CORPORATE GOVERNANCE IN VIETNAM

Hannes Valtonen, VinaCapital

Introduction

Set up GRC function in Vietnam at largest foreign fund manager

Prior experience Asia 9 years (Japan, Korea, China, Vietnam) Europe 4 years

Sectors: fund management, automotive, retail

Internal audit, compliance, operations, risk management

Agenda

Background on Vietnam Regulations for foreign investors Securities markets / IPOs Corporate governance in Vietnam Risk management and challenges Reputation and branding strategy

Agenda

Background on Vietnam Corporate governance in VN Regulations for foreign investors Securities markets / IPOs Risk management and challenges Branding strategy

Background - Key facts

Population 87 million Population growth 1.1%

growth Under 25 years about 50% GDP per capita (2008) $1,040 Real GDP growth (1999-2008) 7.5% Agricultural output (2008) 21%

GDP Employed in agriculture (2007) 57%

Private sector employed (2006) 72%

Background - Context

Doi Moi reforms 1986 US embargo lifted 1994 ASEAN membership 1995 HCMC stock exchange 2000 Foreign investment/enterprise laws

2000 US bilateral trade agreement 2001

Background - Context

IPO take-off 2006-2008 Investment/Enterprise law 2006 WTO membership 2007 Global economic crisis 2008

Foreign investment FDI

Investment Law 2006 allowed foreign investment in any sector except if restricted

Local and foreign companies same standing

Conditional/prohibited FDI sectors Opening in stages with WTO commitments FX regulations, but right to repatriate

investment and profits

Foreign investment (portfolio) No restrictions on selling and buying

Vietnam stocks (except FX) FX regulated , but right to repatriate

investment and profits

Securities markets

2005 2006 2007 2008 2009 July

Stocks 40 183 249 338 367

Market cap mil$

590 13,780 31,560 13,010 24,100

Daily turnover mil$

0.8 10 71 42 74

Performance 20% 147% 26% -66% 32%

Foreign volume 15% 23% 27% 22% 13%

World Bank

Capacity of securities regulator Framework/standards for informal

markets Code of CG for listed firms Enforcement of regulatory compliance Training directors in CG Better quality, timely, access to

information

Doing Business 2010

Ease of… 2010 Rank out of 183 economies

Starting a business 116

Construction permits 69

Employing workers 103

Registering property 40

Getting credit 30

Protecting investors 172

Paying taxes 147

Trading across borders 74

Enforcing contracts 32

Closing a business 127

Doing business (overall score) 93

Why is governance important?

Underpins market confidence, financial markets integrity and economic efficiency

Basis for transition from planned to market-based economy

Crucial for attracting foreign investment Lessons from Global Financial Crisis for

Vietnam in developing standards and institutions

Perspectives

Economy in transition Knowledge, skills developing Institutions under development Ambitious plans, implementation difficult Laws drafted, practice Different perspectives by business

sector/approach

Challenges

Transparency and disclosure Legal environment and contracts Land ownership / use rights Board governance

Transparency/disclosure

Lack of experienced auditors Annual reports limited disclosure (notes) Inconsistent application of accounting

and valuation policies

=>Extensive due diligence, investigation

Legal environment

Developing legal environment Inconsistent implementation of law at

different levels Transparency/corruption Lack of precedent/enforcement

Þ Carefully align interests of partiesÞ Milestones, payments in stages

Land ownership / use rights

Complicated and opaque regulations and approval processes

Development often involves resettlement and negotiations

=>local partner almost always necessary

Board Governance

Lack of experienced independent directors

Oversight lacks independent audit committee (supervisory committee)

Policies on related party transactions

Þ Board representationÞ Minority protections, veto rights

Summary

Transitional developing economy Asian society, values, networks Don’t assume, get good advice Know your partners, align interests Strong international influences and

changes taking place