There is a saying about buses. You wait forever for one to turn up and then several turn up at once. The same could be said about Vietnamese companies wanting to do offshore IPOs. No sooner was it reported that Vingroup is considering a US IPO of its electric car subsidiary, VinFast, than the chairman of Bamboo Airways, owned by FLC Group, announced that it too was considering a US IPO. And if the market chatter is to be believed, they are far from the only two famous Vietnamese companies thinking of doing just the same.
Seasoned company watchers in Vietnam will admit that these would not be the first companies with businesses in Vietnam to have listed overseas. For instance, the food additive group, Vedan International, has been listed in Hong Kong since 2003. But when you consider the fact that (a) there are still no Vietnamese companies listed overseas, (b) those which are listed overseas were predominantly foreign-owned prior to their listing and/or operate in other markets and (c) the listed entities are often holding companies incorporated offshore, an offshore IPO of a Vietnamese company with Vietnamese founders and with its roots in Vietnam would represent an exciting new chapter for Vietnamese enterprise.
It arguably couldn’t be a better time for a Vietnamese company to think about doing this. There is an easy availability of cheap credit worldwide, which is helping to fuel a crowd craze of stock trading among retail investors. People are looking for the next areas and regions of growth and are willing to take more risks. And the excitement about SPACs means there is now a viable alternative for a company that wants access to the public markets, but which might not be best served by a traditional IPO.
So, if it is all so rosy, then why is there still some scepticism about offshore listings? The answer is relatively simple: because they are hard. There are numerous complicated issues that need to be addressed. Leaving aside ongoing listed company obligations imposed by the requirements of heavily regulated jurisdictions (such as the US, UK, Hong Kong or Singapore), a Vietnamese company has to first deal with some important considerations:
- SSC approval: any listing of a Vietnamese company, including a listing overseas, requires the approval of the State Securities Commission. At a minimum, this will be difficult. This approval is not required if the listing vehicle is not Vietnamese (i.e. it is the holding company of a Vietnamese business).
- FX restrictions: one of the key rationales for an overseas listing is that it increases the liquidity for Vietnamese shareholders (such as key employees of the business). However, under the current FX regulations, it is not possible for such persons to transfer money overseas to acquire shares in a non-Vietnamese company (except in certain limited circumstances, such as an approved employee share ownership programme).
- Foreign ownership restrictions: if the company engages in a business activity that falls within the list of market access restrictions for foreign investors, foreign shareholders may not hold more than 50% of the company.
- Trading of shares in public companies: the shares of a Vietnamese public company must be registered and deposited with the Vietnam Securities Depository. The law is silent as to the process for trading such shares if they are cleared through an overseas clearing system. The overseas clearing system may work by trading “beneficial ownership” in the shares and this may give rise to title issues, as there is no explicit recognition of beneficial ownership in Vietnamese law.
- Trading band: if there is a proposal for the company to be dual-listed in Vietnam and offshore, the trading band which applies to the stock exchanges in Vietnam may give rise to discrepancies in share prices between Vietnam and offshore.
Depending on the nature of the business and a willingness to think outside the box, we think all of the above issues are to some extent solvable. But because they are difficult and involve costs and regulatory dialogue, companies have hitherto been reluctant to explore them. So, companies that want to list offshore in the near future have very few precedents to guide them.
Moreover, it is easy to forget that the key to a successful offshore IPO is not just the Vietnamese structuring side of the piece. An offshore listing will require the production of, among other things, an offering memorandum (or similar document) that complies with the rules of the relevant exchange. These rules will be far more detailed and complex than the disclosure requirements that Vietnamese companies are used to and there can be serious penalties for breach (which will be enforced, sometimes alongside public sanction). Given the scope of the US Securities Act, any international offering, wherever it is, will in practice also require the advice of US capital markets lawyers.
If you are a Vietnamese company thinking about doing an offshore listing, we recommend you think about the following key items (some of which are interlinked) as early in the process as possible:
- What is your business case for wanting to list overseas? What are the key potential risks to your business (N.B. you will need to disclose these in the offering memorandum)?
- How much are you hoping to raise in the IPO? Will the selling shareholders be Vietnamese or foreign? Would you be willing to consider listing by way of depositary receipts?
- Are you subject to foreign ownership limitations? Do you need to/can you reorganise your group?
- Do you have large numbers of Vietnamese shareholders? Are they founders or employees who benefit from an ESOP or similar scheme (or both)? Do you intend for their shares to be listed offshore (presumably yes but there may be circumstances in which you don’t)?
- Do you need to list the Vietnamese company, or can you list a holding company?
- How strong are your internal controls and accounting functions? Are you prepared for external evaluations of your business and its functions for the purpose of ensuring it is and they are ready for the IPO?
- Would your business be more suitable for acquisition by a SPAC?
While there are numerous commercial and business angles to these questions, it is crucial that they are considered as early as possible together with lawyers and tax advisors who are both familiar with the restrictions in Vietnam and the requirements of the relevant listing jurisdiction.
And, as is often the case when doing something innovative or new, it is important to remember the old adage: fortune favours the brave, particularly if the brave are advised by good lawyers, viz Freshfields!