How Non-voting Depositary Receipt Work in Vietnam?
How Non-voting Depositary Receipt
Work?
Decree No. 60/2015/ND-CP (Decree 60)
amending and supplementing a number of articles of Decree No. 58/2012/ND-CP
issued by the Government on May 26th, 2015 has lifted foreign ownership limit
of the public enterprises (with conditions) and permitted enterprises operating
in all sectors and areas without restriction on foreign ownership to self-set
out limits of foreign ownership.
Finance Dispute Law Firm in Vietnam
Although the Government has been
facilitating foreign investor investing in the Vietnam stock market as well as
Vietnam enterprises whom raise capital, the foreign investors still faced a
number of challenges. The Decree 60 has taken effect since September 1st, 2015,
but most public companies did not lift their foreign ownership limit over 51%.
One of the reasons is that, the enterprises with 51% foreign ownership shall
meet the statutory conditions and therefore have to follow the investment
procedures applicable to foreign investors in accordance with the Law on
Investment, Law on Securities and other guiding legislations. Having said that,
Vietnam enterprises with over 51% foreign ownership shall be treated as foreign
investor. These requirements shall significantly impact on business plans and
procedures that an enterprise must comply and restrict them from doing business
in some sectors. Accordingly, the daily purchase and sale of shares by foreign
investors around the threshold of 51% of the charter capital makes it difficult
to determine the legal status of an enterprise.
In order to facilitate the attraction of
foreign capital inflows, the Government has been reviewing acceptance of non-voting depositary receipt (NVDR).
The promulgation of the Enterprise Law 2020 effective from January 1st, 2021,
initially recognized NVDR. Ordinary shares used as underlying assets to issue
NVDR are called as underlying ordinary shares. Non-voting depository receipts
have interest and obligations proportional to the underlying ordinary shares,
excepting for voting rights. NVDR is a negotiable financial instrument issued
by a third party which is a subsidiary of the Stock Exchange (Issuing
Organization). The Issuing Organization will then hand over to investors all
financial benefits attached stocks such as dividends, rights offering. This is
a solution from other country that helps foreign investors to invest in public
enterprises, even they such enterprises reached limit boundary of foreign
ownership. NVDR can be converted into ordinary shares in case the public
company has not yet reached foreign ownership limit.
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