Investing into Vietnam's next chapter of growth: opportunity, structure and risk

Vietnam's investment story is entering a new phase. As foreign investment continues to grow, attention is shifting towards how investors can structure and finance their investments effectively, navigate a changing regulatory environment and manage risk. 

These issues were explored at a recent roundtable hosted by Withers KhattarWong in Singapore with leading Vietnamese law firm Vietnam International Law Firm (VILAF), bringing together investors, financial institutions and advisers to discuss Vietnam’s next chapter of growth.

As Daniel Yong, Joint Managing Partner and Head of the Investment Funds and Corporate teams at Withers KhattarWong, observed, "Vietnam has evolved beyond being viewed simply as part of a 'China plus one' strategy. It is increasingly an investment destination in its own right."

A changing investment environment

Vietnam's appeal rests on strong growth prospects alongside significant regulatory and administrative reform.

Ngan Nguyen, Partner at VILAF, highlighted reforms at central and provincial levels, including streamlined administrative structures and the increasing digitalization of government processes. Vietnamese businesses themselves are also becoming increasingly sophisticated counterparties.

"When foreign investors enter into transactions with Vietnamese counterparties today, they can expect a much greater level of sophistication and understanding of international business practices than they might have encountered 10 or 15 years ago," Ngan said.

However, investors still need to navigate multiple stakeholders and understand how local commercial and regulatory dynamics work in practice. Local partners and advisers can therefore play an important role in bridging the gap between foreign investors and domestic counterparties.

Financing Vietnam's energy and infrastructure ambitions

Energy and infrastructure emerged as significant areas of opportunity, but ambitious development plans also raise questions around financing and bankability.

Vaibhav Saxena, Senior Foreign Counsel at VILAF, identified project finance as a key challenge. International investors and lenders may approach projects with expectations shaped by non-recourse project finance standards, while Vietnam's domestic financing market has historically operated differently.

"The challenge is not a lack of projects or investment opportunities. Vietnam has significant capacity and billions of dollars of investment contemplated in its development plans. The real question is how those projects can be realized, and that requires mobilizing sufficient capital," Vaibhav said.

Domestic and international lenders can play complementary roles, with local banks bringing domestic market capabilities and international lenders providing additional capital and project finance expertise.

Ean MacPherson, Partner and Head of Projects and Energy at Withers, also highlighted the important role that government and institutional relationships can play, particularly for Japanese investors, drawing on his experience of government-to-government engagement and institutions such as export credit agencies and development banks.

New energy technologies will present their own questions. "Battery storage has become a major area of activity in the Japanese energy market. For a market such as Vietnam, the important questions include how a viable revenue model can be established and what government support mechanisms may be available to help the sector develop," Ean said.

Getting the structure and governance right

"There is no one-size-fits-all structure," Ngan said. "The appropriate approach depends on whether the investor is financial or strategic, the level of involvement it wants in the Vietnamese business and how it ultimately intends to exit."

Singapore continues to feature prominently in investment structures, including through Singapore holding companies investing directly or indirectly into Vietnamese operating businesses.

However, Daniel cautioned that having strong protections at holding-company level does not necessarily provide sufficient oversight of the underlying business; protections put in place at the Singapore holding level need to be carefully calibrated with appropriate governance and oversight at the level of the operating  Vietnamese entities to ensure alignment with founders' management, he said: "The lesson is that legal protections need to work throughout the structure, not simply at the top."

For minority investors in particular, reserved matters, board representation and information rights can consequently be critical.

Tax planning increasingly means substance

The international tax environment has also changed significantly.

Hon Yong Sheng, Private Client and Tax Partner at Withers KhattarWong, said investors using Singapore as an investment platform increasingly need to focus on substance.

"From a Singapore perspective, it increasingly boils down to one word: substance. Simply incorporating a holding company in Singapore is no longer enough. There needs to be genuine substance supporting the structure," Yong Sheng said.

Depending on the circumstances, investors may need to consider where strategic decisions are made, where directors and employees are located and where board meetings take place.

"The objective today is not necessarily to achieve a zero-tax result, but a tax-efficient outcome that can be properly supported," he added.

Protecting the investment from the outset

Good structuring also means considering what happens if the relationship does not develop as intended.

Pardeep Khosa, Partner and Head of Litigation at Withers KhattarWong, noted that investors cannot eliminate every potential source of disagreement, particularly where regulatory conditions or the commercial objectives of counterparties change. What they can do is reduce avoidable contractual uncertainty.

"Disputes can arise for many reasons, including regulatory changes or shifts in the interests and objectives of the parties. What investors can do from the outset is reduce the potential for contractual misunderstanding by making their rights, obligations and remedies as clear as possible," Pardeep said.

This extends to the choice of governing law and dispute resolution forum.

Ngan noted that while foreign investors have traditionally favoured Singapore arbitration, stronger Vietnamese counterparties are increasingly willing to negotiate for Vietnam International Arbitration Centre (VIAC) arbitration. Singapore International Arbitration Centre (SIAC) and VIAC can therefore both feature in negotiations, depending on the transaction, governing law and parties involved.

Vaibhav added that investors should consider enforcement from the beginning, "The key question is what the parties are trying to achieve through their choice of governing law and dispute resolution forum. Investors need to consider where an award may ultimately have to be enforced and take that into account from the outset."

Start with the exit in mind

The clearest takeaway was that investors should consider their exit when making the investment. "Investors should plan their exit carefully from the outset," Ngan said. "Too often, exit is left until the end, when the parties may no longer agree. The mechanics should be clearly established from the beginning."

Vietnam's continuing development presents significant opportunities for businesses, funds, family offices and other investors. Capturing opportunities successfully will require more than identifying the right opportunity. Investors also need the right financing, structure, governance, tax position and protections around it from day one.

For advice on navigating the legal, tax and risk considerations associated with investing into Vietnam, please contact our team.