Linklaters Insights: Vietnam year in review 2019 and year to come 2020

In order to recover the economy, the Government has issued a wide range of policies and measures to support enterprises. Notable specific measures include exemption and reduction of taxes, fees and charges on various sectors, simplification of administrative procedures, diversification of export and import, lending without interest to enterprises to pay employees, deferral of contribution of compulsory social insurances and trade union fees, and reduction of interest rates.

It is expected that Vietnam's success in controlling the Covid-19 pandemic will ensure the country's economic stability and attract more foreign investment into the country in the coming time.

New feed-in-tariff for solar power projects

In April 2020, the Government issued the new feed-in tariff (FiT) for solar power projects (noting the exception for Ninh Thuan province further below) as follows:

ground mounted: 7.09 US cents/kWh;
floating: 7.69 US cents/kWh; and
rooftop: 8.38 US cents/kWh.

This is much lower than the previous FiT of 9.35 US cents/kWh applicable to certain eligible grid-connected solar power projects.

Solar power projects which are eligible to enjoy the above new FiT include:

grid-connected solar power projects which have been issued with investment policy decisions before 23 November 2019 and achieve a commercial operation date (COD) from 1 July 2019 to 31 December 2020; and
rooftop solar power projects selling electricity to EVN and commencing operation and settling meter readings from 1 July 2019 to 31 December 2020.

Grid-connected solar projects located in the Ninh Thuan province that have been included in the master plan and that achieve COD before 1 January 2021 and within a 2GW capacity pool are entitled to enjoy the FiT of 9.35 US cents/kWh.

The new regulation also provides that a competitive bidding model will apply to grid-connected solar power projects that are not eligible to enjoy the new FiT mentioned above.

In addition, in July 2020, the Government also issued a new template solar power purchase agreement to formalise the new FiT applicable to solar power projects.

New merger control regime

The new merger control regime in Vietnam took effect from May 2020.

The expanded merger filing thresholds are intended to capture a broader range of transactions. Under the new regime, an economic concentration generally needs to be notified to the Vietnamese anti-trust regulator if any of the following thresholds are met:

total assets or total sales turnover or input purchase turnover in the Vietnamese market of the enterprise or group of affiliated enterprises that the enterprise is a member of in the previous financial year of VND3 trillion or more (c. USD128.7 million or more);
the transaction value (for onshore transactions conducted in Vietnam only) of VND1 trillion or more (c. USD42.9 million or more); or
combined market share of the parties to the economic concentration in the relevant market in the previous financial year of 20% or more.

These thresholds are relatively low compared to international practice which has led to more M&A transactions being subject to the compulsory pre-closing merger clearance requirement in Vietnam. Also, the Vietnam competition authority has become more proactive in taking enforcement actions in investigating high profile M&A transactions in Vietnam or offshore transactions that impact the Vietnamese market.

For more information on new merger control regime in Vietnam, please refer to our recent Insight.

New national power development strategy

In 2020, Vietnam issued a resolution on the national power developmental strategy up to 2030, with a vision to 2045. This important resolution emphasises the use of renewable energy, new energy and clean energy.

The key strategies include:

for thermal power, encouraging the development of projects combining fuel supply and storage, as well as construction of power plants. Gas-fired power using domestic gas will be prioritised. LNG-to-power will be accelerated. Coal-fired power will only be developed at a reasonable level with priority given to large capacity units with high efficiency and advanced technology to ensure environmental safety.
in terms of renewables, development of wind and solar energy will be prioritized, but with an emphasis on the safety of the power systems. Rooftop and floating solar, as well as offshore wind power, will be encouraged. Law on renewable energy will be researched and developed.
as to power transmission, notably there will be mechanisms to attract private investment into construction of the national transmission system, while the operation of such a system will remain subject to control of the State.

Separately, the Vietnamese Government is working on the draft power development plan 8 for the period from 2021-2030 with a view to replacing the current power development plan 7 by 2045. The new plan will be developed to achieve the following three major objectives:

ensure power security for the country's socio-economic development;
promote the use of renewable energy; and
limit development of coal-fired power plants after 2030.

According to public sources, the MOIT has stated that all investors for projects under the new regime will be selected on a tender basis.

Corporate bond regulation

In July 2020, the Government issued new regulations on corporate bonds.

To deal with the overheating bond market in Vietnam, the new regulations impose stricter conditions on the issuance of corporate bonds, including:

the total amount of all outstanding bonds of a company must not exceed five times its equity capital, noting that this cap does not apply to credit institutions;
the issuance of bonds must be completed within 90 days from the public announcement of issuance;
the six-month cooling-off period now applies to issuance of both non-convertible bonds and convertible bonds (instead of only convertible bonds as previously provided); and
the bond issuance plan must clearly specify, among others, the purpose of the bond issuance and the investment project using the bond proceeds.

Please refer to our recent Insight for an analysis of investing via convertible debt instruments in Vietnam.

Year to come 2021

Amended Law on Investment

Vietnam continues to improve its legal framework and processes to attract more foreign investment, which has been one of the key drivers of socio-economic growth in Vietnam over the last 30 years. To this end, the amended Law on Investment was passed in 2020 and will take effect from 1 January 2021.

The key changes include:

the new 'negative list' approach to market entry to foreign investors. Accordingly, foreign investors will be treated as Vietnamese investors when investing in sectors not listed by the Government as restricted or conditional business sectors for foreign investment;
the new investment conditions on ensuring 'national defence and security' applicable to foreign investment projects, where the licensing authority may withhold its licensing approval or withdraw the investment registration certificate if such conditions are not met or breached;
applying the new threshold of 50% foreign ownership (instead of the current 51%) for a foreign-invested enterprise to be treated as a foreign investor for the purpose of applying investment conditions and procedures in respect of their investment activities;
clearer guidance on when an M&A approval is required to be obtained by a foreign investor; and
relaxed investment conditions for startups where foreign investors setting up small and medium-sized startup innovative enterprises are not required to have an investment project or apply for an investment registration certificate.

Please refer to our Insight for a detailed analysis of the above key changes.

Amended Law on Enterprises

The amended Law on Enterprises will come into effect from 1 January 2021 and will introduce various welcome changes and clarify several issues under the current law. Key major changes include:

introduction of the concept of a 'non-voting depository receipt', which will have all the economic interests and obligations of ordinary shares, except for a voting right. This new instrument is expected to allow foreign investment in sectors subject to foreign ownership limits;
expansion of minority shareholders' rights by removing the minimum holding period requirement in order to exercise certain shareholder rights;
clearer provision on pre-emption rights of the existing shareholders of a company in respect of a share private placement;
change of the voting threshold for passing resolutions in respect of ordinary matters by the general meeting shareholders of a shareholding company from 51% to 'more than 50%'; and
removal of certain licensing procedures.

Please refer to our Insight for a detailed analysis of the above key changes.

New Law on Public-Private-Partnership

In 2020, Vietnam revamped and elevated Vietnam's 'public private partnership' (PPP) regime to law status in the Law on Public-Private Partnership (the PPP Law) which will take effect from 1 January 2021.

The key changes include:

Potentially the most significant change is that the Government will stipulate standard form contracts for use in PPP projects. The Government is drafting two implementing decrees and one of them is expected to set out the general guidelines in drafting PPP contracts. Standard form PPP contracts for each sector will be issued but it is expected that they will not be issued until the Government has more experience on the PPP projects which have been completed and in operation;
Vietnamese governing law will be compulsory. This is a significant change because some important concepts of the commonly used English and Singaporean contract law are not specifically recognised under Vietnamese law. The practice so far has been for the project contract to be governed by English law; and
For the first time, the Government's guarantee for conversion of 30% of the VND revenue of the project company into foreign currency has been enshrined at law. In the past, this foreign currency availability guarantee was for 100% of the project company's needs. However, more recently the Government's policy has been to limit such guarantee to 30%.

Please refer to our publication on this topic for a detailed analysis of key changes in the PPP Law. It remains to be seen whether this new law will result in any significant increase in investment in PPP projects in Vietnam in the coming time.

The two decrees implementing the PPP Law are expected to be issued before 1 January 2021 when the PPP Law takes effect.

New Law on Securities

The new Law on Securities will become effective from 1 January 2021. Various implementing regulations will be issued by the end of 2020 to guide the implementation of the new law.

The key points in the latest draft implementing regulations include:

new conditions and process for a single/multi-member limited liability company to conduct an IPO to become a public joint stock company;
issuer being granted the right to determine professional securities investors to participate in its private placement;
clearer process for issuance of conversion shares in case of conversion of convertible bonds;
clearer process for obtaining shareholders exemption from tender offer;
companies being allowed to conduct an IPO in conjunction with listing to list on stock exchange immediately without the 2 years' waiting period; and
clearer procedures for applying an off-band trading approval from the State Securities Commission.

On the key changes in the new Law on Securities, please refer to our review last year.

Amended Labour Code

The amended Labour Code was passed in 2019 and will take effect from 1 January 2021. Currently, the Government is finalising regulations guiding the implementation of the amended Labour Code.

These regulations are expected to clarify various issues which are not detailed under the amended Labour Code or not clearly provided under the current regulations. Some notable provisions under the latest drafts include:

the introduction of a detailed schedule on retirement ages which are generally provided under the amended Labour Code to be gradually increased up to 62 for male and 60 for female employees from 1 January 2021;
guidance on the contents of agreements between employers and employees regarding confidentiality of business secrets and protection of technology secrets;
guidance on the contents of labour contracts with employees working in the sectors of agriculture, forestry, fisheries and salt production; and
provision of an advance notice required for termination of a labour contract in respect of employment in special sectors.

Please also refer to our review last year for key changes under the amended Labour Code.

Linklaters Insights: Vietnam year in review 2020 and year to come 2021

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Year in review 2020

Impact of Covid