What is a share swap deal?
The term of “share swap” has been used in the M&A practice in the recent years whereby:
- In a share acquisition deal, the buyer can use its shares as money to pay for purchasing price of the shares in the target company instead of having to pay 100% cash or along with cash payments to the sellers of the target company. As a result, the buyer shall become the owner of the target company and the sellers (i.e. the shareholders) of the target company shall become the shareholders of the buyer.
- In a share subscription deal, the subscribers can use its shares as money to contribute to the investee company instead of having to use cash or other kind of assets. As a result, the subscribers shall become the shareholders of the company issuing shares and this company in return shall become the owner of the company to which the subscribers can use its shares for the share subscription.
Accordingly, a share swap is also commonly called as “share exchange” or “stock-for-stock”.
Practically, apart from the above two traditional forms of share swap, the relevant parties may further convert other forms of share swap based on the above principle. Otherwise, in some cases, “share swap” is simply referred to transactions involving stock movements between the two companies regardless of their specific payment method.
As a matter of practice in Vietnam, the use of shares to swap shares of the other enterprises is popularly applied in public companies which are under the management of the State Securities Committee and is officially recognized in several legal documents promulgated by the Government and the Ministry of Finance of Vietnam, for example: Decree 58/2012/ND-CP of the Government and Circular 162/2015/TT-BTC of the Ministry of Finance providing guidelines on public offering, stock swap, issuance of additional stocks, repurchase of stocks, sale of treasury stocks and tender offer and other relevant legal instruments. However, for non-public companies which are under the management of the Department of Planning and Investment and with involvement of foreign element, we have not found any specific regulation governing this kind of capital exchange.
Key legal steps for implementation of the share swap transaction in Vietnam
- Obtaining a ruling on implementation possibility of the non-cash flow in the proposed shares swap transaction;
- Preparing and signing the transactional documents;
The relevant parties may be required to explain in detail the ownership structure for assessment and decision of the tax authority and/or the SBV.
- Obtaining an Outward Investment Registration Certificate (Outward IRC) for outward investment in overseas of the sellers (i.e. the shareholders) of the target company;
- Obtaining an Approval Letter for the capital acquisition of the foreign buyer in the target company;
- Applying for an Amended Enterprise Registration Certificate of the target company recording the shares swap transaction;
If you have any questions or require any additional information, please contact Apolat Legal – An International Law Firm in Viet Nam.
This article is for general information only and is not a substitute for legal advice.