Accordingly, Vietnam’s stock market today is an effective capital mobilization channel for the country’s economy. Yet, to be on the stock exchange, businesses, specifically joint-stock companies, have to go through the IPO process. So, what are the regulations on IPO? Let’s find out with LSX!
- Consolidation document of Law on Securities 2008 amended and supplemented in 2010, 2018
- Consolidation document No. 20/VBHN-BTC merging Decree 58/2012/ND-CP and Decree 60/2015/ND-CP guiding the securities law
What is IPO?
Thus, IPO stands for the English phrase Initial Public Offering, which means the initial public offering of securities. The concept of securities under Vietnamese law includes many forms; but when it comes to the concept of IPO, it is automatically an initial public offering of shares. After companies successfully issue shares to the public, that company becomes a public company. That is, there are at least 100 shareholders who simultaneously own the charter capital of the company. The initial listing of shares of enterprises in Vietnam is relatively complicated and must meet many conditions and go through complicated procedures.
In order to offer shares to the public for the first time; JSC must carry out registration procedures to have their shares listed by the Stock Exchanges on the exchanges. Currently, securities trading and trading activities in Vietnam must follow the HOSE floor of the Ho Chi Minh Stock Exchange, and the HNX of the Hanoi Stock Exchange.
Basically, in business, it is important to develop their businesses to grow, produce and provide goods and services to customers and partners. However, when the development reaches a certain level; the resources of a person or a group of people can no longer serve the development goal well. At this time, businesses will have to look for a new source of capital, with a large amount to develop. On the other hand, the stock market has long been a place where large amounts of capital from hundreds and thousands of investors are concentrated.
At that time, companies will access capital from the stock market by registering for an initial public offering of shares. That’s the reason why most of the companies listed on the stock exchange today do IPOs. However, besides that, there are also companies aiming to IPO as proof of the success of the business; when investors invest and value the company at a high level; therefore, showing the reputation of the company in the market. Because, when the company is listed on the stock exchange, all information related to the business activities of the enterprise will have to be publicly announced on the mass media within a certain time limit. In fact, this will also help the company win the trust of foreign investors as the company aims to expand its business overseas.
However, there are only 836 listed companies on HOSE and HNX currently. That is, only 836 out of a total of 714,000 businesses are operating IPOs. From this figure, it is clear that in order to offer shares for the first time to the public, enterprises will have to meet high conditions.
Conditions for IPO
Correspondingly, to get IPO, an enterprise must fully meet the following conditions:
- Enterprises have a charter capital calculated according to the value recorded in the accounting books at the time of registration of the offering from 10 billion VND or more.
- Business activities of the year preceding the year of IPO registration must be profitable and up to the date of IPO registration must not have a loss.
- There is a plan to issue and use the capital obtained from the IPO; approved by the General Meeting of Shareholders.
Besides, with some other types of enterprises, along with the above conditions; in order to IPO, enterprises need to meet other separate conditions, specifically as follows:
- For enterprises with 100% state capital converted into joint stock companies:
- In order to IPO, it is necessary to convert from a state company into a joint stock company
- For foreign-invested enterprises converted into joint stock enterprises:
- Having an IPO plan and using the capital obtained from the IPO approved by the owner of the enterprise with 100% foreign capital or the Board of Directors of the joint venture enterprise.
- Having a securities company to advise on the preparation of IPO documents
- For foreign-invested enterprises that have converted into a joint stock company:
- There must be a securities company to advise on the preparation of IPO documents.
- For new businesses in the field of infrastructure:
- Being an enterprise acting as an investor in construction of works under socio-economic development projects of ministries, branches and provinces and cities directly under the Central Government.
- Investment projects approved by competent authorities
- Commitment to joint responsibility of the Board of Directors or founding shareholders for the IPO plan and the use of capital obtained from the IPO
- There is an organization to underwrite the IPO
- Having a bank to supervise the use of capital obtained from the IPO
According to the provisions of the Enterprise Law 2020, only a joint-stock company is the only type of enterprise that has the right to offer shares to the public.
Common stock is a certificate certifying shareholders’ ownership of the company and confirming that it allows shareholders to enjoy ordinary rights in the company.