Hanoi (VNA) - Besides the exchange-traded fund (ETF) and covered warrants, the Ho Chi Minh Stock Exchange (HOSE) is studying two new securities products – non-voting shares and non-voting depository receipts so as to strengthen Vietnam’s capital market.

Nguyen Thi Viet Ha, a member of HOSE’s board of directors, revealed the information at the conference on “Enhancing Vietnam’s Capital Market Accessibility” jointly held by the Central Institute for Economic Management, the State Securities Commission of Vietnam and the Vietnam Business Forum’s Capital Market Working Group in Hanoi on May 8.

Foreigners find it hard to invest in Vietnam’s capital market

According to Deputy Director of Dragon Capital Management Co., Ltd Le Anh Tuan, the Vietnamese capital market has failed to meet businesses’ demand for medium- and long-term capital. Currently, the aggregate market value of the two stock exchanges reached 170 billion USD as compared to total outstanding debt of 310 billion USD as of December 2018.

Meanwhile, it is not easy for foreign investors to join the local stock market due to foreign ownership restrictions.

By April 23, the stock market was valued at 145 billion USD, 35 billion USD of which owned by foreigners and the rest room was about 18 billion USD.

“18 billion USD may be a large sum at the first glance. However, it is mostly owned by large corporations, including Vingroup (7.2 billion USD), and the group of Vinamilk, Novaland and PV Power (2 billion USD). The remaining 748 listed companies have 8.8 billion USD for foreign investors. Therefore, the average room for each foreigner is less than 10 million USD”.

Tuan held that the number is too small, and many foreign investors want to pour capital into the market but there is no stock for them to land larger investment.

Non-voting shares – new products to raise capital hinh anh 1Only 51 out of 376 listed firms on HoSE witness changes in foreign ownership rate. (Photo: VietnamPlus)

Ha said that among 376 listed enterprises, 51 firms have changed foreign ownership rate, with 28 businesses expanding room from 51-100 percent for foreign ownership ratio while the remainders lowering the ratio to under 49 percent.

Domestic firms become prudent to increase foreign ownership rate as they have to complete a lot of procedures with competent authorities, Ha explained.

Any firm that has foreign ownership rate from 51 percent will become a foreign-invested enterprise, and their business activities will be restricted. To be more specific, limitation is set for a business operating in the health sector to distribute products in the public sectors, or an IT firm may face strong headwinds when bidding for state-owned projects.

Meanwhile, several listed firms want to maintain domestic shareholders’ control during the process of carrying out business plans, Ha added.

Non-voting shares help foreigners buy more shares in VN companies

In fact, non-voting shares have been launched in the international markets for years.

Deputy head of the Central Institute for Economic Management Phan Duc Hieu stressed that the Vietnamese market is short of attractive investment tools, which pose challenges for listed firms to mobilise capital for their production.

“Diversification of securities products will help firms have more opportunities to mobilise capital for their business activities. The two recommended products are non-voting shares (being traded in Japan and Malaysia) and non-voting depository receipts (being traded in Thailand)”, Hieu said.

Non-voting shares – new products to raise capital hinh anh 2(Photo: VietnamPlus)

After analyzing the characteristics of each model, Tuan said that there is no perfect and optimal measure, and management authority needs to set up products suitable for existing laws.

“The securities products in Malaysia and Japan are easy for trading, but they face challenges by current regulations in Vietnam while causing complications for foreign investors to understand their rights. Therefore, the Thai model will be used as a base to create rational non-voting depository receipt products in the Vietnamese market. They can be piloted in some listed firms having no room for foreign ownership”, he added./.