In light of the obstacle of preemptive right under the law of Vietnam, target companies and their strategic investors may find it difficult to cope with the requirement of prerequisite offering shares to existing shareholders and the subscription warrant holders. However, based off the available exemptions, there may be some potential avenues.
Private placement of shares
The private placement of shares of a non-public company bears the meaning that the offering is not made through mass media and shares are (i) offered to fewer than 100 investors, other than sophisticated securities investors, or (ii) only offered to sophisticated securities investors.
The existing shareholders reserve the preemptive right to purchase the newly issued shares equal to their current percentage of ownership under the private placement plan. The shareholders may transfer their subscription warrants to other persons. The remaining number of newly issued shares shall only be sold to third parties if the shareholders holding preemptive right and the persons holding subscription warrants do not buy them all. Such remaining part must not be offered to other investors with more favourable conditions in comparison with those offered to the shareholders.
Foreign investors that expect to buy shares offered under private placement plan must complete the procedures for purchasing shares specified in the Law on Investment and comply with the foreign ownership ratio.
Clear the hurdle
The existing shareholders are enabled to exercise their preemptive right in private placement of shares transaction with the exceptions of merger or consolidation. Hinging on the exceptions, the investor may consider the following approach.
Step 1. Setting up a special purpose company (SPC)
The investor will first set up an SPC which will have the charter capital accounting for the purchase price of the shares to be issued under the planned private placement.
Step 2. Merging SPC into the company
The investor will merge the SPC into the target company. The target company will issue shares under merger scheme in exchange for the capital of the SPC (purchase price) – which is not subject to the preemptive right obstacle. After that, the investor shall own the newly issued shares in the target company.
Though the licensing procedure is not really a problem, it should be advised and heeded properly to assure the transaction will come out right.
Aside from the above typical approach, there are certain other fashions to get through such preemptive right barrier.
Disclaimer:
The article cannot and does not contain any legal advice. The information is provided for general informational purposes only and is not a substitute for professional advice.
Accordingly, before taking any actions based upon such information, I encourage you to consult with the appropriate professionals. The use or reliance of any information contained in this article is solely at your own risk.
