An Initial Public Offering (also known as “IPO”) refers to the process of issuing shares of a joint stock company to the public for the first time. An IPO is a huge step for a company as it allows the company to raise a lot of money from a wide range of investors, as well as increase its potential to grow and broaden its business scope. After transitioning into a public company, the increased transparency and share listing credibility can also be a factor in helping a company obtain better terms when seeking borrowed funds as well. Therefore, the legal regulations on IPO play a significant role in regulating the stock market in order to provide a safe trading environment and allow enterprises to actively integrate into the international and regional capital market.
Methods of public offering
According to Law on Securities, shares are securities that certify their holders’ lawful rights and interests to a portion of share capital of the issuer. Thus, public securities offering also refers to public share offering and is performed through one of the following methods:
(i) Offering through mass media;
(ii) Offering to 100 investors or more, not including professional investors;
(iii) Offering to unidentified investors.
Requirements of an initial public offering
Under Law on Securities 2019 and Decree No. 155/2020/NĐ-CP, joint stock companies holding IPO must meet the following requirements:
First, contributed charter capital of the company at the time of registering an IPO must be VND 30 billion or more according to the accounting books.
Second, the business operation of 02 consecutive preceding years of the IPO registration must be profitable, and there must be no accumulated loss by the year of IPO registration.
Third, the company must have a plan for issuance and use of capital generated by the offering ratified by the General Meeting of Shareholders.
Fourth, at least 15% of the company voting shares must be sold to at least 100 non-major shareholders. If the company’s charter capital is VND 1,000 billion or more, the ratio shall be 10%.
Fifth, before the offering date, major shareholders of the company must commit to jointly hold at least 20% of the company’s charter capital for a minimum of 01 year from the end date of the offering.
Sixth, the company is not being subject to any criminal liability or has been convicted of one of the crimes of violating economic management order but has not yet been expunged.
Seventh, the IPO registration dossier is consulted by a securities firm, unless the company is already a securities firm.
Eighth, the company commits to have its shares listed or registered on the securities trading system after the end date of the offering.
Ninth, the company has an escrow account to receive payments for the offered shares.
Procedures of an initial public offering
Pursuant to Decree No. 155/2020/NĐ-CP, an IPO is performed in the following steps:
Step 1: IPO application
The company submits the application for an IPO to the State Securities Commission of Vietnam (“SSC”).
Step 2: Completion of application procedure
The company shall submit 06 copies of the Official Prospectus to the SSC within 07 working days from the receipt of the notification from SSC requesting completion of the procedures for the issuance of the Certificate of Registration of Public Securities Offering.
Step 3: Issuance of the Certificate of Registration of Public Securities Offering
Within 30 working days from the receipt of the completed application, the SSC shall grant the Certificate of Registration of Public Securities Offering to the Company.
Step 4: Publishing
Within 07 working days from the issuance of the Certificate of Registration of Public Securities Offering, the company shall perform the following 02 tasks:
(i) Publishing the Issuance Announcement on 01 online newspapers or 03 consecutive issues of a printed newspaper and publish it on the websites of the company (if any) and the SSC; and
(ii) Posting the Official Prospectus on the websites of the company (if any) and the SSC.
Step 5: Distribution of securities
After ensuring that the Prospectus is publicly available at the locations specified in the Issuance Announcement, the company shall distribute securities in accordance with regulations of Article 26 of Law on Securities 2019.
Step 6: Reporting and publishing the result of the offering
The company sends SSC the report on the amount obtained from offering and discloses this information
Within 10 days from the end date of the offering, the company or the underwriter shall submit the report on the result of the offering enclosed with confirmation of the bank or FBB where the escrow account is opened to the SSC on the amount obtained from offering and disclose this information on the websites of the company (if any) and the SSC.
Step 7: Notice of the SSC on receipt of the report
Within 03 working days from the receipt of the completed and eligible report on the amount obtained from offering, the SSC shall perform the following 02 tasks:
(i) Notify in writing of the receipt of the report on the results of the offering to the company, Stock Exchanges and Vietnam Securities Depository and Clearing Corporation; and
(ii) Post information about the receipt of the report on the results of the offering on the website of the SSC.
Step 8: Unfreeze
After receiving the notice on receipt of the report from SSC, the company is allowed to request unfreezing of the amount obtained from the offering.
Post IPO obligations
In accordance with Law on Securities 2019, after successfully holding an IPO, a joint-stock company shall become a public company through public company registration. Then, such public company must comply with the following obligations:
(i) Publishing information in accordance with the Law on Securities;
(ii) Registering centralized shares at Vietnam Securities Depository and Clearing Corporation;
(iii) Having its shares listed on HOSE or HNX or registering on securities trading system (Upcom) within 30 days from the end date of the public offering; and
(iv) Other rights and obligations of public companies specified in the Law on Securities, Law on Enterprises and other related laws.
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