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Forecasting the implications of landmark Decree 60
State Securities Commission (SSC) vice chairman Nguyen Thanh Long, who was directly involved in the drafting process of the newly issued government’s Decree 60/2015/ND-CP on the foreign ownership limit, shared with VIR some insights on how the cap lift will work in public companies operating in sectors that are conditional for foreign investment, and its overall effect on the economy and stock market.
The new foreign ownership cap rule will be cross-referenced to other regulations, in particular, the regulation on sectors that are conditional for foreign investment. The list of these sectors is, however, unclear. So how will this affect the new decree on foreign ownership?
In principle, Decree 60 will come into force on September 1, and it is a fundamental document only, not a specific regulation. It is created to be open in terms of space and time to complement policy developments in many specialised sectors.
The spirit of Decree 60 says that the foreign ownership ratio must first adhere to specific laws and international commitments. The breakthrough of this new decree lies in the full removal of the foreign ownership cap, which then allows foreign investors to hold up to a 100 per cent stake in a public company, or any given ratio ruled by the company itself, instead of the previous 49 per cent cap.
If the guiding decree for the Law on Investment, which will supposedly set out the list of conditional business and investment sectors, has not been issued in line with Decree 60 by September, the current maximum foreign ownership of 49 per cent will temporarily be applied in all of the conditional sectors that have not specifically regulated the foreign ownership limit. Once the list is officially released with details on the conditional sectors where foreign investors can invest above the 49 per cent threshold, Decree 60 will fully take effect.
What room is left for foreign investors in the local market at present?
SSC’s data shows that the average foreign ownership ratio across listed companies on both of the stock exchanges is at 20-25 per cent. So even without the new decree, the current room for foreign investment is still enormous. What it means is that the stock market can still attract a large capital inflow from foreign investors. There are around 30 companies whose foreign ownership has reached the 49 per cent cap.
What will be the effects of the foreign ownership expansion, in your opinion?
The new regulation will positively affect investors’ psychology and improve the stock market’s liquidity.
First, Decree 60 is a sound policy from the macro-economic perspective. It will no doubt improve the demand for the local stock market and support the processes of fund mobilisation and state-owned enterprise (SOEs) equitisation. In addition, the policy also proves that Vietnam has gradually opened up its economy and integrated into the global economy. At the same time, the country has also strived to improve its institutional framework and attract foreign investment capital to restructure and mordernise the local economy.
Second, in the long-term, the policy will definitely change the face of the local stock market. The Ministry of Finance, in conjunction with the SSC, has been focused on solving technical issues that will make Vietnam’s stock market friendlier for both domestic and international investors, and in turn support the country to rise from a frontier to an emerging market.
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