent of stake or above owned by foreigners is a foreign-invested company and the investors are called foreign investors. When they invest in a publicly traded company, their holding ratios are limited at 49 percent of share capital. The ratio is lowered to 30 percent if they invest into banks.

 

According to common international practices, if foreign investors establish a company under the law of the host country, they are domestic investors and they are of course subject to the laws on domestic investors. They are encouraged to make investment without any limit to ownership ratio. Ownership ratios of foreign investors are limited in companies operating in restrictedly controlled industries (foreign investors cannot hold lion’s shares).

 

According to the Vietnam Association of Financial Investors (VAFI), naming foreign investors investing to set up companies in a host country as domestic investors is a common practice in the world. This aims to encourage foreign investors to pump capital into the economy, particularly in financial and stock fields to form fund management companies, investment banks and investment funds to accelerate and sustain the development of their stock markets. This also encourages long-term capital flows for the stable development of capital markets.

 

Meanwhile, in Vietnam, many foreign investors, especially those operating in financial and securities fields, are complaining that it is unreasonable to be called foreign investors when they set up and run business entities in Vietnam. As foreign investors, they will fulfil all duties as domestic investors but their rights and interests are not as much as domestic ones. This is considered a major hurdle to attract foreign investment flows into Vietnamese companies.

 

Currently, foreign capital attraction policies in Vietnam are relatively good and open relatively to the world practices but administrative procedures are not improved much. Vietnam allows foreign direct investment (wholly foreign invested) in most industries, even conditional fields like banking and insurance. In the current context of economic slowdown, FDI companies are still very in a good form, not in full of hardships as many domestic companies. FDI sector is playing a pivotal role in the national economy. That is the success of FDI attraction policies over the past years.

 

However, foreign investors have no limit on ownership ratios when they buy into unlisted private companies. This is one bright spot in foreign investment attraction policies and helps domestic companies to seek a lifebuoy in troubled situations, even avoid bankruptcy. Many foreign investors are willing to pay a higher value for a company if it is unlisted.

 

The very difference in foreign investment policies for listed and unlisted companies is raising a hurdle to listed companies in exerting a pull on foreign capital flows.

Therefore, according to VAFI, room policies are not changed quickly enough, many good-performing private companies will do not want to float shares on the stock exchange because they see less benefit. Even, currently listed companies (not privatised SOEs) also plan to delist their shares from the stock exchanges. This will consequently affect the development goals of the stock market.

 

According to VAFI, from experience in dealing with Asian financial crisis in the 1997 - 2001 phase, the free room - unlimited foreign ownership - was the most important solution that helped business communities in troubled countries to quickly escape crisis, not the formation and operation of a limited liability company like Vietnam Asset Management Company (VAMC).

 

Vietnam is trying to deal with bad debts but this process is quite slow. Authorities are now pinning hopes on VAMC. But, according to VAFI, VAMC’s roles are very limited while bad debt settlement needs drastic and quick solutions. “Opening room for listed companies and banks will strongly motivate domestic and foreign investors (dozens of billions of US dollars may be pumped into the stock market) to participate in debt settlement and economic recovery", said VAFI.

 

Free ownership, according to VAFI, will bring many benefits, including three fundamental ones: new corporate governance, low-cost fundraising from equity offering, and boosted stock liquidity.

 

Besides, no barriers against the foreigners’ participation into the capital market stimulate not only foreign indirect investment (FII) inflows but also domestic investment flows. The shareholder structure will be weighed up by institutional investors and this will boost up corporate governance and fundraising efficiency.