Key highlights of the draft amendment to Decree 155

 Decree 155/2020/ND-CP ("Decree 155") was issued to detail the implementation of several provisions of the Securities Law 2019. Over the past three years, this Decree has played a vital role in enhancing transparency and promoting the sustainable development of the securities market ("SM"). However, given the rapidly evolving economic landscape and legal framework, many provisions in Decree 155 have revealed limitations, necessitating timely adjustments.

Source: The Saigon Times

The need for revising Decree 155

The Party’s resolutions have emphasized the urgency of reforming and improving mechanisms to promptly resolve challenges and unblock resources for national economic growth in the new era. In response, the National Assembly and the Government have issued directives to realize these objectives. Notably, following recent amendments to several provisions of the Securities Law 2019, Decree 155 must be revised to align with and complement these new regulations.

Beyond these obligatory revisions, the practical implementation of Decree 155 has highlighted several shortcomings, such as the IPO process not being directly tied to listing, discouraging enterprises from participation; ambiguous provisions causing difficulties in application (e.g., "corporate restructuring" or financial statement audit requirements); and complex administrative procedures in the securities sector, which fail to meet national digital transformation requirements. Additionally, prolonged scandals and violations in corporate bond issuances have necessitated new regulatory measures to protect investor rights and foster a transparent securities market. Furthermore, these measures aim to ensure that credit ratings are conducted systematically to restore confidence in a market that has faced significant challenges in recent years.

Notable new provisions

With a clear objective of elevating Vietnam's securities market to emerging market status, regulatory authorities have proposed breakthrough provisions to adapt the operation and management mechanisms of the market to contemporary requirements.

First, it is essential to highlight the regulations on securities offerings, particularly corporate bonds. Under current regulations, issuers or bonds registered for public offering are only required to undergo credit rating if the total bond issuance value within 12 months exceeds VND 500 billion and 50% of the issuer’s equity, or if total outstanding bonds exceed 100% of equity. Beyond these provisions, there are no restrictions requiring enterprises to meet specific debt-to-equity ratios to issue bonds publicly. This has resulted in numerous companies issuing bonds without ensuring repayment capacity, directly harming investors and contributing to a negative perception of the bond market—a highly effective capital mobilization channel for non-bank enterprises. As a measure to impose stricter control over public bond issuance, the draft amendment has adjusted and supplemented issuance conditions. Specifically, instead of requiring credit ratings only in certain cases as before, the draft amendment mandates that all issuers or bonds registered for public offering must undergo credit rating assessments in all cases. Additionally, the draft amendment requires enterprises to issue public bonds only if their debt-to-equity ratio (including the value of bonds to be issued) does not exceed 3:1, except where other specific laws provide otherwise. These new regulations clearly impose stricter conditions on enterprises wishing to issue bonds, thereby reducing the prevalence of “junk” bonds entering the market.

Another notable adjustment in the draft amendment is the removal of public companies’ ability to reduce the foreign ownership limit (FOL) below the statutory maximum. Specifically, Point e, Clause 1, Article 139 of Decree 155 currently allows public companies to set a lower FOL than the legal maximum, provided this is approved by the General Meeting of Shareholders and included in the company’s charter. However, the draft amendment revises this provision, assigning the authority to determine the maximum FOL to the competent regulatory body. Reducing the FOL has been a common practice in Vietnam for various reasons, such as lowering it below 50% to avoid being subject to foreign investment procedures or protecting domestic shareholders from potential takeovers by foreign investors. However, this practice has had significant consequences for foreign investors and the securities market as a whole. Specifically, tightening the FOL increases the likelihood of public companies being controlled by domestic interest groups, where the rights of minority shareholders may be compromised due to a lack of necessary transparency from management. For foreign investors, FOL restrictions not only limit their ability to purchase shares but also constrain their options when divesting. An illustrative example is the case of Commonwealth Bank of Australia, the largest foreign shareholder in VIB Bank. Despite its earlier divestment plans, VIB’s decision to lower the FOL forced the shareholder to seek domestic buyers for its shares instead of selling to other foreign investors as previously planned[1]. Moreover, the trend of multiple public companies simultaneously reducing their FOL diminishes the attractiveness of Vietnam’s market to international investors. This is because investment and control rights often go hand-in-hand, forming the primary motivation for foreign investors. By removing companies’ discretion to lower the FOL, the draft amendment promises to create more favorable conditions for foreign investors to enter the Vietnamese market, while also helping the securities market move closer to meeting the criteria for an upgrade to emerging market status.

Source: Government News

Remaining limitations and challenges

It can be observed that the draft amendment to Decree 155, issued for public consultation, introduces numerous progressive elements. These amendments address the dynamic and vibrant realities of Vietnam’s securities market, which is striving to transition to a new era—one of alignment with international securities market standards. However, when viewed in the context of actual market practices, the draft still reveals significant shortcomings.

First, the limitation on Board of Directors (BoD) members serving on a maximum of five companies could yield both positive and negative effects. On the positive side, it helps prevent the over-concentration of responsibilities and mitigates conflicts of interest in governance. However, this regulation could hinder the ability to attract experienced and reputable governance professionals, particularly those capable of contributing to multiple enterprises. Therefore, a thorough analysis is required to assess the impact and balance the objective of risk control against the need to foster corporate development.

Second, the removal of the right to set foreign ownership limits (FOL) below the statutory maximum could pose risks of excessive foreign investor dominance, potentially affecting the rights and influence of domestic investors, especially in key or sensitive industries. To mitigate these risks, regulatory authorities could consider implementing the following mechanisms: (i) Setting maximum ownership thresholds for foreign investors in strategic industries; (ii) Strengthening periodic monitoring and reporting of foreign ownership levels, with enterprises reporting fluctuations via online channels to the State Securities Commission; (iii) Clearly defining control thresholds in cases of potential dominance to ensure market balance and transparency. Specifically, if foreign investors exceed ownership limits, control measures could include requiring a reduction in ownership, imposing voting rights restrictions, or conducting special oversight of the company’s strategic decisions. These measures not only protect the rights and influence of domestic investors but also create a healthy and sustainable investment environment while maintaining Vietnam’s securities market attractiveness to foreign investors.

Third, replacing personal documents with national digital identity data is a significant step in the digital transformation process. However, implementation risks disruptions due to incomplete national data infrastructure and limited inter-agency coordination. Therefore, it is essential to assess readiness and proceed step-by-step to minimize potential disruptions during the transition. Ensuring a robust legal framework and information security is a prerequisite to enhancing the effectiveness of electronic verification methods.

The amendment of Decree 155/2020/ND-CP is both necessary and urgent. The proposed changes not only address existing shortcomings but also enhance the transparency, safety, and efficiency of Vietnam’s securities market. However, to increase the market’s appeal to international investors while still safeguarding domestic investors, we believe that the draft requires further reasonable adjustments and revisions in subsequent versions.