On 12 June 2018, the National Assembly of Vietnam has ratified a new Competition Law. And the law takes effect from 01 July 2019 (“LOC”) that drives the competition legal framework to a more effects-based approach. Especially, in Vietnamese law, Decree No. 35/2020/ND-CP (“Decree 35”) which has been ratified by the Government on 24 March 2020 that takes effect from 15 May 2020, has created a compulsory notification procedure that participants to transactions including merger, consolidation, acquisition, joint venture, as well as the offshore transaction. The purpose of the new competition law is to carefully consider complying before participating in such transactions due to a fine up to 5% of the total turnover of each participant on the relevant market in the preceding fiscal year shall be imposed on violated participants.
Decree 35 has clarified various criteria related to Merger Control including Merger Notification Thresholds, the concept of “Control or Influence”, determination and calculation of Market Shares that contribute to significant change with regard to the competitive legal landscape in Vietnam. In this article, we will set out some most important guidance of Decree 35.
1. Thresholds for notification of economic concentration
Decree 35 provided different thresholds for enterprises in different industries planning to participate in an economic concentration transaction. Merger filing is required for all forms of economic concentration when any of the following thresholds are met (within the Vietnamese market):
|Credit institutions||Insurance enterprises||Securities enterprises||Other sectors|
|Total assets in Vietnam||20% of total assets of all credit institutions||VND 15,000 bil/ USD 650 mil||VND 3,000 bil/ USD 130 mil|
|Total sales turnover or input purchase turnover in Vietnam||20% of total turnover of all credit institutions||VND 3,000 bil/USD 130 mil||VND 10,000 bil/USD 430 mil||VND 3,000 bil/ USD 130 mil|
|Transaction value (only onshore transactions)||20% of total charter capital of all credit institutions||VND 3,000 bil/ USD 130 mil||VND 1,000 bil/USD 43 mil|
|Combined market share in the relevant market||20%||20%||20%||20%|
2. Thresholds for approval of economic concentration or “Safe Harbours”
Decree 35 indicates levels of thresholds for an economic concentration to be approved. When any of the thresholds are met, merger clearance is granted. The tools Vietnamese merger controlling regulations use to appraise the competition-restraining impact of an economic concentration transaction are combined market share, Herfindahl-Hirschman Index (HHI – total market share squares after the merger), and delta HHI (Delta HHI – increase in the total market share squares before and after the merger), details as below:
|Types of merger||Approval Thresholds|
|Horizontal mergers||Combined market shares < 20%; OR|
|Combined market shares ³ 20%, and HHI < 1800; OR|
|Combined market shares ³ 20%, and HHI > 1800; and Delta HHI < 100|
|Vertical mergers||Combined market shares < 20%.|
3. The concept of “Control or Influence”
Article 2.1 of Decree 35 has explained The ‘control and influence’ criterium. However, it is not clear enough and raises several concerns. To specify, an enterprise (A) is deemed to ‘control or influence’ another enterprise (B) in any of the following cases:
(1) A owns more than 50% of B’s charter capital or voting shares;
(2) A owns or has the rights to use more than 50% of B’s assets in one or all business sectors B is dealing in;
(3) Company A has one of the following rights:
a. Directly or indirectly appoint, dismiss or discharge from the office of the majority of or all members of B’s Board of Directors, Chairman of the Members Council, Director or General director;
b. Decide to revise or amend B’s charter;
c. Make decisions on crucial business matters of B.
Among the listed circumstances, it is still debatable whether veto rights (negative control) against decisions on crucial business matters are also counted as ‘control’ or not.
4. Determination and calculation of market shares
This is the most complex part of a Merger Filing dossier for participants to prepare. Decree 35 defines the relevant market as an inclusion of a relevant product market and a relevant geographic market. There is a definition that The relevant product market is the market where products and services are regarded as interchangeable or substitutable in terms of their characteristics, uses and prices. And, there is a definition that the relevant geographic market is a specific geographic area where available products or services are interchangeable or substitutable under similar competition conditions which are significantly distinguished from those conditions existing within neighboring geographic areas.
The important part is that real estate is a special type of property, then the relevant geographic market in the real estate area is quite difficult to be determined.
Regarding the calculation of market shares, there are FOUR methods used for calculating the market shares under LOC in which the most popular method in practice might be the percentage of sales revenue of an enterprise out of the total sales revenue of all enterprises on the relevant market on a monthly, quarterly or yearly basis. However, there has not any detailed guidance or unified sources for getting the data related to the total sales revenue of all enterprises on the relevant market.
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