Government steps boost M&A deals

Deputy Prime Minister Vuong Dinh Hue

Setting the scene

At last week’s Vietnam M&A Forum 2018 in Ho Chi Minh City, Deputy Prime Minister Vuong Dinh Hue confirmed that the Vietnamese government is working diligently to provide a healthy, transparent, and conducive investment environment, the goal of which is to stimulate the development of the Vietnamese mergers and acquisitions (M&A) market both in quantity and quality, growing in line with economic development orientations.

“M&A is becoming an attractive channel of investment as well as an important part of Vietnam’s economic restructuring, boosting the efficiency and competitiveness of the economy and businesses in the country,” said DPM Hue in his opening speech at the forum, which gathered more than 500 senior leaders from government agencies, organisations, leading businesses, and investment funds from both Vietnam and overseas.

The deputy prime minister added that government agencies will look forward to comments and suggestions, from investors and businesses alike, about what the Vietnamese government can do to support M&A activities.

After setting a record of $6 billion in 2016, the total M&A value in Vietnam hit $10.2 billion last year, including the $4.8 billion state capital divestment deal at leading Vietnamese brewer Sabeco.

The deputy prime minister emphasised that the government’s top priority is strengthening macro-economic stability, controlling inflation, as well as keeping the interest rate and exchange rate stable.

“As Vietnam’s economy is increasingly integrating into the world economy, any changes in its global standing might have direct impacts on the local economy, especially amid current complex proceedings on the global scale,” he said.

The Vietnamese government is also consistent in its efforts to enhance national competitiveness; cut down unnecessary business conditions and checking procedures, with the target of slashing 50 per cent this year; and address bottlenecks in five markets: financial and monetary, products and services, real estate, science-technology, and labour.

To facilitate the equitisation process of state-owned enterprises (SOEs) and state divestments, a special committee for state capital management at enterprises has been established and the relevant regulatory framework will soon be enacted to unify management responsibilities.

Investors are encouraged to join in the upcoming equitisation process of major state corporations, including Vinacomin, VNPT, VinaPhone, MobiFone, VTV Cab, Thang Long Tobacco Company, Saigon Tobacco Company, Vinafood 1 and 2, Vinacafe, Vietnam Rubber Group, and Vietnam Chemical Group.

“As for state capital divestments, 398 SOEs will offer to sell stakes to investors between now and 2020, offering a rich investment portfolio to investors,” said DPM Hue.

Last year, the number of equitised businesses as well as equitised state capital jumped 6.4-fold compared to the previous year. The cumulative proceeds from equitisation during 2016-2017 reached VND198 trillion ($8.76 billion), 2.5 times the number of 2011-2015, showing the true value of the equitisation process.

Sectors of focus

The deputy prime minister then mapped out core fields for restructuring, all of which are to welcome M&A capital from investors from Vietnam and abroad. These are finance and banking, SOEs, public investment, public debts, and streamlining non-manufacturing units.

In the finance and banking sector, the Vietnamese government is set to accelerate the pace of credit institutions restructuring. Towards this goal, the government is encouraging M&As among small commercial banks and credit institutions to form bigger ones and bolster management efficiency.

As a positive development, DPM Hue highlighted that Vietnam is making progress with tackling non-performing loans (NPLs). The rate of NPLs has gone down quickly, from 10.8 per cent in early 2016 to 6.9 per cent early this June.

“We’ll continue state capital divestments at state-owned commercial banks. One of Vietnam’s largest commercial banks–Agribank–is set to hold its initial public offering in 2019. Other banks such as BIDV and Vietcombank are working on plans to sell further stakes to domestic and foreign investors,” he noted.

In the future, the Vietnamese government will not grant additional licences for establishing wholly foreign-owned banks in Vietnam. Instead, foreign banks will be encouraged to buy underperforming local banks and later set up wholly foreign-owned banks in Vietnam, a move that is grabbing a lot of attention from investors.

Foreign investors may also join in the stake sales or transfers of financial entities, including people’s credit institutions. The State Bank of Vietnam has been tasked with developing a concrete strategy on restructuring these organisations and putting them on sale.

As for securities companies, further restructuring is important to reduce the number of brokerages, while boosting their capacity and scale to better serve the growing Vietnamese stock market.

The Vietnamese government is also welcoming investments into fields that have yet to attract much attention. Restructuring proposals have been approved for hundreds of non-manufacturing yet financially independent state-owned units. Equitising non-manufacturing units, except for schools and hospitals, is also important, thus the government is welcoming the participation of both domestic and foreign investors in their shake-up plans.