PricewaterhouseCoopers Vietnam advises on overseas listings

Ho Chi Minh City, 12 November 2008 - According to Ian Lydall, General Director of PricewaterhouseCoopers Vietnam, just a few years ago, the term “listing” (“len san”) was still new to a majority of Vietnamese investors. Now that the term has been extended to “overseas listing”, this has again become a hot topic in a number of business seminars, and is exciting a good deal of interest from large Vietnamese corporations, including Vietnamese financial institutions.

The potential benefits companies receive from overseas listing seem obvious. Companies will have the ability to access a broader international investor base, to generate more funds, to increase the visibility of the company’s brand name and products, and - for some industries – to diversify the market risk. However, there are also certain challenges that companies should carefully consider.

The first question that a CEO has to answer is: on which stock exchange should the company be listed? The answer is not obvious, as it depends on the company’s industry and its strategic development, as well as an understanding of the potential investor’s patterns of behaviour in certain stock exchanges. Nevertheless, it is important to remember that while stock exchanges generally compete for the business of companies interested in listing, they may have different views regarding the ideal profile of the companies to be listed.

Following selection of the stock exchange most suitable for the company in question, a detailed understanding of the listing requirements of each stock exchange is crucial. Companies need to be aware that the requirements for overseas listing are far more demanding than those which currently apply to Vietnam’s stock markets, especially those related to financial reporting requirements, corporate governance, taxation and investor relations.


Financial Reporting Requirements

Almost all overseas stock exchanges require the presentation of three years of audited financial statements prepared under International Financial Reporting Standards (“IFRS”). IFRS are standards and interpretations adopted by the International Accounting Standards Board (IASB) for companies preparing financial statements. IFRS have been adopted as a reporting requirement in most major capital markets, necessitating Vietnamese companies reporting under the Vietnamese Accounting Standards (VAS) to adopt IFRS ahead of a planned overseas listing.

Most Vietnamese entities do not prepare IFRS financial statements, and even if they do, the auditor’s report is not always unqualified. The reason is that in order to fully comply with IFRS, Vietnamese companies must maintain a system whereby necessary information, including future and past data, can be captured and presented in a way that enables the companies to prepare IFRS financial statements. This process requires sophisticated planning as it is costly and involves many important parts of a company’s operation. The move to compliance is a considerable task that can take at least two years for a medium-sized Vietnamese company. However, for large companies with complex legal and business structures, IFRS conversion might take up to three years, or even longer. As such, the management is required to dedicate a significant amount of time and qualified resources to address the issue. IFRS conversion projects are especially complex in financial institutions whose network is extensive and whose products are diversified.

Again, we need to emphasise that, following IFRS conversion, the financial statements need to be audited, and if there are areas of non-compliance, any resulting qualifications in the auditors report will not be well received by stock exchanges or investors.

In addition to reporting the company’s results for the three financial years prior to the listing, companies listing overseas will also have to comply with detailed rules on ongoing financial and other reporting requirements. In addition to detailed quarterly reports, compliance with the listing rules will require companies to publish details about many other significant events (such as changes in management structure, legal challenges and environmental issues) on a timely basis.


Corporate governance

Good corporate governance is as important as financial reporting. Issues such as the independence of directors, disclosure of related-party transactions and the effectiveness of the audit committee appear to be areas where Vietnamese companies will need to exert more effort. An overseas listed company is also expected to have robust internal controls systems and procedures in place which are sufficiently effective to prevent fraud and errors.


International taxation

Tax planning is an area that cannot be overlooked by overseas listed companies. What are the tax implications for investors who trade on overseas stock exchanges? An uncertain tax position may reduce the attractiveness of Vietnamese shares and may have adverse impact on their listing overseas. This issue needs to be given serious consideration before listing takes place.


Investor relations

Following listing overseas, Vietnamese companies will be exposed to more and more international investors who will expect high levels of assistance from companies in making sure their activities can be easily monitored. A user-friendly website, updated daily, that contains all publicly available information about the company is international best practice. Current and historical financial reports, company history, press releases, updates on share prices and further details about the business operations of the company are expected. In addition, it is customary for major investors (for example, pension funds and other prominent members of the investing community) to contact the company from time to time to ask permission for company visits, or for clarification of issues which are unclear based on publicly available information. Accordingly, companies listed on major stock exchanges normally operate a separate investor relations department.


The cost of overseas listing

Vietnamese companies should be aware that the cost of overseas listing transactions is much higher than for domestic listing, as the process requires the involvement of internationally recognised underwriters, auditors, legal counsels and advisors, etc. A factor often overlooked by Vietnamese entities is ensuring that key resources are made available to oversee the listing and related tasks after the listing process is completed. It should be noted that the listing company is required not only to comply with listing requirements at the initial public offering, but - more importantly - to continue to meet these requirements and comply with regulations throughout the listing.

We believe overseas listing can create many benefits for Vietnamese entities. However, in order to maximise these benefits, Vietnamese entities must give the matter careful consideration, as having a company’s name appear on an overseas stock exchange is not, in fact, an end in itself, but rather the starting point for a new journey on which the company is committing to embark.


The role of auditing firms in overseas listing

Auditing firms are involved in the listing process most prominently in connection with the audit of the financial statements companies prepare under IFRS. It is important to remember that, just as with audits of financial statements prepared under Vietnamese Accounting Standards, preparation of the financial statements is the responsibility of the management, whilst the responsibility of the auditor is to express an independent opinion as to whether those financial statements fairly present, in all material respects, the financial position of the company. Auditing firms, of course, can and do provide other services in connection with overseas listing. For example, our firm has assisted a significant foreign-invested company in Vietnam with the Hong Kong stock exchange IPO of its parent company. In addition, we are advising a prominent Vietnamese public company on preparations for a future listing in the region. Furthermore, we provide: