Restriction on investment portfolio of an investment fund with foreign capital

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Question: Hi lawyer, I would like to have a question. Is there any investment restriction applicable to the investment activities of foreign invested fund in Vietnam, including through the Vietnamese securities market?

Answer:

SB Law appreciate your interest in our legal consultant services. Regarding your question, we would like to advise you as follows:

In terms of Public Fund

a) Open – ended fund

Investment portfolio of open-ended fund must adhere to the following rules:

–        Except for deposits in the demand account of the fund opened at a supervisory bank, it is not allowed to invest more than forty-nine percents (49%) of the fund’s total asset value in deposits at commercial bank or foreign currency, money market instruments including valuable papers and negotiable instruments. This provision shall not be applied to bond funds;

–        Do no invest more than 30% of the fund’s total asset value in (i) deposits at commercial bank; (ii) foreign currency, money market instruments including valuable papers and negotiable instruments; (iii) listed shares, registered shares, listed bonds; (iv) shares, bonds to be listed or registered; (v) corporate bonds issued by listed organizations for which payment security is provided by credit institutions or which issuing organizations undertake to repurchase; (vi) listed and registered derivatives at Stock Exchanges as a hedge, which are issued by the same company or by a group of companies that have mutual ownership relations, including the investment in derivative securities which is the value agreed upon in the contract;

–        Do not invest more than 20% of total asset value of the fund in outstanding securities of an issuing organization, including valuable papers, negotiable instruments, bonds (except government bonds), voting shares, non-voting shares, and convertible bonds;

–        No investment in securities of an organization issuing more than ten percents (10%), or fifteen percents (15%) (in respect of an index fund or exchange-traded fund) of the total value of outstanding securities of that issuing organization, except for government bonds;

–        Do not invest more than ten percents (10%) of the total asset value of the fund in the assets provided for in shares, bonds to be listed or registered or corporate bonds issued by listed organizations for which payment security is provided by credit institutions or which issuing organizations undertake to repurchase;

–        The total value of major investments in the fund’s investment portfolio must not exceed forty percents (40%) of the fund’s total asset value, except in the case of the bond fund;

–        At any time, the total value agreed upon in derivative securities trades, outstanding loans and other payables of the fund must not exceed the net asset value of the fund;

–        No investment in securities investment funds, shares of securities investment companies that are established and operated within the territory of Vietnam;

–        No direct investment in real property, precious stones and metals;

–        Hold securities issued by at least six (06) issuing organizations, except in the case of the bond fund.

b) Closed fund

The fund’s portfolio structure must conform to the provisions in the fund charter and must ensure:

–        Do not invest in the securities of one issuer more than fifteen percent (15%) of the total value of the outstanding securities of that organization, except for government bonds;

–        Do not invest more than twenty percent (20%) of the total value of the fund’s assets in deposits in the commercial bank or monetary market instruments including valuable papers, transfer instruments issued by the same organization, except for government bonds;

–        Do not invest more than thirty percent (30%) of the total value of the fund’s assets in deposits in the commercial bank; monetary market instruments including valuable papers, transfer instruments; shares listed or registered for trading and bonds listed; shares unlisted, shares unregistered for trading of public company; unlisted bonds; shares of joint stock companies, contributed capital in the limited liability company; the securities and other assets issued by an organization or a group of companies having ownership relationship together;

–        Do not invest more than ten percent (10%) of the total value of the fund’s assets in real estate and shares unlisted, shares unregistered for trading of public company; unlisted bonds; shares of joint stock companies, contributed capital in the limited liability company;

–        Do not use capital and assets of the fund to provide loans, guarantees for the loans, except for investment in deposits in the commercial bank; do not use the assets of the fund to implement the margin trading (loan for buying securities), short sales (securities loan for sale);

–        No investment in its fund certificates, invest in the securities investment funds, securities investment companies established and operating in Vietnam;

With regard to Member fund:

In the activity of member fund management, the fund management companies must ensure that:

–        No investment in their own funds and other securities investment funds, including securities investment companies, real estate investment funds;

–        May not use capital, assets of the fund to provide loans, guarantee the loan of any third party; do not guarantee the issuance of securities.

Restricion on foreign invested funds

          The foreign invested funds in which foreign ownership reach to more than 50% of total capital shall be subject to restriction of foreign ownership limitation when it make any investment into companies in Vietnam. There is no common limitation of foreign ownership in all investment sectors in Vietnam. Such limitation shall be varied depending on each specific industry. Until now, Vietnam Law removed limitation of foreign ownership in almost of investment sectors except for several conditional industries such as tourism, transportation, advertisement, custom declarance, banking, Hr Outsourcing etcs.