By Business Team Last updated on April 18, 2019

Data from the Foreign Investment Department (Ministry of Planning and Investment) showed that in the first 2 months of 2017, 654 foreign investors poured USD 619 million to contribute capital and purchase shares of Vietnamese firms. This number has remarkably increased almost 4 times year on year, a robust hike.

Last year was the first year which the Foreign Investment Department counted foreign investment capital in form of capital contribution and share purchase, the results also impressed the public. In entire 2016, up to 2,547 enterprises and economic entities received capital contribution from or shares of which were purchased by foreign investors with stake of over 50% of the charter capital or belonging to conditional investment sector, total invested capital was USD3.425 billion. This amount has contributed significantly to a new record of USD 24 billion worth foreign investment in Vietnam in 2016.

In fact, foreign investors investing in Vietnam via capital contribution and share purchase appeared long ago. Previously, procedures for investment under this form shall comply with the provisions of 2005 Investment Law , which had a number of unclear provisions, confusing investment licensing authorities. However, things change following the effect of 2014 Investment Law with clearer and more transparent provisions on capital contribution and share purchase by foreign investors.

Under the new law, foreign investors need not apply for investment license to contribute capital or purchase share or portion of capital contribution to Vietnamese enterprises but just conduct the registration procedures with the state management agencies, depending on  each case of capital contribution and share purchase and whether the enterprises operate in conditional investment sectors applicable to foreign investors. Simple and convenient procedures lure an increasing number of foreign investors to invest in Vietnam under the form of capital contribution and share purchase and consider it as simple yet effective  investment solution.

Since November last year, Ho Chi Minh City even allowed foreign investors to register capital contribution and share purchase online with quick procedures. This is perhaps one of the reasons why foreign investors are flocking to the City to contribute capital contribution and purchase shares.

Tokyo-Mitsubishi Bank (Japan) invested to hold 20% of Vietinbank’s stake. Photo by Duc Thanh

The figure collected by National Information System on foreign investment statistics showed that in 2016, 1,935 foreign investors contributed capital to and purchased shares of HCMC enterprises, with total value of up to USD1.8 billion, accounting for 53% of total capital contributed and used to purchase shares of Vietnamese enterprises by foreign investors. And this amount also accounted for 53% of total registered foreign investment capital into HCMC last year.

“Procedures for registration of capital contribution or purchase of shares or portion of capital contribution to a company in Vietnam for foreign investors under 2014 Investment Law includes two following steps:

Step 1: An investor shall submit the file prescribed to the Department of Planning and Investment of the locality in which the head office of the company is located. The Department of Planning and Investment will examine the satisfaction of following conditions: maximum percentage of charter capital applicable to foreign investors; form of investment, operation scope and investment partners; other conditions under international treaties that applies to Vietnam as a member. If all the conditions are satisfied, the investor shall receive a written notice of the Department of Planning and Investment. In the case of failure to satisfy the conditions, the Department of Planning and Investment shall notify the investor in writing and specify the reason therefor.

Step 2: the investor carry out the procedures for change of a shareholder or member at business registration authority”

In the first 2 months of this year, the trend is continuing. The municipal government has approved 322 cases of foreign investors contributing their capital, buying shares and repurchasing contributed capital, with a total registered capital of USD313 million, a year-on-year of six times increase, and accounted for more than half of the total amount that foreign investors poured in to contribute capital and share purchase in Vietnam. If compared with the total registered foreign investment capital in HCMC in the last two months (over USD464 million), this amount took an  overwhelming percentage of 67%.

Commenting on this trend, Director of HCMC Department of Planning and Investment of Vietnam Su Ngoc Anh said that HCMC has recently experienced a shift from 100% foreign capital investment to the form of capital contribution. “This shows that foreign investors are choosing investment forms that they find appropriate, convenient and efficient, without performing right-from-start steps such as investment registration, compensation for site clearance, plant construction” said Su Ngoc Anh.

Obviously, foreign direct investment (FDI) will remain as mainstream, the statistics above however indicate a new wave of capital contribution and share purchase in Vietnam.

Notably, South Korea still led this trend. In 2016, 644 Korean investors invested approximately USD900 million under the form of capital contribution and share purchase. Japan ranked the second, with 276 investors and USD433 million respectively. It is worth noting that Chinese investors had 319 applications to contribute capital and purchase shares of Vietnam’s enterprises despite of modest value of USD170 million.

In the first two months of this year, South Korean investors continued to rank the first for the capital contribution via share purchase, with 174 deals of capital contribution and share purchase, valuing USD98.7 million. Meanwhile, Chinese investors followed with 123 deals and USD97.6 million respectively.

Nguyen Duc – DautuOnline