GuidetoVietnamSecurities2011

Guide to Vietnam Securities

Guide to Vietnam Securities

2011

Viet Capital Securities (VCSC) is a leading securities firm fully licensed by the State Securities Commission

of Vietnam to provide investment banking, research and brokerage services in Vietnam to governments, corporations, institutions and individuals worldwide

VCSC is the largest investment bank in terms of revenues from capital markets and corporate finance activities and has been involved in numerous landmark deals in Vietnam Our brokerage market share is in the Top 10 and clients include some of the largest and well-known asset management firms in Vietnam and the world

Recent awards by Finance Asia, Alpha Southeast Asia and The Asset emphasize our leadership in Vietnam’s Capital Markets

• Brokerage: Listed & OTC

• Block sourcing / building

• Intermediation

• Entry / exit advisory

• Custody & depository

• Flow info (trends)

Best Equity House

Vietnam, 2011 Best Brokerage HouseVietnam, 2011 Best Equity HouseBest Mid-Cap Corporate

Guide to Vietnam Securities

Viet Capital Securities’ Guide to Vietnam Securities covers everything investors need to understand to trade

in Vietnam Whether listed or unlisted securities or IPOs, it’s all exposed in the finest details No stones left unturned No half truths

Interpretation of terms

Outstanding shares: means the total amount of shares issued by the company This number can be

different from the amount of “listed shares”, which is the amount effectively listed by the company on one

of Vietnam’s stock exchange (a company cannot list shares on both exchanges at the same time) Some

companies do not list all their shares, notably VCB and CTG

Voting shares: Voting shares are currently the same as “outstanding shares” as Vietnam only has one

class of shares which are all entitled to the same rights and obligations We talk about voting shares in

certain sections of this document as the law refers to that specific term on these specific occasions The

distinction between outstanding shares and voting shares will become important as Vietnam allows different

classes of shares carrying different rights and obligations We make the distinction at this time out of a

desire for precision

Strategic Investor: Decision 36/2003/QD-TTG from the Ministry of Finance stipulates that “if foreign

investors desire to become strategic investors of Vietnamese enterprises, they must have the financial

capacity and ability to support Vietnamese enterprises in developing, improving ability of administration and

management and apply of modern technology, and have close relations with enterprises on a long term

basis in terms of interests, and satisfy specific criteria set out by the enterprises”

Disclaimer

No representation, warranty or undertaking, expressed or implied, is given as to the accuracy or completeness of the

information contained in this document by any of Viet Capital Securities, its members, employees or affiliates and no

Listed Securities

1

Reuters: HNXIBloomberg: VHINDEXhttp://www.hnx.vn

Currency of trade Vietnam Dong (VND)

• Jan-Feb (last day of the last lunar month to the third day of the first lunar month inclusively) – Vietnamese (Chinese) New Year

• April (10th day of the 3rd lunar month) – King Hung Commemorations

• April 30 – Liberation Day

• May 1 – Labour Day

• September 2 – National Holiday

Boards 1) One main board only (HSX) 1) Main board (HNX)2) “Nasdaq type” board (UpCom)

Trading hours HSX: Equities (no bonds on HSX)

Session 1: 08:30-08:45 (P.OM & PT) Session 2: 08:45-10:30 (C.OM & PT) Session 3: 10:30-10:45 (P.OM & PT) Session 4: 10:45-11:00 (PT only)

Matching in session 1 and 3 is done at the end of each session (periodic order matching, or P.OM) while Session 2 matching is continuous throughout the session (or C.OM) Trading hours are expected to extend to the afternoon in 20 Feb 2012.

A Put-Through (PT) is the act of directly matching an order with another market participant, aka block dealing

PT transactions can occur at anytime during trading hours On the HSX, any order of 20,000 shares or more must be matched via PT, either by finding your own counterparty, or asking your broker to help

Orders of less than 20,000 shares cannot

HNX: Equities & Bonds

Session 1: 08:30 – 11:00

(Continuous OM and PT)UpCom: Equities & Bonds

Session 1: 08:30 – 11:30 Session 2: 13:30 – 15:00

(Continuous OM and PT)

HNX only has one session where

matching is conducted by order matching (OM) or put-through (PT) both for equities and bonds A Put-Trough (PT) is optional if trading at least 5,000 shares

or 1,000 bonds Order matching (OM) is mandatory for smaller trades Note it’s always possible to break large orders into multiple smaller one to avoid PT.

UpCom has two sessions where trades

are matched through OM or PT On the first day of a newly listed stock, only OM orders are accepted.

1.2 Placing an order

Order types & validity HSX

LO: Limit order, valid the entire day ATO: Market order valid in 1st session only, matching priority over LO

ATC: Market order valid in 3rd session only, matching priority over LO

MP: Market order (approved, but not

yet implemented)

HNX / UpCom

LO: Limit order, valid the entire day

Daily price change

limit (aka collar)

(price ceiling and floor

Equities: 7% of previous day’s volume

weighted average price

30% if 1st day of listing

UpCom

Equities: 10% of previous day’s volume

weighted average price

40% if 1st of listing

Bonds: No limit

Price Units / Ticks

/ aka Quote unit

(smallest multiple one

can price shares at)

Price unit

if current price is (VND):

Amending and

cancelling orders

HSX

Session 1: Cannot cancel any order

Unmatched portion of ATO orders are cancelled at the end of the session

Session 2: Unmatched portion of any

order can be cancelled at any time

Session 3: Can only cancel limit orders

that were placed in previous sessions

New orders cannot be cancelled

Session 4: N/A

It’s impossible to change the price or quantity of an order; you must cancel the order and then enter a new one.

HNX / UpCom

Session 1: Unmatched portion of any

order can be cancelled at any time

It is possible to change the price of any order at any time, but to change the quantity you must first cancel your current order and enter a new one.

Matching priority All exchanges (PTQ principle)

#1 – Price priority : priority to the highest price bid or the lowest ask

#2 – Time priority : for orders at same price, priority to orders that came in first

#3 – Quantity priority : for orders at same price and time, priority is given to

orders with the highest quantity of shares

Buy orders at higher or equal price than sell orders are matched against each other following the PTQ principle

Partial fills are possible

HNX / UpComBuy orders at higher or equal price to sell orders are matched against each other following the PTQ principle Partial fills are possible

See section on “order matching and price determination” further in this document for details about how ATO and ATC orders are matched.

Settlement

(cash/stocks received

on settlement day can

only be used the day

after)

HSX

Equities: T+3 days; T+1 if transacting

over 100,000 shares by put-through

HNX

Equities: T+3 days; T+1 if transacting

over 100,000 shares by put-through

Bonds: T+3; choice of T+1,2 or 3 if

transacting over 100,000 bondsUpCom

Equities & Bonds: T+3

Bonds: 100,000vnd Odd-lots Odd lots (shares owned in a number below 10 on the HSX and below 100 on the

HNX) may be kept, sold in a PT transaction, or sold to your broker

1.3 Trading restrictions

Foreign ownership

limit (FOL) Equities: 49% of outstanding shares, 30% for banks*, and less for companies that pledged to list a some shares offshore; note that certain companies do not

list all their shares and therefore the FOL for the shares listed would be higher (for example, a company that lists say less than 49% of its outstanding shares, foreigners could buy up to 100% of the listed shares) FOL is available in real-time

on Bloomberg (all stocks) and on VCSC’s price board (www.vcsc.com.vn), just hover your mouse over any ticker (HSX only)

Bonds: No FOL

* Banks FOL is limited to maximum of 5% for any single investor, 10% for any investor that is a bank, and 15% for any “strategic investor” A 20% stake requires the approval of the Prime Minster FOL for banks include affiliated persons (see page 10 for details).

Restrictions on

newly listed shares Applies to equities only: Shareholders that are also members of the board of directors or board of controllers, a director, general director, deputy director or chief

accountant of a newly listed company must undertake to hold 100% of the shares they own for a period of six (6) months from the date of listing and 50% of this amount for the following six (6) months, excluding any shares held by individuals acting as representative of the State

Private equity firms who take board seats need to take note of this when planning their exit strategy

Other restrictions Funding requirement / short selling: Investors must have sufficient funds in their

local currency (VND) bank account if buying, or sufficient securities if selling (e.g short selling is not permitted) If investors have a pending FX transaction from a foreign currency to VND, your custodian may take this into account when verifying for funding requirement Your custodian is the one who decides if these pending transactions can be counted towards your funding requirement, not your broker

Same day buy / sell: It is possible to buy and sell the same ticker on the same day

as long as you follow certain restrictions:

• You may only place a buy order if you do not have a current sell order on the same ticker, and vice versa If you do, you will have to cancel your current order before placing your second order on the same ticker

• One ticker, one broker If you buy (or sell) shares with a broker, for the rest of the day, you may only buy (or sell) the same ticker with the same broker

Margin lending: Permitted for local investors only (albeit not for now as full

implementation of this new regulation is not possible yet)

Securities borrowing or lending: Not permitted

Applies to equities only: If a shareholder wishes to buy or sell shares and he

or its affiliated persons* is considered an “insider”, the shareholder must declare its intention, and how many shares are to be bought and/or sold in a given period (maximum two months), to the SSC, the stock exchange (HSX or HNX) and the company at least 3 days before trading any amount of shares Upon receipt of the notice, the stock exchange will advertise the information on its website and the shareholder will be allowed to trade only 24h after such information has been advertised Should the shareholder complete its intended trades, or should the given period expire, whichever come first, the shareholder must declare the results

of its trades within 3 days of the date of completion or expiry, whichever come first

If the results differ from declared intentions, he must explain why

Investors are solely responsible for any and all disclosures Should clients require assistance, VCSC will be happy to help

* see page 10 for details

Applies to equities only: Anytime a shareholder acquires and amount equal to

or greater than 5% of the total number of voting shares of a company, including the amounts held by its affiliated persons*, the shareholder must declare the fact within 5 days of the date of the transaction that brought the shareholding (including its affiliated persons) to an amount equal to or greater than 5% The same applies

if reducing a stake below 5%

Finally, anytime a substantial shareholder (including its affiliated persons) increases

or reduces their stake by an amount equal to or more than 1% of the total amount

of voting shares of a company since their last declaration must also declare their new ownership level each time they pass that threshold The law is silent as to who, between the affiliated persons, must make the disclosure

While VCSC will help its clients meet their disclosure obligations, according to Vietnam laws, investors are solely responsible for any and all disclosures

* see page 10 for details

“Insider” means:

(a) Members of the board of management and board of controllers, the director or general director and the deputy director or deputy general director of a public company; members of the committee of representa-tives of a public fund;

(b) Major shareholders of a public company or of a public fund;

(c) Auditors of the financial statements of a public company or of a public fund;

(d) Other persons with access to inside information of a public company or public fund;

(dd) Securities companies, securities investment fund management companies and securities practitioners

of such companies;

(e) Organizations and individuals with a business co-operation relationship with, or who provide services

to a public company or a public fund, and people working in such organizations;

(g) People who directly or indirectly obtain inside information from the subjects stipulated in sub clauses (a) to (dd) inclusive of this clause

“Affiliated person” means:

(a) Parents, adopted parents, spouses, children, adopted children and siblings of any such individual; (b) Organizations in which there are individuals who are staff, the director or general director, or the owner

of more than fifteen (15) per cent of the voting shares in circulation;

(c) Members of the board of management or board of controllers, the director or general director and the deputy director or deputy general director and other managerial personnel of such organization;(d) People who in a relationship with another person directly or indirectly control or are jointly controlled

by such other person, or who jointly with another person are subject to the same control;

(dd) A parent company and its subsidiaries;

(e) A contractual relationship in which one person is the representative of the other

“Affiliated person” as it applies to bank’s FOL* (slightly different from “affiliated person” under other

circumstances (as above):

(a) The parent company of that entity or any other member company that is within the same parent company with that entity;

(b) Any person or an institution that manages the parent company or has the authority to appoint executive officers in the parent company of that entity;

(c) Any member company or subsidiary of that entity;

(d) Any executive officer, member of the Board of Controllers, or person/ entity with authority to appoint the executive officer of that entity;

(dd) Any shareholder or group of shareholders holding 10% or more of total common shares of that entity;

(e) Spouse, parent, adoptive parent, children, adopted children, and brothers and sisters (and spouses

of these persons) of any executive officer, member of the Board of Controllers, or shareholder holding 10% or more of the total common shares of that entity;

(f) Spouse, parent, adoptive parent, children, adopted children, and brothers and sisters (and spouses of these persons) of that individual;

(g) An individual authorized to represent such persons referred to in paragraphs (1), (2), (3), (4), (5), (6), and (7) above, with respect to their authorisers and related persons of tHSX authorisers and authorised persons

* The “dd” in the above lists come from the translation of legal texts into English It comes from the fact that the Vietnamese alphabet contains both a “d” and a “d” with a bar, with the later represented as “dd”

in English

Periodic Order Matching (HSX only): Buy and sell orders are queued for matching at a specific time at the

single lowest price that generates the highest trading volume For example, if person (a) buys 10 shares at

100vnd, person (b) sells 3 shares at 90, person (c) sells 3 shares at 92, person (d) sells 3 shares at 95 and

person (e) sells 4 shares at 97, the matching price will be 97, where (a) will buy 10 shares, (b), (c) and (d) will

sell all their shares, and (e) will sell 1 share only All parties transact at 97vnd/shares This matching method

is used to determine the opening and closing price of stocks Orders in Periodic sessions are matched at the

end of the session only, during which ATO/ATC orders have priority over Limit Orders

Continuous Order Matching (All exchanges): The trading systems of each exchange continuously

matches the first buy and sell order in the queue, and at the same time, confirms each executed transaction

via the broker/trader’s terminal As priority is given to the first order placed, this can make a major difference

in your strategy For example, if a person places an order to buy stock ABC at 100vnd and another person

places an order to sell the same stock at 90vnd, the matching price will depend on who first placed the order

If the buyer placed it first, the matching price will be 90vnd If the seller placed it first, the matching price will

be 100vnd

Put-Through: Price and quantity are negotiated directly between the buyer and the seller or their

representa-tive, but the deal is only concluded when it’s matched in the exchange trading system during any session

that allows Put-Through (PT) The trading system also allows brokers to advertise IOI’s to find potential

buyers/sellers The executed price must follow the price range for that particular stock on the day the trade

is executed

FOL intraday: When the FOL of a particular stock is reached during trading hours, all current buy orders

from foreign entities will automatically be cancelled by the system Additionally, the systems will reject any

all buy orders from foreign entities for the remainder of the day Sell orders are always accepted however

Shares that foreign investors sell to non-foreign parties are added to the number of shares available to

foreign investors after the settlement period (T+3) This rule also applies to Put-Through transactions Note

it is possible for a foreign buyer to transact a PT with a foreign seller even if the FOL for that particular stock

has reached the limit

Opening Price: On the HSX, the opening price (aka reference price) is equal to the previous day’s closing

price as determined in session 3 (not including PT transactions) In cases where the closing price couldn’t

be determined in session 3, the closing price is equal to the last price at which shares were transacted on

that day If no shares were traded on that day, the second previous day is taken, and so on On the HNX

and Upcom, the opening price is the volume weighted average price (VWAP) of all order-matched orders

(excluding PT) of the previous day

Reference price of newly listed stocks: The “opening price” of newly listed stocks is determined between

the company, the advisors and the stock exchange If the matching price of newly listed shares/investment

fund certificates cannot be determined in the first three trading days, the issuing organization shall adjust

the expected trading price

Ex-Dividend / Ex-Right Prices: On the ex-dividend date and/or ex-right date, the reference price shall be

determined by adjusting the last trading day’s closing price or the average price of the last few trading days,

at the company’s discretion, by the value of dividend or right accordingly

1.5 Order matching and price determination

“OTC” Securities

2

2.1 Introduction

2.2 Process of trading OTC securities

This part covers the process of trading unlisted securities, aka “OTCs” The OTC market is unregulated (there

is no disclosures required either), with prices and volumes not reported to any centralized exchange or system

The only way to obtain price information is to ask people who are active traders of OTC companies Some

websites also colligated information and act as a marketplace for buyers and sellers Volume information is

usually hard to obtain The UpCom was established to provide more transparent price and volume information

for unlisted stocks However, only a few companies have listed on that exchange and volumes are extremely

low for now

As of January 2010, it is estimated that roughly 2,000 companies are eligible for trading on the OTC market, of

which approximately 50 are liquid and interesting enough to be considered by foreign investors To be traded

on the OTC market, a company must be a “public company”, which in Vietnam’s legal system means a Joint

Stock Company (JSC, a type of legal structure) with over 100 shareholders Buying OTC securities is akin to

investing in a private company and is considered by many as “private equity” investing

The role of your broker

Technically speaking, there are no obligations forcing investors to use brokers when negotiating OTC

transactions In practice, however, many will find that using brokers can help facilitate the OTC trading

process, especially if you’re located outside of Vietnam Moreover, several foreign investors prefer that their

brokers’ transact the shares on their behalf in a move to hide their identity and limit market impact VCSC

can help at any and all steps of the OTC trading process

The OTC trading Process

** Please note that the OTC trading process isn’t standardised in any way While some brokers and traders

will “cut corners”, we consider the following process as one of the most diligent way to trade unlisted OTC

securities in Vietnam.

1 Contact the company or its registrar (depending on the size of the company) to:

a Make sure there is room for foreigners to buy, however, if buying from another foreign party, there

is no need to verify this;

b Know if any special rules apply to trading this company’s shares (may apply in cases of large

trades, or certain types of shares such as founding shares);

c If buying more than 5% of the companies’ outstanding shares, approval from authorities may be

required, depending on the scope of business of the company, for both for the seller and the

buyer It is advisable to make sure these approvals are obtained before moving forward with the

transaction

2 Find a buyer or a seller

a Understand your counterparty (founding shareholder, fund, individual, etc);

b Verify that the shares being sold are free to trade (certain restrictions may apply to founding shares,

shares of a member of the board, etc);

c If buying in large quantities, brokers are often appointed to aggregate the targeted amount of

shares to limit market impact

3 Negotiate price, quantity, timeline, deposit, settlement procedures, and anything else you deem

important with the buyer/seller All this should be included in a Sale/Purchase Agreement (SPA)

between versions, the English version will prevail if provisioned for in the contract;

ii We can provide with an English and/or Vietnamese SPAs that have been used for trading multiple times, but we cannot guarantee it will protect you in all cases You should consult your lawyer

b Share Transfer Agreement (STA) using the format required by the company or registrar

5 Deposit (usually 10-30%, up to negotiations) by bank transfer from your capital contribution account

if you’re a foreign entity in Vietnam (any account otherwise) to the account of the seller To make the

transfer, the bank will require:

For individuals with accounts at BIDV:

• Sales/Purchase Agreement (SPA) signed and stamped by both parties;

• Share Transfer Agreement (STA) using the format required by the registrar;

• Payment Order with passport/ ID card to prove the identity of the transferor Note that Payment Orders need to be signed by the account holder, unless you sign one overseas and send it by post directly to the bank, or unless you appointed a permanent authorized person with BIDV’s.

For institutions:

• Sales/Purchase Agreement (SPA) signed and stamped by both parties;

• Share Transfer Agreement (STA) using the format required by the registrar;

• Instruction from the account holder to the custodian bank to effect the transfer of shares;

Note: Some institutions have a policy not to pay for anything unless the shares are already in their possession (e.g no deposit) In such case, your broker may accept to make the deposit on your behalf, provided that a

“broker contract” protecting the broker from counterparty risk is signed

6 Register the trade with the registrar to effect the transaction Responsibility for this can be delegated to the buyer, the seller, or you can appoint a 3rd party to act on your behalf in which case a notarized POA

is required If using a 3rd party, you should make sure the POA is flexible enough to allow the third party

to represent you in all parts of the OTC trading processes

The following documents are usually required by the company or registrar to effect the transaction (may vary on a case by case basis):

a Sales/Purchase Agreement (SPA) signed and stamped by both parties;

b Share Transfer Agreement (STA) using the registrar’s format;

c Share Certificate of the Seller;

i For individuals: If selling and your account is with BIDV, withdrawal of OTC shares in custody must be done by the client in person unless a “Mandatory Person” has been appointed prior

If using another custodian, please contact them for their specific requirements

ii For institutions: If selling, you can give instruction to your custodian bank to allow a 3rd party

to withdraw the shares in their custody No other document is required

d The presence of the buyer is required to register the trade If this cannot be arranged, you may assign a 3rd party to effect the transaction as long as a notarized POA to this effect is provided

The following documents may also be required, depending on the registrar It is possible that these

documents require legalization You should prepare multiple sets of such documents in advance just

in case

i Legalized2 Business Registration Certificate or Certificate of Incorporation of both the buyer

7 Pay the balance to the seller (100% less the deposit already paid).

a Go to your bank, make the transfer Same requirements as in step “5”;

b Full payment can be done earlier or later, depending on negotiations

8 Return to the company or registrar and exchange the receipt received in step “6” for a share certificate

Sometimes, physical shares will not be issued, but your name will be inscribed in the “share book”

a This step aims to unregister the seller and register the buyer as the new shareholder Normally, it

takes the registrar three (3) days to issue the share certificate to the new shareholder along with

their name on the shares

b The presence of the buyer is required at this step If this cannot be arranged, you may give a POA

to a 3rd party to effect the transaction If using a 3rd party, you should make sure the POA is flexible

enough to allow the third party to represent you in all parts of the OTC trading processes

9 Safeguard all documents, including SPAs and STAs, in a safe place They will be required should you

want to sell your shares and/or remit your money abroad

a Individuals: depository of shares at BIDV must be done by the client in person unless a “Mandatory

Person” has been appointed prior If using another custodian, please contact them for their specific requirements

b Institutions: Any 3rd party can deposit shares in your account

2.3 Conclusion

2.4 WTO and FOL for OTC securities

There’s room for counterparty risks for which we cannot make any guarantees, even if we are involved in the

process or acting as a representative These risks mainly depend on the quality of the buyer/seller Due to the

existence of such risks, some clients prefer to buy the shares from their broker after the later bought it from a

third party

Trading unlisted OTC securities can be lucrative, especially if the company plans to list soon, but should only

be attempted by serious foreign investors Travel to Vietnam is usually necessary at one point or another to

settle the trade, unless a notarized POA is given to an individual acting on your behalf in Vietnam

The FOL for unlisted securities varies according to Vietnam’s WTO service commitments (see WTO’s website

for details) Generally speaking, industrials aren’t restricted (up to 100% is possible) except for particular

goods such as oil & gas, automobile, beer and fertilizers Retail is restricted, but most other services aren’t

Sectors are scheduled to open gradually to foreign participation at different dates Note that local practices

may narrow down the framework set by Vietnam’s WTO service commitments from time to time There are

no FOL for unlisted bonds

To buy even a single share of an OTC bank, a foreign investor must secure the approval of the State Bank of

Vietnam (SBV) In practice, such approval has only been granted to foreign banks who pledge to be strategic

investors This restriction does not apply to Vietnamese banks going into an IPO or tHSX already listed (see

respective chapters)