FDI: Positive sign from capital contribution, share purchase

There were 437 FDI projects registered to adjust investment capital with a total registered capital increase of $US 4.74 billion in the last 5 months. Picture: Huu Linh.

New registered capital slides

The Foreign Investment Agency has just announced the results of the FDI attraction in Vietnam in the first five months in 2017, from the beginning of the year to the end of May 2017, Vietnam attracted the FDI capital of $US 12.13 billion, increased by 10.4% compared to the same period in 2016. Disbursement also narrowed the gap with investment capital as the FDI disbursement so far this year reached $US 6.15 billion, rose by 6% compared to the same period in the last year. However, the more important thing is that although the FDI in Vietnam in general increased compared to 2016, but the results in each section had a certain difference and that reflects the influences of the changes of the world economic politic situation on the attraction of FDI into Vietnam. In particular, in the total of more than $US 12 billion poured into Vietnam in the last five months, about $US 5.59 billion in 939 projects newly granted investment certificates. With this result, the newly registered FDI into Vietnam is still in the "slide" cycle as it is only equivalent to 73.9% compared to the same period in 2016 and if compared with this rate in the previous months.

However, in contrast to the new capital attraction, developments in the capital increase have improved significantly. Specifically, in the first months in 2017, there were 437 projects registering to adjust their investment capital with a total registered capital of $US 4.74 billion, an increase of 83% compared to the same period in 2016. Not to mention, more than 2,000 capital contributions, shares of foreign investors with a total capital contribution of $US 1.79 billion poured into Vietnam, 2 times higher than 2016.

According to Mr. Phan Huu Thang, former Director General of the Foreign Investment Agency under the Ministry of Planning and Investment, the results show that Vietnam remains an attractive investment destination for foreign investors in the first months of the year. “According to the information I have, there are many large projects of potential investors are preparing to invest in Vietnam, in which the area receiving the most attention of investors is still the processing industry, manufacturing, and real estate resort sectors. Therefore, the FDI in Vietnam could create a breakthrough in the last months of the year”, Mr. Phan Huu Thang said.

As he said, though Vietnam attracted $ 5.59 billion of new registered FDI in the first five months of the year, fell by nearly 30% compared to the same period in 2016, the total additional registered capital of active projects as well as capital contribution to purchase shares increased compared to the same period in last year. “This is a very important piece of information which gives us a good foundation to confirm that the investment environment in Vietnam is really attractive to foreign investors. Because once the investors have been investing in Vietnam who decided to increase capital, expanded their investment and business activities, it means those enterprises are getting profits. The projects of investors to increase capital will also be disbursed and put into operation faster and more effectively thanks to the available legal documents. This will help avoid virtual projects, or invest just to keep the land ...”, Mr. Phan Huu Thang said.

Fear from the positive signs.

A matter of great interest over time is that foreign investors have contributed capital and bought shares in Vietnamese enterprises. The explanation for this situation under the positive view, experts on foreign investment said that the reason for a strong increase in the activity in recent years is due to policies related to the mergers and acquisitions policies (M & A). Vietnam’s enterprises have been more transparent, and more open. However, one important reason is that when investing in the form of capital contribution or share purchase, foreign investors will not have to apply for investment registration certificates, not implement complex procedures or waste unofficial costs during the completion of legal procedures related to investment. With simple and convenient procedures, investing in the form of capital contribution and share purchase is considered by investors as a simple but effective investment solution. This is also a good way for Vietnam to attract more FDI inflows which is a positive sign for the investment environment in Vietnam.

Looking back at nearly $US 1.8 billion in the first five months in 2017, there is a breakthrough in the flow of foreign indirect investment into Vietnam. It is predicted that the FDI under the form of capital contribution and share purchase will continue to increase with a higher speed in the future, not only because of its superiority in investment promotion but also because there will be many favorable conditions for this activity, especially in the context that Vietnam is promoting strongly the equalisation and divestment process in SOEs.

Commenting on this development, Mr. Nguyen Van Toan, Vice Chairman of the Vietnam Association of Foreign Investment Enterprises, said that with these positive signs, the capital contribution to buy shares has become a trend in foreign investment in Vietnam. However, the expert also worries, if not careful, the brands of Vietnam have been newly established, are on the trend to develop, but for some reason as founder does not think about long-term but want to sell “young rice”, or perhaps because of turning to other areas which do not follow the core value but lack of capital should be sold hastily enterprises or shares of valuable enterprises.

Meanwhile, foreign investors have the potential of capital, technology, market, supply of raw materials ... when they bought these companies, Vietnam will face disadvantages. Currently, many Vietnamese enterprises are bought by foreign companies. This is complied with law, but if this activity develops sharply, Vietnamese companies sell hastily their brands that could cause several disadvantages to Vietnam's investors.

These concerns above are clearly not redundant, as related to the capital contribution and the purchase of shares of foreign investors, since 2016, some foreign investors have taking advantages of the gap in the mechanism of capital contribution, purchase shares of Vietnamese enterprises, mainly in real estate and tourism projects... to jointly own land, this has been warned. Therefore, the tight control and supervision of foreign investors’ capital contribution and share purchase are essential. It is not only to facilitate foreign investors doing business in Vietnam but it is also to discover the flaw to take measures to prevent soon.

“It can be seen in Vietnam that some large companies are very resilient, consistent, they do not sell their shares to foreign investors, eventually, they are very tight and selective as associating with foreign investors. This is also a sign that the domestic enterprises should consider”, Mr. Nguyen Van Toan, Vice Chairman of the Vietnam Association of Foreign Investment Enterprises said.