Conducting Initial Public Offering (IPO) in Vietnam
1. Definition and the Importance of Initial Public Offering
- Initial Public Offering (IPO) is the process by which a private corporation can go public by sale of its stocks to general public for the first time.
- The importance of Initial Public Offering (IPO): Most corporations always need a large amount of capital to expand their scope of operations and develop their business. Using and IPO will help companies to raise capital quickly and open up many other financial opportunities.
2. Advantages and Disadvantages of an Initial Public Offering
- Advantages of an IPO:
- The company’s brand will be better known so it will be easier for the company to raise capital as well as reduce costs of mobilizing capital. Through the issuance of securities, customers and suppliers of the company can become its shareholders, which will create advantages in procurement of materials and product consumption.
- An IPO will help the company to increase net asset value, have a large capital and can borrow money from banks with more favorable interest rates as well as less complex collateral terms. In addition, an IPO also helps the company become more attractive to conduct Merger & Acquisition activity in the perspective of foreign companies.
- Disadvantages of an IPO:
- Expensive expenses: The costs of conducting an Initial Public Offering (IPO) is very expensive, about 8% to 10% of company’s mobilized capital. This usually includes: issuance underwriting expenses, legal consultancy fees, printing costs, audit fees, listing costs. In addition, there are additional costs incurred by the company every year such as: auditing financial statements cost, expenses for preparing documents submitted to state management agencies on securities and periodic information disclosure costs.
- An IPO will make ownership rights dispersed and may lose control of the company’s founding shareholders. Moreover, the ownership structure of the company changes constantly due to the influence of daily stock transactions.
- The fact that the company must comply with regulations and financial publicity and method of operating widely causes the risk of leakage of confidential information that can make the company lose its competitive advantage.
3. Conducting Initial Public Offering in Vietnam – Legal Conditions
Conditions for initial public offering of securities are stipulated and guided in the following laws:
- Securities Law 2006 amended and supplemented in 2010
- Decree No. 58/2012/ND-CP Detailing and guiding the implementation of a number of articles of the Securities Law and the Law amending and supplementing a number of articles of the Securities Law
- Decree No. 60/2015/ND-CP amended and supplemented a number of articles of Decree No. 58/2012/ND-CP
In particular, there are the following conditions for Conducting Initial Public Offering (IPO) in Vietnam:
- Enterprises have the charter capital at the time of registration offering from VND 10 billion or more calculated by the value recorded in the accounting books.
- The business operation of the five consecutive years preceding the year of registration for sale must be profitable, as well as there is no accumulated loss up to the year of registration for Initial Public Offering (IPO).
- Companies have issuance plans and plans to use the capital raised from the public offering approved by the General Meeting of Shareholders.
- Public companies registering to offer securities to the public must commit to bring securities into market transactions organized within one year from the end of the offering phase approved by the General Meeting of Shareholders.