London has an enduring reputation as an appealing destination for internationally focused Asian businesses to raise capital and build profile. Recognised as one of the world’s most international capital markets and home to a truly international diverse pool of investors, London is located in an ideal time zone, bridging trading days between Asia and the US.
Demand for international capital to fuel growth opportunities continues unabated, despite the pandemic, much like the renewed interest in overseas listings for Vietnamese companies following the recent changes to Vietnamese securities laws, enabling overseas capital raising by Vietnamese companies. This, coupled with the UK Vietnam Free Trade Agreement that came into force as of 1 May and the UK’s desire to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) creates a strong backdrop for ongoing growth opportunities.
This article summarises the key takeaways from the discussion and insights provided by the highly experienced industry specialists.
So why are Vietnamese companies considering listing in London now?
Vietnam recently updated its Investment Law which came into effect on 1st January 2021 with the aim of enhancing foreign investment and facilitating overseas capital raising for Vietnamese businesses.
The key changes include:
- Liberalisation of foreign ownership restrictions, providing easier access for foreign investors
- Relaxation of investment conditions for start-ups and specific exemptions
- A broadened definition of foreign-invested economic organisations
- Clarification on M&A approval procedures
- Introduction of new investment incentives to facilitate investment
- Clarification on the use of depositary receipts to raise funds for Vietnamese companies
These changes have caused Vietnamese companies look at London Capital Markets with renewed vigour. The timing is perfect as the UK has firmly stated its intention to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and has also signed its free trade agreement with Vietnam (1st May).
These developments signal great opportunities for Vietnam and the UK. Bilateral relations were strengthened in 2010 in the form of a strategic partnership which was reinforced in 2020 by the new free trade agreement. There are many UK financial services brands that have been established in Vietnam for a significant period and many more are looking to access the market.
Lisa Banks, Head of Trade and Investment at the British Embassy in Hanoi, commented: “Vietnam is incredibly resilient - despite Covid-19, it continues to be politically stable, has a young population, and is outperforming others in the region, which is no mean feat. Its government is committed to its economy which is reflected in the uplift in rankings and credit agencies which is attracting greater investment. The Vietnamese stock market has also seen strong growth. Its Capital Markets have transformed from capitalisation of 1% of GDP in 2000 to 104% of GDP 20 years later.
“Given recent changes in the law and the free trade agreement, there has also been greater engagement with and between governments, and support for growth areas such as green finance and fintech. There are strong grounds for improved international co-operation, giving Vietnamese businesses greater access to Capital Markets around the world.”
Brian Bulloch, Executive Director, British Chamber of Commerce in Vietnam added: “There is a lot of support and resources available for companies which are looking to do business between the UK and Vietnam which should be utilised.”
Ollie Fox, Head of International Business Development for Southeast Asia at the London Stock Exchange (LSE) sees a bright future for Vietnamese companies looking to access international capital markets in London.
“The LSE has a market capitalisation worth more than $7.2 trillion and since 2018, more than $1.7 billion dollars has been raised covering IPO as well as significant follow-on issuances. London is the most international exchange with nearly 40% of all listed companies on the LSE being from outside of the UK. It might be imagined that the LSE would be favoured by older economy companies, however, the tech sector has been responsible for 45% of the money raised over the last six months, showing the vibrancy of London Capital Markets.”
Fox also commented that London has a deep understanding of the dynamics of Asian business, pointing to $40billion raised in the last ten years for Asian-Pacific companies through the LSE alone. Those listed on the LSE are worth in total $1.9TN in market capitalisation. There are 171 Asian-Pacific companies listed on the LSE including Samsung, Mitsubishi, Air China and Toyota, with large firms including Veil fund and Vina Capital from Vietnam; beyond the two listed funds there is scarcity value currently for investment in Vietnam on the LSE.
London is also attractive for dual listings. Companies use London to establish connections, which is very relevant for Vietnamese companies which want to be home and internationally listed, and the new regulations open up this opportunity for them, dual listings also allow companies to maximise their international investor exposure.
How should Vietnamese companies go about becoming investor ready and preparing for an IPO?
Companies need to be able to demonstrate good governance, quality, and value. Preparing for an IPO takes time and detailed planning. It is important to be able to demonstrate sound and effective financial controls, timely and accurate management reporting and to have an experienced CFO.
As part of pre-IPO planning, the business should ensure that the management team is complete with clear succession planning. Where possible, steps can be taken to improve the “quality” of profits, for example moving to higher margin products and services or building barriers to entry for competitors via technical excellence or scale. A scalable business model is key, as is enhanced corporate governance through the appointment of experienced non-executive directors – quite possibly the most important point to get right. Sometimes pre-IPO restructuring is needed as are defendable rights over intellectual property.
Other considerations would be to dispose of non-core activities or assets, identify acquisitions and mergers, reduce dependency on particular customers, products, or staff and critically to review terms of trade and strengthen credit. Some of the funding the owners are looking to raise may already be invested in the business, so improving terms of trade will help ensure profit is converted into liquid assets such as cash, demonstrating the efficiency of the business.
Key lessons from successful IPOs
It is important to be realistic on valuation. Don’t lose sight of the investors and ensure that a valuation is sensible so that investors can see a clear growth path. Another of London’s key selling points is the ability to undertake secondary fund raisings quickly and easily. By valuing the business realistically at IPO, investors will be more likely to return and invest again.
Robin Stevens, Director at Vector Capital Plc, added: “Admission to the market is only the start of the process, not the end, businesses still need to achieve their objectives post IPO. Communication is vital as there needs to be continued interaction between the company and its investors. Businesses need to keep the market informed and it is wise to be prudent and to under-promise and over deliver. Lastly, businesses must control working capital and maintain and display strong corporate governance in order to succeed post IPO.”
What should be considered from a legal perspective?
Companies need to prepare a prospectus which provides an overarching description of the business which must be complete and accurate, and not misleading. It should include risk factors, consequences of listing, expected timetable of principal events/fundraising, financial information, taxation, capitalisation, and an indebtedness statement. It also needs to hold information on key personnel – which need to have experience of working with a London listed company. All of this process requires detailed due diligence and verification to ensure the prospectus presents an accurate picture and therefore safeguards the issuer and its directors.
Jan Mellmann, Partner at Watson Farley & Williams in London commented: “By ensuring your company meets all its compliance and governance requirements you will provide assurance for investors not only pre-IPO, but also mitigate risks post IPO.” Matt Lorimer, Partner at Watson Farley & Williams in Hanoi added that: “The listing strategy of Vietnamese companies will need to comply with Vietnamese law requirements. In particular, foreign ownership of Vietnamese companies can be restricted on a sector-by-sector basis and as a result, there may be limits on the number of shares that can be offered to foreign investors.”
What routes are open to a Vietnamese company considering listing in London?
A Vietnamese issuer can list Global Depository Receipts (GDRs) directly or establish an offshore group holding company structure for the listing.
GDRs are depositary receipts representing shares and may be used by larger companies, potentially with an existing local listing already in place. Medium to smaller sized companies that do not yet have an existing listing may instead consider establishing an international holding company. In some industry sectors, account will need to be taken of Vietnamese ownership requirements when choosing which route to follow.
In some cases, particularly where a significant proportion of the economic and revenue generating activity is taking place in the UK, then a holding company may be established in the UK.
Many international businesses will consider establishing a holding company in Jersey for the purposes of listing in London. Jersey is a leading choice for several reasons including its proximity to and deep ties with London, international regulatory standing, strong corporate governance framework and political stability. In addition, the shares of Jersey companies can be traded on CREST, the electronic settlement system utilised by the LSE, and shareholders in London listed Jersey holding companies can be covered by the UK takeover code, thereby providing additional comfort and security to investors.
Jersey companies represent the largest number of international companies listed in FTSE 100 and AIM and constitute over $170bn in market capitalisation, significantly higher than most other international finance centres.
Typically, the holding company is introduced by way of a group reorganisation prior to listing. This usually takes the form of a share for share exchange such that the existing shareholders surrender their shares in exchange for shares in the new holding company.
Alternatively, in the case of a special purpose acquisition company (SPAC), the holding company is established at the outset specifically for the purposes of acquiring an existing business.
In addition to corporate restructuring, the business should consider implementing a share incentive scheme. Such schemes are used as a way to reward, retain, and attract talent to the business by issuing paper rather than currency. These arrangements are often housed in a separate legal entity with independent oversight – for example from an external trustee.
London has a longstanding reputation as one of the world’s leading capital markets with a truly international and diverse pool of investors. Following the implementation of the UK Vietnam Free Trade Agreement on 1 May, changes have been made to Vietnamese securities laws to further enable overseas capital raising by Vietnamese companies. Accordingly, London capital markets have become more accessible to Vietnamese businesses and, conversely, investment opportunities in Vietnam have become more accessible to London based investors.
Hawksford has specialists on the ground in Jersey, London, and Asia who can assist with establishment, corporate services, and governance support to emerging international companies seeking to access global capital markets. This includes international holding companies, employee incentive schemes and private wealth / succession planning.
With thanks to the panellists:
The London Stock Exchange
- Ollie Fox, Head of International Business Development for Southeast Asia
- Jon Edwards, Head of Primary Markets for Asia
Watson Farley & Williams
- Jan Mellmann, Partner, London
- Matt Lorimer, Partner, Hanoi
British Chamber of Commerce, Vietnam
- Brian Bulloch, Executive Director
Vector Capital Plc
UK Department of International Trade
- Lisa Banks, Head of Trade and Investment
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