* Foreigners able to own up to 60 percent of listed company

* Cap of 49 percent set for shares for unlisted companies

* Investors say restrictions should be further loosened

By Nguyen Phuong Linh

HANOI, Dec 31 (Reuters) – Vietnam’s prime minister is
expected within days to approve an amended law allowing
foreigners to own up to 60 percent of shares in some listed
firms, the latest incremental move towards easing tight state
controls on the economy.

The draft, seen by Reuters, would increase the foreign
ownership limit and voting rights from 49 percent to 60 percent,
but only in certain sectors and companies, and after approval of
shareholders and Prime Minister Nguyen Tan Dung himself.

The proposal also increases the foreign voting rights
percentage in unlisted companies to 49 percent, to match the
current 49 percent foreign shareholding limit.

Investors have welcomed the idea as a positive step towards
bringing more capital into Vietnam’s two bourses, but say the
law needs to be loosened further if the country is serious about
attracting investment and boosting the performance of its
companies.

The main stock exchange in Ho Chi Minh City has
climbed 21 percent this year, the best performer in Southeast
Asia and No.4 in Asia, according to Thomson Reuters data.

It is still down 57 percent from its peak in March 2007 and
only a minor player in the region with a market capitalisation
of $40 billion, an eighth the size of Thailand and a tenth of
Singapore.

Vietnam’s Communist government has promised reforms as part
of a “master plan” aimed at reviving an economy once seen as
Asia’s next emerging-market star, but one hit badly by high
levels of toxic debt, scant retail spending and a startling
number of bankruptcies of small and medium-sized private
companies.

Although Vietnam probably achieved economic growth of 5.42
percent in 2013, according to government data, the figure is
seen as far beneath its potential.

An official at the State Securities Commission, who
requested anonymity, said the proposal was sent by the Finance
Ministry to Dung last week and was expected to be approved soon.

The document was short on specifics, but said the increased
foreign shareholding would not apply to sectors “in which the
state needs to control foreign capital”. It did not elaborate,
or name the restricted sectors.

STATE DOMINANCE

Although the proposal is viewed as a positive move,
investors and economists say much more needs to be done because
reforms to date and those in the pipeline represent no real
shift away from heavy state controls they say have stifled
growth.

The state’s dominance of the economy has been a sticking
point in Vietnam. State-owned enterprises (SOEs) modeled on
South Korea’s world-beating “chaebols” have been accused of
abusing their preferred status to engage in graft and reckless
borrowing that has been a drain on the public purse and has
badly hurt banks, which have tightened credit lines.

What has troubled would-be investors is a new amended
constitution that takes effect on Jan. 1, reaffirming that the
state sector must “play the leading role” in the economy.

Tran Tai, a portfolio manager at the Japanese fund
Asiavantage Global, said the stocks would likely gain at first
under the new proposal, but it would take time to see any real
impact.

“It’s a positive sign from the government, but not as good
as investors expected,” Tai said.

The average foreign shareholding in companies listed on the
Ho Chi Minh Stock exchange this year was 24 percent, the
bourse’s chairman, Tran Dac Sinh, said recently, suggesting
there was plenty of scope for foreigners to buy.

That, however, depends on how attractive the companies are.

Dominic Scriven, CEO of asset management and securities firm
Dragon Capital, said a big problem Vietnam had was that many of
the top companies had run out of room for more foreign
ownership, with 12 of the top 30 already at their limit.

Local funds, he said, were managing about $1 billion in
total, a tiny sum compared with markets like Thailand, so laws
should be liberalised further to bring in more capital.

“It is essential that these restrictions on foreign
investors are quickly removed,” Scriven said.

(Editing by Martin Petty and Matt Driskill)