Hai Phat’s ups and downs in real estate M&A

Hai Phat is a well-known name in real estate M&A circles

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In such a context, Hai Phat Group is one of the most active companies in terms of M&A in the real estate market.

M&A successes and failures

Hai Phat entered the market at the end of 2003 with the total chartered capital of only VND8 billion ($352,000). Four years later, this figure has increased to VND15 billion ($660,000). In 2008, Hai Phat surprisingly increased its chartered capital to VND300 billion ($13.2 million), and at the same time, it announced plenty of huge real estate projects, including the commercial, services, and apartment complex The Pride in An Hung New Urban Area in Hadong district.

At the end of 2010 and the beginning of 2011, when the real estate market was in its most active period, Hai Phat increased its capital to VND750 billion ($33 million) and launched numerous projects with an acreage of hundreds of hectares, such as Tan Tay Do Urban Area, Phu Lam residential area, and Southwest An Khanh New Urban Area. During this period, information about these projects was scarce, but experienced brokers in the real estate market knew that Hai Phat was behind the purchases.

However, due to its huge real estate investments, the recession of the real estate market in the period of 2012-2013 spelled bad news for Hai Phat. Many of its projects were left abandoned, including HH-B condominium of the Tan Tay Do project, and CT3 condominium of The Pride, both of which were delayed for a long time, leading to disillusioned and belligerent clients.

To stay afloat, Hai Phat had to sell its Dai Thanh project to Muong Thanh Group, a large part of CT2A condominium of the Tan Tay Do project, and the “golden” land plot at 36 Pham Hung Street to FLC Group. Thanks to these deals, Hai Phat to stay out of the red and survived the recession.

Afterwards, the VND30 trillion ($1.32 billion) bailout by the government helped “rescue” its Tan Tay Do project for the middle income segment. At the trough of recession, thanks to the VND530 billion ($23.32 million) loan package from MBBank, Hai Phat’s two projects Tan Tay Do and The Pride were completed and handed over to homebuyers.

Hai Phat during real estate market recovery

When the real estate market recovered at the end of 2014, Hai Phat has rapidly grown to dominate the middle income apartment segment. It successfully constructed CT3 building in The Pride and handed it over to homebuyers before deadline.

At the end of October 2015, Hai Phat acquired the HPC Landmark 105 project, purchased 35 per cent of the exploitation rights in the Phu Luong project in Hadong for VND700 billion ($30.8 million), successfully got the 7,000-square-metre land plot in Van Phuc (Hadong) for its shophouse project, started construction of Hai Phat Plaza, and invested in a wide range of projects, such as Dong Quang Eco Urban Area, Southwest An Khanh Urban Area, A7 Trung Yen, and especially, the famous Usilk City.

At the same time, Hai Phat spent over VND200 billion ($8.8 million) to purchase over ten million shares of Civil Engineering Construction Corporation No.5 (Cienco 5) through open auction. This amount accounted for 23 per cent of Cienco 5’s shares. The transaction was thought to be a necessary step for Hai Phat to succeed with Thanh Ha-Cienco 5 Urban Area in Hadong.

At the end of 2015 Hai Phat partially bought the exploitation rights in the Phu Luong project

However, after Hai Phat’s announcement of purchasing the Cienco 5 stake, Muong Thanh Group announced acquiring a 95 per cent stake in Cienco5 Land Development Corporation (Cienco 5 Land), the company directly responsible for the implementation of the Thanh Ha-Cienco 5 project. Thus Hai Phat and other Cienco 5 shareholders could not seize control of the Thanh Ha project.

Not satisfied with this result, the group of new Cienco 5 shareholders, including Hai Phat, took several actions to respond.

In 2007, Cienco 5 Land was a Cienco 5 subsidiary, established for the implementation of the Thanh Ha project, with a total chartered capital of VND50 billion ($2.2 million). Of the total, Cienco 5 held a 49 per cent stake.

In 2009, Cienco 5 Land raised its chartered capital, while Cienco 5 sold down its holding to 5 per cent. Hai Phat and other Cienco 5 shareholders submitted documents to the related agencies, claiming that Cienco 5 Land’s capital raising was illegal. This was aimed to recover the rights of Cienco 5 in Cienco 5 Land and, as a result, the Thanh Ha project.

However, the plan was unsuccessful, so Hai Phat and other shareholders of Cienco 5 officially gave up on the Thanh Ha-Cienco 5 project to their competitor, Muong Thanh Group.

Hai Phat Plaza, a Hai Phat project in South Tu Lien district, Hanoi, was on the State Audit Office’s list of investigation on land use and administration. Not only losing the Thanh Ha-Cienco 5 project, Hai Phat and the new Cienco 5 shareholders were found violating the Law on Enterprises and Resolution No. 59/2011/ND-CP on transformation of enterprises with 100 per cent state capital into joint stock companies. The Ministry of Transport (MoT) ordered Cienco 5 to retrieve to its status before March 11, 2016, the date of the chartered capital adjustments, as well as the transferring of the stake and restructuring its board of directors.

The most recent project of Hai Phat is Usilk City. At the end of March 2017, the Hanoi People’s Committee issued Decision No. 1983/QD-UBND, allowing Song Da-Thang Long Joint Stock Company to transfer CT2-105 Building in Usilk City’s CT2 land plot to Hai Phat. However, in this transaction, Hai Phat allegedly violated some regulations by signing the transfer agreement before securing the Hanoi People’s Committee’s approval.

According to experienced brokers, the acquisition by Hai Phat will bring about a chance for revival to Usilk City. Nevertheless, Hai Phat will be confronted with a lot of problems to complete the project. Renaming the project as HPC Landmark is only the first step to restart it, which is no guarantee for success, as there are just too many problems involving the rights of homebuyers who bought apartments before the project was transferred to Hai Phat.

In addition, Hai Phat will have to alter the design and function of the project, so that it will become more appropriate to market trends. This is not easy for a sizeable project like Usilk City.