The sign of State Securities Commission (SSC) at its headquarters in Hanoi. SSC, other market regulators, stock exchanges and market members have proposed the National Assembly discuss allowing the sale of non-voting depository receipts as a way for local firms to increase capital without giving too much power to foreign investors. (Photo: vietnamfinance.vn) Hanoi (VNS/VNA) - The use of non-voting depository receipts (NVDRs) may help foreigninvestors buy more shares in Vietnamese companies without raising their power.
According to theStock Exchange of Thailand (SET), NVDRs are meant for foreign investorswho are interested in investing in a company but are prevented fromdoing so because of foreign ownership restrictions.
Buying NVDRs is analternative option for foreign investors as they receive the same benefits interms of dividends and warrants as those investing directly in a company’sordinary shares.
The differencebetween those buying ordinary shares and those buying NVDRs is voting rights.NVDR holders cannot be involved in company decision-making.
NVDRs have not beenapproved in Vietnam, but they may be the solution for Vietnamese companies.They would allow firms to raise more foreign capital withoutceding power to foreign shareholders.
The foreignownership cap is in place to avoid giving foreign interests too much power, soVietnamese market regulators and companies may want to consider embracing NVDRsto raise capital.
A Vietnamese companycan only increase its foreign ownership limit if it is not involvedin “sensitive sectors” such as property, transportation or banking – theeconomic sectors that have a direct impact on Vietnam’s economic safetyand security.
The maximum foreignownership for those companies is 49 percent. In the banking and aviationsectors, the limit is 30 percent.
The issuance ofcovered warrants allows foreign investors to raise capital in Vietnamese firms,but these purchases are costly and investors can only short coveredwarrants for now, analysts have said. In addition, covered warrants are issuedby securities firms but some foreign-owned brokerage firms cannot buy ordinaryshares if a company runs out of room for foreign ownership.
According to NguyenThi Viet Ha, commissioner of the Ho Chi Minh Stock Exchange (HoSE), NVDRs arein use in Malaysia and Japan and are treated like ordinary shares. Foreigninvestors can purchase NVDRs if their ownership in local companies exceeds theforeign ownership limit.
In Malaysia, theforeign ownership limit is regulated by the company charter. It isrestricted by market regulators in Japan. But in both markets, foreigninvestors will receive financial benefits when buying this kind of share butwill not have voting rights.
In Japan andMalaysia, foreign investors can trade a company’s shares and market regulatorsaddress which of them have voting rights when the company is about tofinalise its shareholder list for a meeting.
But in Vietnam,market regulators must supervise the list of foreign shareholders and theirownership as these two factors can change a company’s ownership status from“Vietnamese” to “foreign” if foreign investors hold more than half of thecompany’s charter capital or a controlling stake.
According to Ta Thi ThanhBinh, director of the Market Development Department at the State SecuritiesCommission (SSC), only 50 listed companies have raised their foreignownership limit to 100 percent. There are nearly 800 companiestrading on the HoSE, HNX and UPCoM.
Most Vietnamesecompanies were hesitant to lift their foreign ownership limit because they wereafraid of being treated as foreign firms, which would restrict them fromdoing business in some sectors, Binh said.
Tran Thi Hong Ha, deputy director of the Market Development Department, said ata recent SSC meeting that NVDRs were proposed by HoSE six years ago buttwo main obstacles had prevented the launch of the new product.
There were nospecific NVDR regulations in Vietnam, she said, addingthat Vietnamese stock exchanges were not allowed to set up their ownbusinesses to issue and manage NVDRs. This policy is differentfrom how NVDRs work in Thailand.
Some experts havesuggested the NVDRs issued by a company should account for 15 percent of itstotal shares and NVDR holders should be able to attend shareholder meetings.
The product is notyet available in Vietnam, but it has been included in the draft amendmentto the Law of Securities, which will be discussed at the14th National Assembly’s seventh meeting on June 6. - VNS/VNA
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