THE BUSINESS INFORMATION CENTER AT THE VIETNAM CHAMBER OF COMMERCE AND INDUSTRY __ _

THE STOCK MARKET IN VIETNAM matgapblizafof23% of GDP y 2i-,1) 1 a. {1. l1 ~~~~~~~~~~~~~~~and 10-1S% by 2010, Howaver some of theDevelopment Challenges curent regulaions and implementaton steps~~~~~~~~~~~appeai to be incowsstent with thi stralegy' For

The development of capital markets is a priorty on the governnt of Vietnam's economic example. according to the mtsi recent rulationagenda. In a speech made at the National Workshop on Four-Year Implementation of the on equiization (Direcbve 01 dated JanuaryEnterprise Law In November 2003, Prime Minister Phan Van Khai stressed the Importance of 2001. the State shall continue to hold at least adeveloping and stabiling the country's various mafkts, inCluding capital matets. in order 51% stake in equifized SOEs that Iatveto create a positive environment for businesses to grow. In that meeting, representativespof reti captl ts feglon fr ad arebanks articulated that since most bank deposits are short-term, thei rmain business is pr.DOOSt Es Unerartisaregulation. for the nlby 2provision of short-term credit they urged companies to consider the tssuance ot bends and 2hem wiS s esnery sew cases whereitbe pbyvatestocks as a better altematve for raising nedium- and long-term finance. This bullefin sector can heo ihe rnajority shareholder infocuses epecificaty on obstacles facing th stock market and public share issues in Vietnanm large equitied SOEs.

Small scale and low eval ot transparencyLimited quantity and quality of shares fbr minorly shareholders; lack of standard among Vietnamese enterprises

listed on the Securites Transaction Center reuirements on financial disclosure and Private Vietnamese enterpdses have only(STC) inftomalon tr3irsparency; unclear stipulalions begur toddvelopoverthelastdecade andsince

Vienars first and only sock market has on tax obligatons for foreign Investors; 2000 in parti r. Most pivates firts are thnsbeen operatonalt ornme(eban three years. wth limitabons placed or the percentage of total smvall or nicro-enserprites and tend tbe ret inthe number ol lised fnns gradually increasing shames that a foreign investor may hod in a an isnoreal. household nafrer. In addition,fromte tnlo 22 over thattime period. The size of local firm; etc. Vieinamese private firms ohsn rnaintain opaquethe mataet, however, is sIti extremely smta in rnansoil acouts and display a lw lovel ofcomparison lo the size of the economy and its Insufficiently regulated intormal market coWate transparuocy, This is due partly todemand for ng-terr capitatl All of the listed lslargerthanthe oflWal narket companies' detberale intenilons, habits andfirts is Vietam are relatsel small comtpanies, Pubto share issues co ucted outside the inadequate traiing: but is a result otlack ofand as sxh eir shame are not particaledy SiT are quite aive-; however, Ihenre is ro leat regulatory oversight on standards of infenmtreatlraclive to potential investo. To dae. sno lare tramewok regulaing these aciities at presenL diFcowre,wuditinandacoentiog.Forexneplpiot high profile SOEs have sought or beowrgiven For every sled finr, theTe are an eslsrated 30 itisestitta latonrlyt1520%ofranpaniesarryapproval to issue p cbl sharms and list on the finrs raising ands from public inverstos in the out ftancia reportng as required by ErP rpiseSTC. The number of large, domestc pOvate infrmral, or over-tve-cunter (OTC) tmarket. Of Law& The tds of adequale accounting. auditngcofpuniesthatrneetthelistivgciteriaisalsoshI the nuarly 1,000 SOtEsut have been oquWized and transparency standards constnains thelimited. In addision. there have been no iitial to date, less than 3% are currently listed osn the develpreent of equity fitnaning. as well as otherpubic offerigs 11POs( to raise morey to datl: SiTC; 1i can be reasonably assumed that shares torrns of turing for the corporate sector, since theonly existing shares hove hoen listed. As a in many equiizedfirTts are being traded on We doks and OM ftdeinvestor hecomenssignttcattlyconsequence, Ihe marhet is coesidered uvotficial market. greaterunaltractiveasaninvestrtensavenue,relativeto In developed economies, the OTC mtarkelother instrurnents and opportunities, by many can be much larger than Ihe centralized stockinvestors, arke,L at least in termns of lhe rwnober ot

companies participating. In those consriest sI . NO! ALack of active participation by thereare[awsregulalitglhesalesandtradingof f l-_

tnstltutinal investors shares on rhe OTC that are aimed at protecting i 5The love lenl of actity in the STC can also investors. This is not yet the case in Vietnam.

besenWbuted to weakniesses ont the demand ride. and as a rensoir, there is a genkeral concern frmmMost investors In the STC are Individuals, both government regulatos and tests that thisseeking to rsake gains through short-tern informnalmarkaetrunsahighertisksGfallingvictimspeculation. rather than long-term investment financiai scandals. Such a scenaro couldstrategies. This lck o0 robust demand tor listed dramage investor confidence es a whole, andshares has contibutedtolher arkets instability, hnse an indirect, adverse Impact on the infantand consequeny, has detered some fimrms (ramr SiTCtiinr on the STG.

Instituional investors, both domestic and policies and legal framework tor capStaltoretgn, have generally nol been active in market development are Inconsistent andpurchasing shares of STC-listed firms for a Inadequatenumber of reasons beyond the relative The goverment is determnrsed to developsnaltractiveneos at the listed shares~ Viutrnais securius mnarket, as eyidenced by thethemselves, includinHg: vaduos regulatory recentiy-promlgated Decree 163120031QD-inadequacies, including inssfficienl protecionl TTg, dated 6 August 2tt3, whick sels out an

fii ty'rn b & rrru Mseoes wv. W ervrs e i ee"vusvat non oc. t__s.sJl5otvvli55!revnn1 r.55,5v5n'fiAUpo,vltv,*vtl- ow5iStv 'F,8ilt Y ,a uo n3

t3lWtprsrkalrslrhrrwb7r

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

the shares

ithe dofars to purchase securities pledged ars collateral at comnirercial hurktr.raise Mr.ty XvarfHai- Gen eeralDwtair. A siaComeratjoirrt~S toorakfiknew Secuitis Company (ACRS)reomjuleso * PJC is~ a orant-stock comnpany, withl seven irrjor instlulionalend sharelroldrs Petrolinmen, Vielcoenbav. Venare,VSC, Matexirm, Have antd

rrg in AT Company holding 80% of the epasty, and thousands of individualboat sharelroldrs holding fire remaining 20% of shares. After eight year of

re- opeation, our paidin capital anhd retained earnings have reache 250neaw billion deng, almost S times tthe originval paid-in capital sf 55 billkien dong in

noise 199& Ateurrecent shareholders meetng, we agreed infprnciplethatacompany wilth as many individual lvivasos like PRICO must lIsteventualy.

twist We don't intend.howevert Islist avy ose inOre nearfmlure. There areIt. as mrany reasone fo this nol oust Ohe unfavorble areathe conditions atankd prsent. The stoitvatketisnVielnamnis verynrewto investors, but alto to

mceo. fir govenment regtulators. Asa result, their policies momn to be mrorefirms responsive to mnarket tlunictuatJons: we don't really se that theIlwith govemment has a riear long-termr direction and thus are not confident

m enough to proceed, tAr even bigger issue is the abtity to manageant inforeratian in Vietnanrese comparies is still very weak anid there as a tack

rof oroatlegoveenanco to put suchasystemsin place. For example.datehozed do not propedyrnrnae the infomado thatis publicized tyy and abOUt OUF

'ig cornpany. Oiere issalhigh ask of damage toaor reputafiov if the public ormsmeet its opinion based on information that is~ incomplete or inaccurate. -

mited Mr. TranAghia Vto -Gseoafinec4D tao Pat mav IstrraurarrcStockrCompany (PSCO)

nities *Thesizeofthemarethenestog w. Right550) vpovcwhenvacomepanyends movey, goe to

ret is a bank biecauise there is no other alterative.new The market iwlinhost b lMehrirbsgcompaniesithis that need capital and investors togethrer until it

prico is big enough an has enough investmentltorn options. The goverment needls push toe

velof ~~~~~~growing Ore size of lire officil stock market. Ithe ~~~~~~have Oiree recommnendations to do so. One,

iota ~~~~~~the govemirrenrt should strongly encourageouvt companies to list on the atocl market; two,their allow joint-stock banks to list; and Orree,For conrduct venw equtiichors through the stock mrarket All of Ores

nsof measures ran be dorreifthe govemment is determirsedenogh.Mr. Dominic Scovei Dirkector, Dragn Capita lnvestmsent Fund

sparency among

nWe syntsmn,'and thus lose out on tong-tenre benefits. Companies should haveboOr stategic and tong-term visions rotier ther chasing atiBr inonediats gains.ever, Tiake. for seansle a cuompanry like ite airs of Vretamhs larget privaess tD oterneuafrrj itssabsea h aetnea orrnnetie like EpoD aend Mirnd Phng, btA urieke kwco corrparries, t1has not collapsed.able Rather tihas groun steaft.t by mairtinirngaoorsistent buslees stratey iniend Osnimasufacdasetor.,buading asA" nanumbaradandgoodvelpuiaton

hi to cesvahaLietravogfaeyeeoverI, bu Depaltenet. Sltai Baak of Watnam (SW irir. In

Wig S We have suismilled a revised draft Decre 48 to the gevemment forthey approval. One ofOre thee mainrvisions inlthedraft is toreqejire joint-V, stoc companies seltng shame to the pubtic that have more One S Stlilesaver dong of equity and over 50 sharehoders to comply with the same

disclosure reqfiuremlents as those of listed firio's. This will ensurefaireneussin ieformnation disclosure.

artty, Mr. Tr ain Dung -Dep*t Diretor, Office of the State SecuritisgOrhe Corerelslei(SSO)

iriewpoints I

Gov1ernment's policy and related legal framework

*I would say lhat the government does not sell 4 ofo shares to ouside investors, whid attracted attenion fromhave a clear strategy in developing many institutional invests, However, ithe govermen subsequentlyV_etnam's stock market. The stock market apped only 20% of shares to be sokt outsasi inventorss wihshould be a plae for large corporations thai meavst that the company i effectively still owreed by the State. Thehave ability to buffer market volablity better goverrement needs to be mucir moreflexible in he amount of shares than small firms and can offer inveslors a retains in equtized SOEs in order to draw morfe institutional investorsbetter return on irresiment than banks Ito the market. The stock market needs new momenum, and thesavings rates as these are the two main govenment can help create this new moroentur by allowing large

expectations held by stock market investors- SOEs to be equi and lised on the sck market without retaininlgAt present all listed firms are small and the toomuch owneip of Ihem.

stock market just a playing field for a few small and medium enterpnses Mr Nguyen S Tuan -Deputy Director Bao Val iveslriantIt the Vietnamese stock mvarket were to coliapse, there would be no rea gelheffect on the economy, buit would be a very heavy blow to investorconfidence. Meintaininginvestorconfidenceis key lo economic stability. 0 Decree 48 [which governs stock maret ac ity in Vietnam] Containsand its very hard to regain once its been bst many stpulalions that are no longer appropriate and lhus need pompt

SOEs in Vietnam continue to submit invensnet plans to the resinon. For exampte. under the decree, investors cannot pledgegovmernevtforlundingtromthestatebudget.ortoseeklong-termloans shares of listed hrms as colalatral 10 borrow money frm banks;kom state-owned commercial banks. However. iti very clear Urt the however savingsaccounts orntherproductssucheasbondsand bits)commercal banking system cannol. and should not be the main source can be pledged as collateral for a bank loan. This deady does netoe nedium and long-tenr tcans. As long as the government continues to encourage investors to buy stock in comp iesnprovde low-risk, subsidized toans, SOEs wdI have no reason to seeR Mr W Dsong Kien -Chworman and Gvnea Dl trecs Hai phongcapital trough either stock or bond issuance. The govervment coud Paperjoif Stock Company (APACO)leam soes lessons from the expedence of Chia in devetoping its stockmarket; over 80% of listed firmss in Chine are large SOEs. Their stok 0 The Ministry of Fiance alws foreign investors to open invesnmentmarket isn't seen just as ti place to list equilized companies: rather, it is or depost acounts al any securities firma or commercial bank, whileused by boh SOEs and private companies actively raise tends for nsrw the State Bank has foreign exchange control mgulalnos ftr securitestnvestments or expansions. As a result, Chines stock mzarket has eansactions on the STC which only allow foeign investors to opendevelopedquite qui intensolsize, ndatpresent, iequitestaNe. accounts at three designated custody banks ton foreign investors

Dr. Le XUaM Nghia - Ordotr Banking Strategy Devaetpment IHSBC, Deustche Bank and Standard Chatered Banrk. TheseDeprfinrrnt State Bank o Vietnam (SBV inconsistent regulations adversely affect inveslor onfidence to some

extenl.

a The Vteinamese financial manket as Mr Ly Xasn Hai -Director Asia Commercil Joint Stock Bank

segmented and not propedy coordinated. SecurdiiesCompany(ACBS)a} _ The money market is under the supervison ot a j _

the SteBanki the insuranc. arketls under 0 appropfate. hbt the imptlementation_ IhcMdinisy of Finance, equitizafoisunder meures seem inappropriatea ard it nay

the National Committee for SOE Rters, the be if or 15 years beonle we see the

securities market is under the SSC, etc. We negativeeffects. SOEsarecurensybeingbelieve that there shoud be one ageny at split into smelter pieces fbr equitizaeon.the national tevel that regulates and whb is restilUng in the creation of tinysupervises all financial market activity. The companins thal do not have a cre

govermmenthas askedt hMinistryotPlanningand Investmenltocreate business. If we keep doing it Uris way Ia master plan for the developnte of the hrancial markets in Vietnam. donr see how we will ever be able to

which aimas to centrakize supervision of fnandal markets at the macno equitize large SOEs such as Petrolimex orlevel and foster beaer coordination between retavant line minisetfes as the Vietnam Steel Corporation. We should team lessons from how

theydotheirownplanning. Webetievethisisimportantandnecessary. oher countries have conducted equitizatons; when England

and hope that the SOC will be given an oppontnity to play a large role in prvalied BP Oil Corporation, tr example. rther than spliting it intothisprocess. smaller pieces, the entire corporation was privatzed by gradually

Mr. iran vitn Dung -Deputy Director OftIce oft Slate Secutes I easing the amount ot shares sold to private investors.Coonnssion fSSCJ To have a iear stock mtarkel Ihe government needs to stop

setting up sew SOEs equinize SOEs through the stock market, and set

* The Slate still unnecessarily hbtds major stakes in equitzed upnewpint-stock companiesthroughlPsonthenstockmarket.

companies. and this diuappoints many toes .s The equitDation o0 Mr Tran g hia Ith- Ger eratDrrector PeltoDmex InssrinceiJoin Vinamilk Itoelnams lamrest dairy] in an example. The initial plan was to Sto Corroany (PJICO)

istitutional investors

slor, and junt one rore fund that was recently licensed the VwstnamLina Opportunilies Fund. Thereae two mar diffIculies fcing Investmenlin lo funds in Vietnam. One is a larc of domesic instibutional innestors. ascafe there is only one locat lfnandal insfituhcon specialong in raising funds

Ihe from individual investors to ivest in shares of Vietnamese comrnpanies.and Twois a shortape of businesses of adequate size orinvesrtent funds toars, invest in. Most Vienamsese pnvate businesses are either householdlve enierpdses or limited-liability companies - both these ypes ofljust businesses are too nsky for investors, and besides, the law does not! tax allow it We are ondy allowed Io invesl in jeint-stck companies. whIchis in accounts for 20% or pivale businesses a small porton of Vielearfsicha privatesector.iucr Mr, DomnlsicScden- Difrefc DragonCapialtnveslment Fondrave

ihe * Regarding measures tD facilitalt demad for stocks. the SSC hasrar3t proposed a number of investmenl incentive schemes ta the Ministry of

their Finance, inluding waiving corporate income tax for mulual inveutmenland funds. These are a kind of inveslment fund that raise money from

individuals to invest in corporale shares. We plan to hold worktishops in'net different provinces and ciies wfit high population ID introduce the slock

market and thereby raise pubtc awareness, in order to stimulatsdemard anong indvidisal investors.

lain. 1 Traw Ven Dung -Deputy Drector Offie of lher State Secereiessnts, Comrssil (ss5)

sing unoffical market has aboul 200.000 investoes. Ifs fair to say that theinoa unofficial stock market in Vielnam is not small, and currenly. it is notand egulated. In other countries, there are laws protecting Investors. whichnall reqsire that if a ornpany has rwe than a specifc numrber ofId in shareholders, frexample 20to 30 lhatcompary a st r wih a lawgted- that is really the sarne as a securities law. This law exists not only in thetheir United States, but also in rnosl other Asian countries suckh s Taiwen,low Hono Kong, and China. So I would say that this unofficial market is a risk

is of to Vietnam because it is unrepulaled.r3ely Mr Domnaic Scriven -Diector, DcaonCapadlaifvestntFundtk toinies * lThe SSC has plans to rminirnrue the size a this unofficial mrarket bynore seeing up anotler centalized securiies trading center fr smanaerdace companies witn legal capitl above 5 billton dung. There are some whothey feel we should establish an ver the counter market. But the prorlem is

that we can only have an official OTC marknet if we have 'market makerssent ready to b active in Ihis market, and who are willing to boy when there is

seaing demarn, and to sell when Ihere is buying dernand. In oar view, thisis not yet feasible at this tOme, but we have lans to revisil this issue around

ughf Mr. Trae n Ouag -Deputy Direcor, Ofice of(the Stat Securites

the omrmine (SSG)