CA - Weak foreign investors are to be muscled out of the business ring.

Amid concerns over poor foreign direct investment (FDI) quality, the Ministry of Planning and Investment (MPI) will stipulate foreign players provide evidence of their financial capacity before gaining an investment certificate.

Foreign investors are will be required to submit, inter alias, a range of finance-related documents. They include evidence of financial capacity such as a letter of comfort issued by a bank or credit institution attesting the current status of the investor’s bank account, a financial undertaking for the project or financial statements applicable for corporate investors operating for three years or more.

The requirements are due to a draft decree amending Decree 108/2006/ND-CP guiding the Investment Law’s implementation.

Under the existing Decree 108/2006/ND-CP, foreign investors just have to submit a financial capacity report prepared by themselves.

“It is a critical improvement in the draft decree to concretise the requirements for the investment registration procedure,” said Nguyen Mai Phuong, senior legal counsel at EP Legal Limited.

“The regulations may kick-out investors who do not really want to or are incapable of investing in Vietnam, but would like to take advantage of the investment incentives,” she added.

The MPI will submit the draft decree to the government in November for final approval.

While Vietnam is emerging as one of the most attractive places for investment globally, some local economists are also raising concerns over the quality of foreign-invested projects.

Many foreign investors, who have registered projects in Vietnam, have been delaying construction, forcing local authorities to revoke investment certificates.

“If this [draft] is approved, it will help identify strong foreign investors,” said Le Kim Huong, director of Ba Ria-Vung Tau’s Planning and Investment Department.

She said the changes would not amount to complicated administrative procedures for foreign investors when registering projects in Vietnam.

“This is just aimed at ensuring that all the investors are serious with their investments in Vietnam,” she said.

However, the financial capacity evidence could also be an invisible barrier against real investors who want to invest in Vietnam.

Phuong said some big investors did not like to risk themselves in a new market like Vietnam, where any business failure may result in adverse impacts to their reputations and business at home countries.

“Alternatively, they opt to establish a so called special purpose vehicle to make investments in other countries. This special purpose vehicle is a newly set up company and may not be in position to provide such financial capacity evidence,” said Phuong.

Furthermore, she added, a letter of comfort or a financial undertaking issued by a credit institution is only available and appropriate for corporate investors of big deals.

“As a result, it may be considered a discrimination against investors,” said Phuong.