Reforms help M&A landscape to shine

August 10, 2017 | 10:00

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With a burst of activity during the first eight months of 2017 in the property market, Vietnam real estate has recently become a preferred destination in the mega trend for mergers and acquisitions.

Since the consolidation of governing Vietnamese laws to streamline capital flow from foreign countries while ensuring local business protection, the approaching merger-and-acquisition (M&A) landscape appears more flexible for both sides.

Looking ahead, what can we expect from the ample projections for M&A deals in the investment market?

In the first half of 2017, Vietnam continued to attract significant foreign direct investment (FDI). FDI disbursement reached $7.72 billion, a rise of 6.5 per cent year-on-year, while registered FDI hit $19.22 billion, up 54.8 per cent.

Much of the FDI increase, as usual, went to industrial development in the manufacturing sector.

In May, Thailand’s Hemaraj Land & Development’s joint venture with local infrastructure firm Cienco 4 gained approval for a $1 billion, 32,200 hectare industrial park in Nghe An province in central Vietnam.

FDI has also been directed to other sectors of the property market contributing to growth and value. Prime office and hospitality segments are showing high occupancy, increased office rents and healthy room rates. While these sectors are gaining more traction among developers, investor focus is still on operating assets – except for prime location development opportunities in Ho Chi Minh City and Hanoi.

With limited available stock we are seeing significant yield compression with recent transactions achieving record pricing levels.

Japanese investors continue to be active in the market. Nishi Nippon Railroad and Hankyu Realty have partnered with local firm Nam Long with a total investment of $351 million in developing Mizuki Park, a 26ha residential project in Binh Chanh district of Ho Chi Minh City.

Aeon Mall, the renowned Japanese retail group, has entered into a joint venture with BIM Group to develop their second Hanoi mall on a 16.7ha site, with a total estimated investment of $200 million.

Local developer SonKim Land has also successfully completed their $100 million funding round with Japanese investors.

Savills also played a part in the maturing Ho Chi Minh City property market with a strata title office sale in District 1 in early 2017. The transaction set a market precedent by securing separate strata titles for office space and the hotel within a single property.

This fresh approach demonstrates Savills Vietnam’s ability to not just broker the most significant deals in Vietnam, but to advise on deal structuring for the most sophisticated real estate projects.

In addition to the office sector, the Savills team is currently focused on hospitality, as well as residential development and urban car parking projects.

Last year, the improving hospitality market resulted in a number of successful transactions, for example, the sale of a premium four-star hotel located in the heart of District 1.

Savills was appointed as the exclusive agent for the vendor and delivered a transaction value significantly higher than expectations.

The second quarter of 2017 should continue to see strong interest in residential development projects. China Fortune Land Development Group has acquired a stake for $65.3 million in the VinaCapital Dai Phuoc Lotus project.

This is a residential township project on a 198.5ha site in southern Dong Nai province next to Ho Chi Minh City. VinaCapital also transferred their 65 per cent stake in the Hanoi-based Times Square mixed-use project to Elite Capital Resources Limited for approximately $41 million.

Opportunities and pitfalls

M&As in Vietnam are also being nurtured by a number of international trade agreements.

The Trans-Pacific Partnership – now without US involvement – is a giant free trade area (FTA) deal expected to eliminate tariffs on goods and services, remove many non-tariff barriers, and harmonise a host of regulations.

As Vietnam joins such an FTA, it will see significant investment capital flow into supporting industries, value-added services, retail, industrial, and hospitality sectors.

These sectors will boost Vietnam’s competitive advantages and pave the way for an acceleration of M&A activities. The deep involvement of Vietnam in the ASEAN Economic Community (AEC), the recovery of the real estate market, and the new generation of FTAs are all key factors driving M&A activities.

However, many M&A negotiations are very time consuming and the closing process is often difficult.

It is important that investors seek professional advisors with experience navigating the legal environment and deal structures appropriate for the Vietnam market.

With such advice, investors can approach the market with confidence and maximise their participation in the booming Vietnam M&A market.

By Neil MacGregor Managing director, Savills Vietnam