Minimum charter capital for public firms at latest review

Finance Minister Dinh Tien Dung.

Finance Minister Dinh Tien Dung explained that under the draft amendments sent to the National Assembly (NA) on June 6, the Government looks to tighten conditions related to initial public offerings (IPO). This could be achieved through making a proposal on tripling public firms’ charter capital against the current level of VND10 billion (US$430,000).

The minister noted that the proposal aims to tackle shortcomings of the current Securities Law, which many firms use to issue a large amount of securities that multiple their equity. This could pose high risks for investors, he added.

As per separate securities offerings, he asserted that the current law has yet to prescribe detailed conditions related to buyers and transaction caps. Therefore, many firms utilize the legal gap to hold separate securities offerings in stead of IPOs.

The official stated that the VND10 billion level of charter capital set for public companies is now reasonably low in comparison with the current scale of local enterprises. He exemplified his point of view by the fact that the average equity of local firms has jumped by 16.35 folds in the past decade, adding that low charter capital could hinder the operations of public firms on the stock market.

Most members of the NA Committee for Economic Affairs gave their consent to the proposal, noting that raising the charter capital to VND30 billion (US$1.29 million) is needed to help companies with modest financial capacity ease their risks when making transactions on the stock market.

As reported by the Government, some 81 per cent of public firms have their charter capital exceed VND30 billion. Therefore, the requirement for raising charter capital only affects the remaining 19 per cent.

Vu Hong Thanh, Chairman of the NA Committee for Economic Affairs, quoted comments by some committee members as concerning that the charter capital increase would pose challenges for small and medium - sized enterprises which desire to mobilize capital from the stock market.

Thanh called upon the law drafting unit to make a more comprehensive review of the impacts that the proposal could have on overall socio-economic development.

Draft amendments to the Securities Law are scheduled to be tabled at the NA session on June 13, one day before the session comes to an end.

Also regarding IPOs, the draft amendments include a proposal in which the shares with voting rights of issuing companies must be sold to at least 100 different investors who are not majority shareholders, in order to meet listing-related requirements by local stock exchanges and ensure the liquidity of shares on a par with international practices.