On 1 July 2019, the Competition Law 2018 (Law No. 23/2018/QH14) officially took effect, replacing its 14-year-old predecessor and marking the introduction of a drastic shift in approach from form-based to effects-based regulation. Accordingly, the competition authority no longer solely relies on the parties’ combined market share (CMS) in its review process, but employs the substantial lessening of competition test to decide whether or not to green-light a merger. Other notable reforms include the extended scope of application to foreign-to-foreign transactions, new jurisdictional thresholds and a two-phased appraisal process. It is expected that given the new regulatory approach, enforcement of competition law will be more vigorous and all business individuals, organisations and any other relevant entities must adhere more strictly to the new law.
Following the promulgation of the Competition Law 2018, Decree No. 35/2020/ND-CP detailing a number of provisions of the primary legislation was introduced in March 2020 and took effect in May 2020 (the Guiding Decree). Prior to the introduction of the Guiding Decree, many transactions have been put on hold waiting for further implementation guidance from the government. The long-awaited decree thus helps clarify certain ambiguous issues and provides further guidance on merger filing. Most significantly for merger control purposes, the Guiding Decree provides for, inter alia, a ‘control’ definition, two sets of jurisdictional thresholds, and safe harbours for stage 1 review.
Under the Vietnamese merger control regime, an undertaking (A) will be deemed to control or govern another undertaking (B) if:
- to directly or indirectly appoint or dismiss all or the majority of B’s executive management or senior officers (eg, Chairman of the Members’ Council or the General Manager);
- to alter B’s constitutional document; or
- to make crucial decisions with regard to B’s business.
The ‘control’ concept is significant to merger control for two reasons. First, it clarifies the meaning of ‘acquisition’ and, by extension, the inquiry on whether a contemplated transaction is of a type caught by the regime. Second, it is pertinent to the concept of ‘group of related undertakings’, which the Guiding Decree defines as a group of undertakings that are under common control of one or more member undertakings in the group or share the same management. As seen below, application of certain jurisdictional thresholds takes into account not only the undertakings to the transactions but also the respective group to which they belong.
The Competition Law 2018 no longer relies on market share as the sole jurisdictional threshold but also adds financial criteria to its filing test, namely total assets, total turnover, and transaction value. The Guiding Decree sheds light on these changes, introducing two sets of jurisdictional thresholds, one applicable to transactions in virtually all sectors, the other reserved for transactions involving credit institutions (CIs), insurers or securities companies.
A contemplated concentration, except for one involving CIs, insurers or securities companies, must be notified to the competition authority if any of the following thresholds is met:
A contemplated transaction involving CIs, insurers or securities companies must be notified if it crosses any of the following thresholds:
Safe harbours are another noteworthy provision of the Guiding Decree. Accordingly, a contemplated transaction that meets any of the following conditions will be cleared in Phase 1. For horizontal mergers, CMS of the transaction parties is less than 20 per cent; or CMS is 20 per cent or more, and either the post-merger Herfindahl-Hirschman Index (HHI) is less than 1,800 or the post-merger HHI exceeds 1,800 and the delta is lower than 100. For vertical mergers, the market share of each undertaking is less than 20 per cent in their respective relevant market.
Foreign-to-foreign transactions are within the scope of the Competition Law 2018
Extraterritorial application was not explicitly stipulated under the former merger control regime. The Competition Law 2018, however, has addressed this ambiguity by extending its application to any economic concentration that causes an actual or potential restrictive impact on the Vietnamese market, effectively putting offshore transactions within its reach. Of note, a foreign-to-foreign concentration is only subject to the Vietnamese merger filing requirement if either transaction party has assets or generates revenues in or into Vietnam.
Intra-group reorganisations are not exempted from merger control rules
The Competition Law 2018 noticeably does not exempt any transaction from the notification or merger review requirement. As a result, any reportable transactions, including offshore internal restructuring at the holding level, must be notified to, and subject to review by, the competition authority even if such transactions are by nature not harmful to competition. Considering the current economic downturn induced by covid-19, corporations choosing internal restructuring to cope with the adverse situation should be mindful of the jurisdictional thresholds so as to avoid breaching the notification requirement.
Neither the Competition Law 2018 nor Decree 35 explicitly provides for ‘negative control’ or the veto right. Applying the ‘control’ definition, it arguably follows that a minority shareholder may be deemed to exert ‘control’ over the target business if, for example, decisions that are critical to the target business’ commercial policies such as operating capital, markets, or business lines, require unanimity or a supermajority. We understand that the regulators also share this view, albeit unofficially.
Under the Competition Law 2018, the competition authority must notify the applicants of the validity and completeness of the submitted notification file within seven working days from receipt of the same. Then, within 30 calendar days of the receipt of a full and valid file, the authority shall issue a decision either greenlighting the contemplated transaction or moving it to the official review phase. The outcome of the initial review phase will solely be based on whether the contemplated transaction falls within any of the safe harbours (see above). So far, the competition watchdog has done a relatively good job at clearing transactions that fall under the safe harbours within the statutory time limit.
Economic concentrations in the insurance sector
As outlined above, transactions involving insurance companies are subject to a higher set of jurisdictional thresholds. These are a welcomed development taking into consideration the typical structure, size of revenues and assets of multinational insurance corporations. Based on publicly available information, the most recent transaction in the insurance sector in Vietnam is FWD’s acquisition of Vietcombank-Cardif Life Insurance in late 2019–early 2020. The transaction was completed before the Guiding Decree took effect. However, even if the transaction took place after this date, it would still not have been reportable because none of the thresholds applicable to insurance companies was met.
However, application of these thresholds in practice is not always straightforward. One problem area is transactions where the involved parties are insurance companies but also carry out other services such as brokerage. Given the lack of clear guidance, such companies might have to apply the general threshold rather than the specific threshold for insurers.
Approval from the Ministry of Finance
Certain mergers in the insurance sector are also regulated by sector-specific legislation. It is important to note that these provisions are not displaced by merger control regulations under the Competition Law 2018, but rather exist in tandem with the latter. Specifically, a written approval of the Ministry of Finance (MOF) is required when an insurer:
The MOF will only issue its approval if all of the following conditions are met:
- an insurance company, who must be permitted by the competent foreign authority in its home state to conduct business in the sector in which it proposes to carry out [business] in Vietnam; or
- a subsidiary of a foreign insurance company that specialises in making offshore investment and is authorised by its parent foreign insurance company to contribute capital to the insurance company in Vietnam;
The statutory timeline for obtaining the MOF’s approval is 30 days. However, in our experience the timeline may be prolonged to as long as six months if the submitted dossier is incomplete. In terms of timing of submission, considering that the relevant parties are legally required to conduct merger filing prior to completing the economic concentration, they should obtain merger clearance before seeking the MOF’s approval.
In April 2020, the Ministry of Planning and Investment of Vietnam warned Vietnamese enterprises, especially those operating in key industry sectors, of the possibility of being acquired at undervalued price by foreign investors. The warning was issued following the US$240 million acquisition of Thipha Cables and Dovina, one of the largest electric wire and cable manufacturers in Vietnam, by Thai-incorporated Stark Corporation. The Chairman of the Vietnam Chamber of Commerce and Industry has proposed to temporarily suspend all approvals for M&A transactions during this period where foreign investors may exploit covid-19 induced financial hardship to drive down takeover prices. However, this proposal was not welcomed by economic scholars as M&A is seen as the shortest way for enterprises facing financial difficulties to receive additional capital. Concerns have also been voiced to the Vietnamese government following a series of takeovers by Chinese investors of Vietnamese real-estate companies holding the land use right in sensitive locations. It is anticipated that the authority will review merger filing more comprehensively in an attempt to help retain a strong and independent economy.
As of the date of writing, there are no public records of any transaction that has been blocked by the competition authority. Full reasoning for clearance is not publicly disclosed, although there are indications that at least one transaction (ie, acquisition of joint control over Keihin, Showa and Nissin Kogyo by Honda and Hitachi) was cleared because all Vietnamese subsidiaries of the transaction parties would remain independent entities after the transaction, thereby leaving the physical structure of the relevant market (ie, the number of incumbents thereon) unchanged.
As for conditional clearance, the only known case since the Competition Law 2018 took effect is Elanco’s US$7.6 billion acquisition of Bayer’s animal health business. Although the transaction passed the substantial lessening of competition test, the post-merger undertaking would have a dominant position in the market for swine antibiotics in Vietnam. Consequently, the authority required that the parties carry out a number of measures in line with the Competition Law 2018. However, the details of these measures are not publicly disclosed.
Similarly, there are no public records of any sanction imposed on parties for failure to file or for conducting unlawful mergers. The closest attempt came in 2018 when the Vietnam Competition and Consumer Authority (VCCA) completed its official investigation into the high-profile Grab-Uber transaction and transferred the case to the Vietnam Competition Council (VCC) for adjudication. In its report, the VCCA reviewed and assessed the potential restrictive impact of the transaction on market competition. Considering that Grab and Uber are direct competitors and both have considerable market power, Grab’s acquisition of Uber’s operations in Southeast Asia, including the Vietnamese market, changed the market structure in the direction of reducing the number of incumbents and forming a post-merger enterprise with substantial market power, thus raising the risk of abuse of dominance and limiting competition. The VCCA found that the Grab-Uber transaction violated the competition law and that the involved undertakings should be fined for:
Accordingly, the VCCA proposed a maximum fine of 5 per cent of Grab’s and Uber’s respective turnover for each infringement and requested Grab to abide by certain remedial conditions.
However, while the Grab/Uber deal was sanctioned by the competition watchdogs of Singapore and the Philippines, the VCC rejected the VCCA’s findings and proposals and found the deal legal on the ground that it did not constitute an economic concentration within the meaning of the Vietnamese competition laws. The VCCA has appealed the VCC’s decision. Further developments are unknown to us so far.
In an attempt to address concerns about the lack of clear and practical guidance on the new merger control regime, between May and July 2020 the VCCA published a number of documents guiding the preparation and submission of merger filing dossiers. Specifically, the VCCA has issued the official notification form, a checklist of required documents, an overview of the review process and expected timeline, and a set of practice notes on issues such as relevant market definition, impact assessment and request for confidential treatment. This is a welcomed first step from the VCCA.
The VCCA also unveiled its Annual Report 2019 in May 2020. The Report, accessible online at http://en.vcca.gov.vn, summarises the authority’s activities in 2019, ranging from unfair competition investigations to merger review, as well as offers a view to the regulator’s main focuses for 2020. Most notably, the Report suggests that the VCCA does monitor M&A activities in the country and has proactively requested for information on a number of transactions. In 2019, for instance, the regulator requested relevant parties to provide information on two high-profile transactions, namely Taisho’s acquisition of a controlling stake in DHG Pharma and Masan Group’s acquisition of Vin Group’s subsidiaries Vin Commerce and Vin Eco. The practice continued into 2020: in August the VCCA initiated an inquiry into Indo Trans Logistics Corporation’s acquisition of HoSE-listed warehousing and transportation services provider Sotrans.
The most anticipated development at the moment is the promulgation of the decree formally establishing the National Competition Committee (NCC), the new competition authority to succeed the VCCA and the VCC. Once established, the NCC is expected to reinforce co-operation via, inter alia, consultation and information exchange with its overseas counterparts to crack down any potential cross-border infringements. In the meantime, pending establishment of the NCC, the VCCA will continue to accept and review merger filing; monitor M&A activities on the market; develop and finalise internal procedures on merger review; and start building market databases to serve merger control activities.
Another much-anticipated change is the promulgation of a full merger control guideline that, based on verbal consultation with the competition watchdog, we understand will be modelled from that of the European Commission and the Competition and Consumer Commission of Singapore. Many have called for an approach more in line with internationally accepted practices such as exempting intra-group restructuring from merger filing or excluding minority shareholders’ veto rights from the ‘control’ concept. It is unclear which matters the guidance will address as the authority has yet released, if at all, any draft for public comment. In any event, a full guideline is a welcomed development as it would reduce uncertainty in merger control regulation.
What should a prospective client consider when contemplating a complex, multi-jurisdictional transaction?
In our experience, as a preliminary step the parties should conduct a multi-jurisdictional screening to identify all jurisdictions where the transaction might trigger a filing. It is also useful to promptly obtain the anticipated timeline and a checklist for each ‘triggered’ jurisdiction for it would facilitate planning and cross-border coordination. Furthermore, in jurisdictions such as Vietnam where the procedure may be prolonged, filing should be conducted as soon as possible to avoid delaying global completion. Parties can submit a filing to the Vietnamese competition watchdog as soon as a term sheet or draft SPA/SSA is available.
In your experience, what makes a difference in obtaining clearance quickly?
Establishing a frequent communication line with the authority is highly advisable to anticipate and promptly address any concern they may have, thereby potentially expediting the review process. Indeed, the competition authority has encouraged merger parties to engage in discussion with them, be it formal or informal, pre-filing consultation or mid-review discussion.
What merger control issues did you observe in the past year that surprised you?
The lack of a ‘change of control’ concept under the current regime has resulted in a somewhat unconventional application of merger control rules where the competition authority has subjected intra-group restructurings to merger filing. Another puzzling issue is the interpretation of ‘control’ concept, which has been construed to encompass negative control and veto rights given to minority shareholders. This has raised concerns that an acquisition of minority shareholding will also be subject to merger control requirement.