New merger control in Vietnam

Decree 35 will take effect on 15 May 2020.  From such date, all transactions satisfying the new notification thresholds will have to be approved in Vietnam before closing.  We set out below some key takeaways regarding this new merger control regime.

Key Developments 

1. The 2018 Competition Law, which took effect on 1 July 2019, sets up a new merger control regime, under which certain transactions (called "economic concentrations") must be notified and approved in Vietnam before closing if any one of the notification thresholds, as stipulated by law, is met (Notification Thresholds).  In the course of its review, the Vietnamese competition authority, the National Competition Commission (NCC), will consider whether the concerned economic concentration may significantly impact, or have the ability to cause significant impact on, competition in Vietnam based on factors listed in the 2018 Competition Law (Substantive Test)

2. Pursuant to the 2018 Competition Law, an "economic concentration" is defined to be any of the following: (i) a merger of enterprises; (ii) a consolidation of enterprises; (iii) an acquisition of enterprises (see below); (iv) a greenfield joint venture between enterprises; or (v) any other form of economic concentration as stipulated by law.  Notably, an “acquisition of an enterprise” is specifically defined as the direct or indirect acquisition by one enterprise of all or part of the equity interest, assets of another enterprise sufficient to control or dominate the acquired enterprise or a business of the acquired enterprise [Emphasis added].  The concept of "control" or "domination" is assumed to exist if any one of the following scenarios occurs:

a) the acquiring enterprise obtains the ownership of more than 50% of the charter capital or voting shares in the acquired enterprise;

b) the acquiring enterprise obtains the ownership, or the right to use, over 50% of the assets of the acquired enterprise or over 50% of the assets of at least one business activity of the acquired enterprise (in that case, it is understood that the acquisition would be over that one business activity); or

(c) the acquiring enterprise obtains one of the following powers over the acquired enterprise:

(i) the direct or indirect power to decide on the appointment or dismissal of majority or all board members, the chairman, and/or the (general) director of the acquired enterprise

(ii) the power to decide on the amendment to the charter of the acquired enterprise; or

(iii) the power to decide on "material matters" in the business operations of the acquired enterprise (including the power to decide the business models, the selection of its business operations and locations, adjustments to its business size and operations, or the form and method of raising, allocating and using its capital sources for business operations).

Therefore, only when a transaction is an "economic concentration", does it give rise to the question of whether any one of the Notification Thresholds (see below) is triggered. 

3. With regard to the Notification Thresholds, the 2018 Competition Law listed four factors that the NCC was asked to consider when deciding which economic concentrations it should review, but did not provide any details.  The NCC shall make an assessment based on one of the following high-level factors as listed in the 2018 Competition Law:

(a) the total asset value in Vietnam of the participating parties;

(b) the total revenue in Vietnam of the participating parties;

(c) the value of the economic concentration; or

(d) the parties' combined market share.

4. Decree 35 clarifies the requirements of the 2018 Competition Law by setting out the Notification Thresholds applicable in Vietnam, although not as clearly as expected.  The new Notification Thresholds are as follows:

(a) With respect to enterprises, which are not credit institutions, insurance companies or securities companies, a notification is required in Vietnam if any of these Notification Thresholds is satisfied:

(i) the total asset value in Vietnam of the participating enterprises, or the total asset value of the group of affiliates in which such participating enterprises is a member, reached VND3 trillion (approx. USD129 million) or more during the last fiscal year preceding the year of the concerned economic concentration;

(ii) the total sales revenue or purchase turnover in Vietnam of the participating enterprises, or the total sales revenue or purchase turnover of the group of affiliates in which such participating enterprise is a member, reached VND3 trillion (approx. USD129 million) or more during the last fiscal year preceding the year of the concerned economic concentration;

(iii) for on-shore transactions (see (c) below), the transaction value of the concerned economic concentration is VND1 trillion (approx. USD43 million) or more; or

(iv) the combined market share of the participating enterprises is 20% or more in any relevant market during the last fiscal year preceding the year of the concerned economic concentration.

(b) with respect to the enterprises which are credit institutions, insurance companies or securities companies:

(i) the total asset value in Vietnam of the participating enterprises, or the total asset value of the group of affiliates in which such participating enterprise is a member, reached: (A) VND15 trillion (approx. USD644 million) or more for insurance companies or securities companies, or (B) 20% or more of the total asset value as computed in Vietnam for credit institutions, each in the fiscal year preceding the year of the economic concentration;

(ii) the total sales revenue or purchase turnover in Vietnam of the participating enterprises, or the total sales revenue or purchase turnover of the group of affiliates in which such participating enterprise is a member, reached: (A) VND10 trillion (approx. USD429 million) or more for insurance companies, (B) VND3 trillion (approx USD129 million) or more for securities companies, or (C) 20% or more of the total revenue turnover as computed in Vietnam for credit institutions, each in the last fiscal year preceding the year of the concerned economic concentration;

(iii) for on-shore transactions (see (c) below), the transaction value of the concerned economic concentration is: (A) VND3 trillion (approx. USD129 million) or more for an economic concentration of insurance companies or securities companies, or (B) 20% or more of the total charter capital as computed in Vietnam for credit institutions, each in the last fiscal year preceding the year of the concerned economic concentration; or

(iv) the combined market share of the participating enterprises is 20% or more in relevant market – presumably in Vietnam – in the last fiscal year preceding the year of the concerned economic concentration.

(c) with respect to entirely offshore economic concentrations, the above notification thresholds shall apply, except for the threshold of transaction value of the concerned economic concentration.

5. With regard to the Substantive Test, the NCC will assess economic concentrations on the basis of one or a combination of the following factors:

(a) the combined market share of enterprises participating in the economic concentration in the relevant market;

(b) the degree of concentration in the relevant market before and after the economic concentration;

(c) the relationship of the enterprises participating in the economic concentration in the chain of production, distribution and supply of a certain type of goods or services or whose business lines are mutual inputs or complementary to assist each other;

(d) the competitive advantages brought by the economic concentration in the relevant market;

(e) the ability of an enterprise after economic concentration to significantly increase prices or the rate of return on sales;

(f) the ability of an enterprise after the economic concentration to exclude or hinder other enterprises from entering or expanding the market; and/or

(g) any other special factors in the industry or sector in which the enterprises participating in the economic concentration operate.

6. As mentioned above, the enterprises participating in an economic concentration will be required to make merger fillings to the NCC, and to obtain the necessary approval from the authority, before closing the relevant economic concentration if any one of the Notification Thresholds above is satisfied. As it is the case in many jurisdictions, the merger control review in Vietnam will be subject to a two-phase review process, both carried out by the NCC.

(a) The preliminary review must be concluded within 30 days from "the receipt of the complete merger filing dossier".  This suggests that a certain time will elapse between the date of the filing and the date the NCC confirms that the filing dossier is complete, as it is the case nowadays. The result of the preliminary assessment could be either that (a) the transaction does not raise competition concerns and can be realised, or (b) the transaction must be subject to an "official review".  Upon the expiry of such 30-day-period, if the result of the preliminary review is not issued by the NCC, the relevant transaction will be "deemed cleared", as it is the case in other jurisdictions, and freely realised by the parties.

(b) The official review must be concluded within 90 days from the date the NCC decides that the transaction must be subject to an official review. Compared to other jurisdictions, this period is short, but it is extendable by maximum of 60 days (as it is the case for instance in China). As it is the case in many jurisdictions, the outcome of the official review could be any of the following: (i) the transaction does not raise competition concerns and can be realised, (ii) the transaction is approved, with certain condition(s) (also called "remedies" abroad), or (iii) the transaction is prohibited.

7. The penalty for violation of merger filling requirements (i.e., to close a notifiable transaction without being cleared by the NCC) may be up to 5% of the total revenue of the violating party in the preceding fiscal year, as per Decree 75/2019/ND-CP, which became effective on 1 December 2019.

Conclusion

The new merger control regime in Vietnam will soon come in full force.  Although this new regime may raise some questions of interpretation, the fundamental concepts, procedures, and assessment criteria are all based on concepts and practices that are generally accepted in all merger control regimes.  Further consultation with the NCC will be required in due course but the adoption of Decree 35 should be welcome.