Vietnam Moving to Let Foreign Investors Buy Control of Companies

TAIPEI, Taiwan (TheStreet) -- Vietnam is moving closer to letting foreign investors own public companies outright.

The Southeast Asian nation is drafting a decree to remove the current limit of 30% on foreign ownership of banks and 49% on all other companies. The decree is due around July 1, though skeptics question whether it will happen that soon. It also may take time for Vietnam to formulate specific rules for increasing foreign ownership, making the whole process a gradual one.

A further opening of listed companies would mark Vietnam's latest effort to attract outside investment, one in a series of such moves since it began overhauling its economy in the 1980s. Like China since 1978, relatively poor Vietnam depends on foreign capital to grow, though the Communist leadership in Hanoi hopes to retain control of its top state-run firms as a way of managing the economy.

Foreign investors -- including individuals as well as financial institutions -- currently hold stakes in Vietnam's major petrochemical, steel, retail and financial services companies. Government officials are studying whether to pair higher foreign ownership limits with rules that restrict voting in management decisions by majority foreign shareholders.

The government worries about losing control of its top firms, such as Vietnam Oil and Gas and dairy producer Vinamilk, but hopes more inflows of foreign capital will help those firms grow, investors say.

Foreign direct investment in the country, known as a rising-star manufacturing hub, has already helped boost the economy 6% last year. But the total market capitalization of $55 million made up just a wisp of the 2014 Vietnamese GDP.

Foreign institutions, which own an estimated 10% to 15% of Vietnam's public companies, would likely pursue shares in the top 50 companies in response to higher ownership limits, which are expected to vary from sector to sector depending on degree of sensitivity. Thirty top stocks have already reached current limits, said Kevin Snowball, chief executive officer of PXP Vietnam Asset Management in Ho Chi Minh City. Poor liquidity is hampering access to others, investors say.

New buyers of Vietnamese stocks would include mainstream investment banks with "exploratory" positions today or with emerging market funds that are underweight to Vietnam, said Fiachra MacCana, research head at the brokerage Ho Chi Minh City Securities.

"There is a potential large number of mainstream investors who are willing to consider taking meaningful positions," when ownership limits increase, MacCana said.

Foreign institutions with stakes in Vietnamese shares include U.S.-traded Deutsche Bank (DB), operator of the db x-trackers FTSE Vietnam UCITS ETF,  and Dragon Capital (DRGV), which owns a Ho Chi Minh City asset management firm and manages local equities funds.

British institution HSBC Global Asset Management listed Vietnam in eighth place on its HSBC Frontier Markets Fund (HSFAX) as of March 31, with 3.7% of the fund's total investment. Nasdaq-traded, London-headquartered financial services firm Schroder (SHNWF) also counts Vietnam as part of its frontier markets equity fund. Neither firm would offer comment for this report.

Investors in Vietnam caution that increases in foreign ownership limits could emerge slowly, with a period of confusion possible between the initial decree and more specific follow-up regulations. The full set of rules may emerge only after the Vietnamese Communist Party's 12th Congress in January, when new national leaders will be chosen. Officials would try to avoid announcing controversial decisions before then.

A July 1 release date for the initial decree is a "best guess," said Phuong Hoang, senior institutional research and investment advisory director with asset management firm Saigon Securities.

"Foreign investors remain doubtful as the decision on [foreign ownership limits] has been delayed many times," she added. "One can imagine that the process to screen and clarify sectors could take time, and there is no official deadline yet."

This article is commentary by an independent contributor. At the time of publication, the author held no position in the stocks mentioned.

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