Investors face tougher financial capacity tests

HA NOI — A new regulation being drafted by the Ministry of Planning and Investment would impose stricter financial capacity requirements on foreign investors.

Disbursement of foreign investment has lagged far behind the commitments made by foreign investors, suggesting that investors without sufficient financial capacity have still been receiving licences from investment authorities, says the director of the ministry's legal department, Pham Manh Dung.

In many cases, Dung added, foreign investors had registered projects without an intention to bring foreign capital into Viet Nam to implement the projects. Instead, they had sought financing in Viet Nam after obtaining an investment licence.

To deal with these issues, the ministry has drafted a decree that would require investment agencies to verify investors' financial capacity, requiring investors to provide confirmation from internationally reliable banks and credit institutions or other investor guarantees on the source of funding for a project.

The decree would also allow for the withdrawal of investment licences after an assessment of financial capacity of an investor, Dung said.

Thousands of foreign-invested projects had been licensed and allocated land, only to remain idle for years, he noted. Some projects in Ba Ria-Vung Tau Province, for instance, had not broken ground a full decade after being licensed.

Without regulations providing for the withdrawal of licences, some provinces have required foreign investors to post a security deposit equal to 5 per cent of the project's total budget in order to keep the land.

The draft decree would authorise municipal and provincial planning and investment departments to set up boards empowered to suspend foreign-invested projects that have not been put into operation as scheduled without a valid explanation for the delay.

Under the draft decree, projects with investment capital in excess of VND300 billion (US$15.4 million) would also have to be examined for compliance with development master plans for industries and localities.

Projects that had a small scale of investment but required large areas of land could also be turned down on the basis of waste, Dung said, with the regulation aiming to make the most efficient uses of available land.

The draft decree would guide the implementation of the 2005 Law on Investment and, if approved, would replace Decree No 108/2006/ND-CP issued in 2006, Dung added. — VNS

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VBMA asks for loosened rule over corporate bond issues

HANOI – The Vietnam Bond Market Association (VBMA) representing 60 members active on the bond market has written to the Ministry of Finance asking for a loosening of rules in a forthcoming decree on corporate bond sales.

The Ministry of Finance is composing a draft decree replacing Decree 52 issued in 2006 on corporate bond issuances. The association suggests that the ministry consider allowing enterprises to issue corporate bonds for whatever legal purposes, rather than to comply with a set of rigid conditions that confine areas of permission.

“At other bonds markets, enterprises can even issue bonds to raise funds for hostile takeovers of other companies, in order to increase its manufacturing capacity,” the association says, giving a comparison.

In addition, the association says big enterprises can issue bonds including short-term valuable papers to mobilize funds for working capital.

In the draft decree, the Finance Ministry regulates that bond sellers can only issue the debt paper if they have been established for at least one year, a provision harshly criticized by the association which calls for the ministry to scrap it.

If this provision stays, many enterprises that have been operational on the market for years will be stripped of the right to issue bonds if they have merged with others to create a new entity, according to the association.   

The association also asks the ministry to take off the condition of profitability for issuers because it is not suitable with enterprises operating in the infrastructure and manufacturing sectors which can only earn profits after a long time of operation.

“As the bond market is a market for professional investors, we think investors can absolutely appraise the risks and payment ability of issuers,” the association said.

In addition, the draft decree should not ask issuers, auditors, and credit rating agencies to be held responsible for the accuracy of information published as “this goes against international practices… and neither auditor nor credit rating agency will be willing to give comment due to this regulation,” the association said.

VBMA and International Finance Corporation (IFC) will jointly issue a guidebook for their members on Vietnam’s bond market in the fourth quarter this year. The guidebook will help members refer and apply international standard bond trading models with detailed instructions and methods for bond trading.

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Draft decree seen cheering retailers

HCMC – The Ministry of Industry and Trade is putting forth a draft Government decree for public consultation, which is expected to create a legal foundation facilitating the setting up of distribution or retail business in Vietnam, an official said.

Pham Dinh Thuong, an expert in the Legislation Department under the ministry, told a workshop held here early this week that “the draft decree is expected to make management over distribution service more transparent and to encourage modern retail and local retailers.”

The forthcoming decree to replace the current regulations is aimed at setting up a legal framework for developing modern retail systems, meaning modern retail will be preferred to traditional markets, he told the workshop held by EU-Vietnam Multilateral Trade Assistance Project III. 

“It’s now just a draft decree and still in the process of collecting public feedback. However, it is expected to limit unfair competition,” said Thuong.

Many changes will be introduced in the new decree compared to the currently prevalent Decree 23 on distribution service management. Legal terms will be clarified to avoid confusion for investors, local and foreign alike, he said.

For example, the term ‘retail’ will be defined as the activity of selling goods directly to end-users being individuals and households.

In the current Decree 23, retail refers to an activity of selling goods directly to end-users, without clarifying whether end-users are individuals and households. Therefore, it causes confusion that a business buying materials for its production or construction might be considered an end-user.  

The controversial term economic needs test (ENT) will also be highlighted in the new decree to make criteria clearer for those foreign-invested enterprises who want to establish retail outlets in the country, according to Thuong.

The legal expert said specific criteria would be introduced when calculating ENT, including the population in a given area, the traffic situation therein, and the retail revenue among others. These criteria will constitute the formula for ENT.

However, beside the ENT criteria, authorities when considering an application for a second retail business by a foreign-invested enterprise will also prioritize those modern shopping facilities, Thuong said, explaining that the ENT formula would be applied flexibly. He added ENT would be the last resort taken by authorities to protect local retailers.

He, however, stressed that the new decree once issued would primarily seek to open the Vietnamese market wider to international participation.

Despite Thuong’s reassurance on the more liberal provisions in the draft decree, some participants in the workshop doubted the transparency and clarity in Vietnam’s management over retail business.

Robert Rogowsky from the U.S.-based George Mason University told the Daily that ENT poses a signal that investing in Vietnam would be uncertain and complicated. If used, it must be clear and transparent because vague, qualitative decision criteria lead to subjective and discretionary decisions.

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