Listing offshore: why don’t Vietnamese companies seek greener pastures?

February 2015 | EXPERT BRIEFING | CAPITAL MARKETS

financierworldwide.com

When Vingroup announced its plan to list on Singapore’s Stock Exchange (SGX) in 2014, it was considered that such a listing would pave the way for local companies to quickly follow suit; especially, as Vietnam could benefit from foreign demand. Since then, like many other Vietnamese aspirants before it, Vingroup’s offshore IPO launch was put off. Still, why hasn’t there been a homegrown Vietnamese company listed on a foreign bourse yet?

In general, Vietnamese companies would require between two to three years to prepare for an overseas listing. This is largely due to differences between international and Vietnamese accounting standards and the high standards required for corporate governance and internal controls in overseas stock exchanges. Nevertheless, it is expected that many companies will be listed on foreign stock exchanges in the future, as more and more Vietnamese companies look to raise capital through a different channel. As part of an important, long-term strategy for a Vietnamese company, timing would be key, as well as readiness; rather than merely economic conditions and external factors. An overseas listing would enhance a Vietnamese company’s image both domestically and internationally.

While in an economic crisis, the value of the business might not be as high as management expects. On the other hand, the chances for successfully listing in overseas markets might be higher, as, practically speaking, an overseas exchange, professional advisers and relevant parties will be conscientiously making more efforts in the listing process.

Despite tough economic times, overseas listings continue to take place in the Asian region, such as on SGX and Hong Kong Stock Exchange (HKEx).

There have been several companies in Vietnam that have successfully listed on overseas stock exchanges. Vedan International has been listed on HKEx since 2003; Vietnam Manufacturing and Export Processing has been listed since 2007 and Luks Group (Vietnam Holdings) since 1987. Other companies which have significant operations in Vietnam – such as PXP Vietnam Asset Management, Vietnam Holdings, VinaCapital, Vietnam Property Fund and XP Power – are listed on the London Stock Exchange. However, these companies were mainly owned by foreign shareholders prior to their IPOs.

Thus, it is arguable that there are no grassroots Vietnamese companies listed overseas. There are several reasons why many difficulties are encountered, including: (i) commercial reasons (price is not right, poor cost-benefit ratios); (ii) legal framework; and (iii) compliance with overseas stock exchange rules.

Commercial reasons

Benefits. A successful overseas listing would provide broader access to capital by creating an international market for the company’s shares. It would enhance the company’s profile, align the company to international corporate governance and transparency standards, widen and diversify its shareholder base and increase trading liquidity. Since very few Vietnamese stocks trade overseas, this would play a positive impact on the valuation of the company.

Costs. Maintaining a listing overseas requires the company to incur additional costs and commit resources to ensure the fulfilling of additional and continuous obligations and reporting requirements.

Legal requirements

Decree 58 (dated 20 July 2012), implementing the amended Law on Securities, simplifies the documents and procedures required for a Vietnamese company to register its proposed offshore offering and listing with the State Securities Commission.

For a Vietnamese company to list on an overseas exchange (in addition to the overseas exchange’s own requirements), it must meet the following general conditions for listing offshore: (i) its business does not fall within areas where foreign ownership is prohibited – if there is a restriction on foreign ownership for a certain shareholding percentage, such percentage must be complied with; and (ii) a resolution on listing overseas must have been adopted by its board of directors or general shareholders’ meeting, pursuant to its charter.

A potential Vietnamese issuer, in which the State has a controlling interest, or which is regulated by a specific authority, such as the State Bank of Vietnam, may need additional approval for its proposed overseas listing and also for its post-listing obligations on the overseas exchange, as well as any proposed changes in its organisational or management structure in connection with the overseas listing.

Compliance

A Vietnamese company looking to list overseas would have to comply with the overseas exchange’s rules, as required from time to time. Usually, this would mean the disclosure of information which materially affects the company’s share price, and including internal company information, such as the appointment of officers, acquisition of assets, winding up or judicial proceedings.

Practical considerations

The main practical issues which face Vietnamese companies seeking to list overseas, include: (i) the application of international accounting standards (IFRS) in preparing financial statements – almost all Vietnamese companies use Vietnamese Accounting Standards (VAS) to prepare their financial statements and there are significant differences between the two standards; (ii) overseas exchanges require a high level of corporate governance and strong internal controls – the company may be required to implement additional corporate governance measures acceptable to the overseas exchange, e.g., to safeguard shareholders’ interests, the resolution of conflicts of interest and internal control mechanisms to ensure related party transactions will be carried out at an arm’s length basis and on normal commercial terms, and most Vietnamese companies are not ready for this; and (iii) lack of resources to ensure regulatory compliance with rules and regulations after listing on the overseas stock exchange.

Conclusion

To conclude, Vietnamese companies should weigh the costs and benefits of listing overseas according to their plans and goals. While many Vietnamese companies would clearly meet the financial requirements to list on an overseas exchange, this is only one of many requirements. A Vietnamese company would need time to prepare the valuation, strategy, select the listing venue, financial reporting, risk management, historical track record, legal and financial due diligence, and corporate governance.

Furthermore, an interested company would need the assistance of professional advisers to conduct an overseas readiness assessment before incurring time and resources to embark on their listing journey.

Is there a Vietnamese company ready to step up for the challenge?

Kent Wong is a partner and Head of Banking & Capital Markets at VCI Legal. He can be contacted by email: kentwong@vci-legal.com.

Kent Wong

VCI Legal