Vietnam scraps foreign ownership limits in investment push

The skyline of the downtown area, Ho Chi Minh City, Vietnam.
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The skyline of the downtown area, Ho Chi Minh City, Vietnam.

Foreign investors will soon be able to take 100 per cent stakes in big Vietnamese companies as the populous Southeast Asian country seeks to revive its stuttering economy with international money and trade deals.

The finance industry welcomed a long-pressed for law change that will scrap curbs on overseas ownership in some industries, although other leading sectors such as banking will remain controlled.

The new rules are part of a broader push by Vietnam to step up a sluggish privatization program, strike trade agreements with the US and EU, and boost its status in the widely followed MSCI world markets indices.

Terry Mahony, vice-chairman of fund manager VinaCapital, said foreign investors had been waiting for the law change, which could help lift Vietnam's economy before the country's political reshuffle at the Communist party's five-yearly congress next year.

Vietnam plans to build transportation hub
Vietnam plans to build transportation hub   

"This is a good move from the Vietnamese government, for foreign investors, and ultimately for privatization," Mr Mahony said.

The 49 per cent ownership cap on overseas investment in some industries will be removed from September, according to a government decree published late on Friday. The announcement gave few other details, although it said industries such as banking that are covered by separate rules would keep ownership limits at 30 per cent.

Observers said the rule change could help jump-start the country's sluggish privatization program, although some warned that the policy was still vague and needed to be both fleshed out and tested in practice.

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"The new decree is definitely a step in the right direction but we need to see deal flow and how the relevant authorities will apply the new rules to actual transactions," said Alexandre Legendre, partner at Leadco Legal Counsel, a Hanoi-based law firm.

Foreign investors in this country of 90 million people have long coveted the chance to own greater shares of consumer companies, such as in the dairy industry, although limits will probably remain in other attractive sectors, including real estate.

In the latest sign of overseas interest in Vietnam, a consortium led by an affiliate of Warburg Pincus, the US private equity firm, announced on Monday it had invested an additional $100 million in Vincom Retail, the country's largest shopping mall owner and operator.

Vietnam is also keen to make its stock market more attractive by winning an upgrade from "frontier" to "emerging" market status in the influential MSCI index. While Vietnam's population is a third bigger than that of neighboring Thailand, the Ho Chi Minh City bourse is less than an eighth of the size of its counterpart in Bangkok.

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The Vietnam foreign ownership rule changes further chime with a wider official effort to lift an economy that is only now starting to move out of a long period in the doldrums, thanks partly to concessions to foreign investors.

Many economists and business people say the recovery remains tentative despite recent economic growth rates of more than 6 per cent, as worries remain about possible overheating in the property market, bad debts in the banking system and lingering financial problems at state companies.

Hanoi is also eager to conclude trade deals under discussion with the US and EU. Officials had earlier this year expressed hopes that one or both could be completed by the end of this month — a timetable always likely to prove optimistic.