The Ministry of Industry and Trade has called for allowing all foreign investors to further participate in the petroleum retail market.

The proposal came as part of a draft revision of several provisions in the Government’s Decision No 83/2014/ND-CP on petrol and oil trading.

It seeks to allow domestic fuel traders to sell stakes to foreign investors of up to 35 per cent of a company.

If the amendments are approved by the Government it could usher in a more competitive oil retail market, which could benefit consumers.

However, it will not be the first time that foreign firms are allowed to enter petroleum distribution. In 2016 the Government gave the green light to foreign businesses that invest in oil refining in Viet Nam to enter the retail market.

In October 2017 Idemitsu Q8 Petroleum LLC, a joint venture between Japan’s Idemitsu and the Kuwait Petroleum International Ltd, opened a petrol station at Ha Noi’s Thang Long Industrial Park.

The entry of Idemitsu Q8 was welcomed as a positive change for the sector.

But, three years later, not much has changed in the fuel retail market.

On the other hand, the amendments now to the decree are expected to throw the door wide open to foreign firms. This also means the petroleum retail sector will no longer be protected by the Government.

Why has it taken so long?

A ministry expert explained that the timing of opening the petroleum retail market to foreign investors needs to be considered carefully since petroleum products are strategic and a wrong decision would directly affect national energy security.

Another reason is that since its entry into the World Trade Organization (WTO) in 2007, Viet Nam did not commit to opening up its retail market as it sought to support domestic companies.

But now, after 13 years, the country is deeply integrated into the international economy and signed a number of free trade agreements with some the world’s most largest economies, meaning the domestic industry has grown enough to be able to compete with foreign rivals.

Besides, petroleum retailers now need to develop strongly with special-purpose infrastructure facilities like floating and offloading vessels, special-purpose petroleum depots, wharves, and piers.

The further opening of the petroleum retail market will help them achieve this by giving them access to foreign funding for development of infrastructure as well as distribution networks.

It is also for this reason that the Government has already thrown open the doors to several key industries like electricity, aviation, banking, and oil.

Many State-owned petroleum companies were allowed to sell a certain percentage of their stakes to foreign investors when they were equitised. As a result, foreign firms currently own a 35 per cent stake at PetroVietnam Oil Corporation (PVOil), 49 per cent stake in Binh Son Refinery and Petrochemical (BSR) and a 20 per cent stake in Petrolimex.

Analysts said that if the proposal is approved by the Government, ownership rates in the petroleum retail market would change.

Among those waiting eagerly is JX Nippon Oil & Energy, which wants to expand its ownership of Petrolimex from the current over 8 per cent to 20 per cent, according to Dau Tu (Investment) newspaper.

PVOil also plans to further expand its foreign ownership rate.

The analysts said the 35 per cent foreign ownership cap recommended in the draft proposal is reasonable and will enable domestic firms to attract foreign capital, technology and management skills.

It is also a safe threshold since it may prevent foreign investors from too deeply intervening in domestic firms’ production and trading activities, they said.

Others said however that the Government should consider further opening the door to foreign investors, allowing them to participate not only in retail of petroleum products but also wholesale and imports and export.

Petroleum imports play a decisive role in setting retail prices in Viet Nam because a majority of petroleum products consumed in the domestic market are imported.

Foreign firms would usher in competitive pricing, they pointed out.

Corporate bond market set to be tightened

In November 2019 Hong Hoang Investment and Trading Joint Stock Company successfully issued VND1.4 trillion (US$60.7 million) worth of non-convertible bonds with a five-year term to a foreign organisation.

The coupon rate was a whopping 20 per cent.

This type of bond is secured by assets owned by the issuing organisation and other related parties under a specific agreement with the investor.

But the company has not indicated how it plans to use the money it has mobilised.

Hong Hoang’s is not a rare case since regulations are lax.

According to the Ha Noi Stock Exchange (HNX), last year at least 17 companies issued corporate bonds worth 50 or even 100 times their equity.

Clearly, bonds have become an efficient method for companies to mobilise capital.

HNX data shows that in the first half of this year companies raised VND156.327 trillion by issuing bonds, roughly the same as last year.

The Government has sought to strongly develop the corporate bond market, but does not efficiently regulate it, ending up harming both issuers and investors.

Decree No163/2018/ND-CP has eased conditions for bond issuance: Enterprises are allowed to issue bonds frequently based on the progress of projects even if they do not meet criteria of profit levels set by this decree for a certain number of years before that.

Besides, businesses issuing bonds do not need credit rating or enough assets to secure their bonds.

Finally, the use of the funds mobilised from bond issuances is not monitored closely by authorised agencies.

Such lax regulations have caused the market to overheat, and the participation of many enterprises, including dubious ones, causes potential risks to retail investors who lack access to information about issuers and experience in identifying quality bonds.

Many companies issue bonds without properly estimating their capability and end up being unable to service their debts.

Most of these problems are however expected to be resolved by early September when regulatory amendments that will impose restrictions on bond trading take effect.

The amendments are included in Decree No 81/2020/ND-CP issued by the Government.

For instance, Article 6.8 of the new decree restricts corporate bonds from being traded in the market in the first year after issuance.

Under current Decree No 163, privately-placed corporate bonds were issued to less than 100 investors excluding professional securities investors. However, as trading time was not limited, it created a loophole which allowed companies to issue bonds to less than 100 investors who could sell the bonds freely on the secondary market to more investors.

According to experts, small-sized enterprises have been issuing corporate bonds in large volumes, creating potential risks for both issuing businesses and investors. So, the new regulation is aimed at protecting investors.

Other new conditions will include capping a bond issuance at five times the issuing company’s charter capital and a stipulation that two issuances must be at least six months apart.

This new regulation would help prevent the issuers from issuing bonds of a too large volume or value which will bring risks to both issuers and investors.

Securities analysts welcomed the tightening of regulations, saying it would calm the corporate bond market.

It closes regulatory loopholes, and would require both issuers and investors to be more professional, they pointed out.

It would also encourage institutional investors to participate in the bond market, they said.

But property development companies were not happy. They complained that the new regulations would cause them difficulties since developers always require large amounts of money and capping the issue size at five times charter capital is draconian.

The stipulation that they can only issue bonds two times a year would also cause them difficulties, they said. — VNS