Structuring Equity-Linked Instruments for Vietnam Transactions

Equity-linked instruments—convertible notes, SAFE agreements, and structured equity with conversion features—have become more common in Vietnam private capital transactions as parties seek to bridge valuation gaps, defer pricing decisions, or align interests over time.

Why Equity-Linked Structures

Equity-linked instruments serve multiple purposes in Vietnam transactions. They allow companies to raise capital without immediate valuation finalization, provide investors with downside protection or upside participation, and create alignment mechanisms tied to performance milestones or future events.

These structures are particularly relevant when current valuation is contested, when future financing rounds are anticipated, or when parties prefer to defer equity conversion until clarity on business performance or market conditions.

Common Structures

Convertible notes remain the most familiar equity-linked structure in Vietnam. Terms typically include interest rate, maturity date, conversion discount, and valuation cap. Documentation is relatively standardized, though terms vary based on company stage and investor profile.

SAFE agreements (Simple Agreement for Future Equity) have gained adoption, particularly in early-stage financings. SAFEs defer valuation and eliminate debt characteristics but require careful structuring to align with Vietnam legal and tax treatment.

Structured preferred equity with conversion features—such as mandatory conversion upon IPO, optional conversion based on performance thresholds, or automatic conversion upon change of control—provides flexibility for later-stage or pre-IPO transactions.

Key Considerations

Legal enforceability and regulatory treatment require careful attention. Convertible instruments must comply with Vietnam corporate law, foreign investment regulations, and tax treatment. Documentation should address conversion mechanics, shareholder rights upon conversion, and dispute resolution.

Economic terms must be clearly articulated: conversion triggers, valuation methodology upon conversion, discount or cap parameters, and treatment of accrued interest or returns. Ambiguity in these terms creates execution risk and potential disputes.

Investor rights and protections warrant consideration even before conversion. Information rights, board observation, and protective provisions should be defined for the pre-conversion period, particularly for longer-dated instruments.

MSquare's Perspective

Equity-linked structures can be effective when thoughtfully deployed. However, they introduce complexity and require precise documentation. Companies and investors should ensure mutual understanding of conversion mechanics, economic outcomes across scenarios, and legal/tax implications before execution.