Vietnam recently issued Decree 35 on Detailed Regulations for Implementation of the Law on Competition dated 24 March 2020, (“Decree 35”) which takes effect on 15 May 2020. This was an essential step in commencing the competition regime contemplated under the Law on Competition dated 12 June 2018 (“Competition Law”). Although the Competition Law formally became effective on 1 July 2019, there were significant and crucial details, particularly with respect to the merger notification regime, which required the issuance of Decree 35.
In this alert, we will review some of the key merger related provisions of Decree 35. We note that, at the time of writing, the regulatory authority under the Competition Law, the National Competition Committee (“NCC”) has still not been appointed and it is not clear whether it will be appointed by the effective date of Decree 35; therefore it is not certain that Vietnam’s merger notification regime will be fully implemented on that date.
Merger Notification Regime
There are three key issues specific to the merger notification regime that are addressed in Decree 35:
- Determination of Control;
- Notification thresholds; and
- Review Process.
Determination of Control
In Decree 35, the basic threshold to demonstrate that one enterprise has gained control or governance of another enterprise is ownership of more than 50% of the target’s capital or shares. Decree 35 also provides an asset ownership test, which is more easily applicable to taking control of a line of business, with control determined when an enterprise gains ownership or the right to use more than 50% of the assets of another enterprise or any of its business lines. Decree 35 also provides details about the type of decision making that will be deemed an acquisition of control which includes references to decisions about specific business lines.
Notification Thresholds
Whereas its predecessor legislation based notification and prohibition of economic concentrations solely on market shares, the Competition Law contemplates a more sophisticated approach using several criteria for each. With respect to notification, the Competition Law identifies 4 criteria for determining whether notification of an economic concentration is required and left the details for later regulation. Decree 35 sets out these details with separate thresholds for economic concentrations involving certain types of businesses.
For most enterprises, notification of a proposed economic concentration to the NCC is required where:
- The total assets in Vietnam of the enterprise or its affiliated group was 3 trillion VND (approximately USD 127 million) or more in the financial year immediately preceding the transaction being implemented.
- Total sales or input purchase turnovers in the Vietnamese market of the enterprise or affiliated group of which the enterprise is a member was 3 trillion VND (approximately USD 127 million) or more in the financial year immediately preceding the transaction being implemented.
- The transaction value of the economic concentration is 1 trillion VND (approximately USD 42 million) or more.
- The combined market share of the enterprises proposing to participate in the economic concentration was 20% or more in the relevant market in the financial year immediately preceding the transaction being implemented.
If the relevant enterprise is a credit institution, insurer or securities company, notification of a proposed economic concentration is required where:
a. (i) if the enterprise is an insurer or securities company, its total assets in Vietnam, or of its affiliated group of similar entities, was 15 trillion VND (approximately USD 635 million) or more in the financial year immediately preceding the transaction being implemented; or
(ii) if the enterprise is a credit institution, its total assets in Vietnam, or of its affiliated group of credit institutions, was 20% or more of the total assets of all credit institutions in Vietnam in the financial year immediately preceding the transaction being implemented;
b. (i) if the enterprise is an insurer, total sales or input purchase turnovers in the Vietnamese market of it or its affiliated group of insurers was 10 trillion VND (approximately USD 424 million) or more in the financial year immediately preceding the transaction being implemented; or
(ii) if the enterprise is a securities company, total sales or input purchase turnovers in the Vietnamese market of it or its affiliated group of securities companies was 3 trillion VND (approximately USD 127 million) or more in the financial year immediately preceding the transaction being implemented; or
(iii) if the enterprise is a credit institution, its total turnover in Vietnam, or of its affiliated group of credit institutions, was 20% or more of the total turnover of all credit institutions in Vietnam in the financial year immediately preceding the transaction being implemented;
c. (i) the transaction value of the economic concentration of insurers or securities companies is 3 trillion VND (approximately USD 127 million) or more; or
(ii) the transaction value of the economic concentration of credit institutions was 20% or more of the total chartered capital of all credit institutions in Vietnam in the financial year immediately preceding the transaction being implemented;
d. the combined market share of the enterprises proposing to participate in the economic concentration was 20% or more in the financial year immediately preceding the transaction being implemented.
In all cases, where the economic concentration occurs outside Vietnam, only the thresholds identified in items (a), (b) and (d) apply regardless of the type of enterprise.
Review Process
Economic concentrations that are subject to an obligation to notify will undergo a preliminary appraisal. Within 30 days of receipt of a complete notification filing, the NCC will complete its preliminary appraisal and notify the relevant parties whether the economic concentration will be subject to an official appraisal or if the transaction can be conducted. If no notice is issued by the NCC, then the economic concentration can be conducted.
Decree 35 provides that an economic concentration may proceed without an official appraisal if it is determined that any of the following criteria are met:
- The combined market share of the relevant enterprises is less than 20% in the relevant market;
- The combined market share of the relevant enterprises is 20% or more in the relevant market and the post-transaction HHI (the sum of the squares of the market shares of all competitors) will be less than 1,800;
- The combined market share of the relevant enterprises is 20% or more in the relevant market, the post-transaction HHI will be above 1,800 and the economic concentration does not cause an increase in HHI of 100 or more;
- The market share of the enterprises participating in the economic concentration which have a relationship with each other in the chain of production, distribution and supply of a specified type of goods or whose business lines provide mutual inputs or provide ancillary support to each other is less than 20% in each relevant market.
Some Clarifications Required
While Decree 35 lays a solid framework for Vietnam’s merger regime, there are a number of issues that will require additional guidance such as:
- Clarification of whether control can be established if an enterprise does not have full decision power but only power to veto decisions in respect of the relevant identified matters;
- Determination of when an economic concentration will be considered to take place outside of Vietnam;
- Application of the notification thresholds where only one of the relevant enterprises is an insurer, credit institution or securities company;
- Application of the notification thresholds applicable to a group where not all the enterprises in the group is an insurer, credit institution or securities company; and
- Whether the criteria described in items (a) and (b) above apply on a combined basis to all enterprises participating in the economic concentration or individually to one or more of the enterprises involved in a proposed transaction.
If you have any questions with respect to this update or any other issue in relation to the Vietnam’s competition regime and its implications for your business, please feel free to contact Hoang Phong Anh, Partner, (phonganh.hoang@dfdl.com) or David Fruitman, Regional Competition Counsel, (david.fruitman@dfdl.com). For more information on the Competition Law, please refer to our earlier alert on this which can be found at https://www.dfdl.com/resources/legal-and-tax-updates/vietnam-legal-update-new-competition-law-will-be-effective-soon/.
The information provided here is for information purposes only and is not intended to constitute legal advice. Legal advice should be obtained from qualified legal counsel for all specific situations.
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Regional Competition Counsel & Senior Consultant