Investors step up M&A movements

The remainder of 2019 will be key for Vietnam to avail of longer-term investment possibilities, Photo: Le Toan

Warrick Cleine, chairman and CEO of KPMG Vietnam, told VIR that they have seen tremendous ­confidence in Vietnam from large ­investors, especially from the likes of Japan, South Korea, and Singapore. The trend has expanded from the ­acquisition of 100 per cent or control of Vietnamese companies, such as the Sabeco deal from Thailand, to minority or strategic investments in large Vietnamese companies.

These are often institutional investors, and their decisions reflect confidence in Vietnam’s overall macroeconomic and geopolitical state, and the management teams and business models of the specific companies.

“Provided the global economy remains strong and Vietnam ­maintains its reform orientation, there is no reason investors will not continue to have the confidence to invest in Vietnam,” Cleine stressed.

KPMG in particular expects to see an increase in both the volume and value of deals, but there is some risk that the global economy will continue to slow into next year, due in part to the trade war between the US and China. This would have a chilling effect on ­investment, including on high-growth and emerging markets such as ­Vietnam.

Indeed, some foreign companies have bought Vietnamese businesses to diversify operation and avoid trade war risks. For example, Hong Kong-listed furniture maker Man Wah Holdings purchased a sofa manufacturing and export company in Vietnam for $68 million. The company plans to almost triple its capacity to 373,000 square metres by the end of 2019. The move is part of its strategy to mitigate the risks posed by the trade stand-off.

Cleine strongly recommended that investors consider a broad range of factors when making a decision to invest in, or relocate supply chains, to Vietnam.

“They should never look just at labour cost, tax incentives, or tariffs for exports to specific markets. All of these things can change suddenly,” he noted. ”Investors should take a holistic view of the Vietnam story and how their business will benefit from engaging here for the long term. Usually, such investors are better off in the long term, and will be better corporate citizens here.”

A darling for Asian dealers

South Korean investor demands for outbound mergers and acquisitions (M&A) are mainly concentrated in Vietnam. This is due to the fact that Vietnam is rapidly emerging as an alternative for export in the ­region amid the continuing escalation of the US-China trade war.

The trend was stressed at a recent seminar held by the Korea Trade-Investment Promotion Agency (KOTRA) and the Korea Financial Investment Association in Seoul. The seminar aimed to introduce overseas M&A information for South Korean companies. Accordingly, 32 out of the 42 companies subject to sale or equity investment were located in Southeast Asia. Vietnam tops the list with 20 potential target companies, followed by Indonesia, Malaysia, and China.

Deals led by South Korean companies are expected to continue to grow in the future. Most recently, South Korea’s third-largest conglomerate SK Group has agreed to buy a 6.1 per cent stake in Vietnam’s largest private group, Vingroup, for $1 billion. Elsewhere, Samsung SDS has pledged to buy a 25 per cent stake in CMC, one of Vietnam’s leading IT service providers.

Samsung Life Insurance is also in talks with Bao Viet Life to acquire part of the latter’s shares, according to the Korea Times. The South Korean insurer is eyeing the ­investment to enter Vietnam’s fast-emerging market.

Besides, Japanese investors are one of the most active buyers in the Vietnamese market. Mitsui & Co., Ltd. has agreed with Minh Phu Seafood JSC, the world’s biggest shrimp producer, to acquire a 35.1 per cent equity interest of Minh Phu. Meanwhile, Taisho Pharmaceutical Co., Ltd. has spent an additional VND3.4 trillion ($147.8 million) to buy almost 67 per cent of DHG Pharmaceutical JSC.

Data from Vietnam’s Foreign Investment Agency showed that Japanese investors made 585 transactions to contribute capital and purchased the shares of local companies last year. Meanwhile, there were nearly 430 Japanese-invested projects.

Other enthusiastic investors from Singapore are also active in ­Vietnam’s M&A space. The largest initial public offering last year was that of luxury residential property ­developer Vinhomes, in which ­Singapore’s sovereign wealth fund GIC Pte., Ltd. recently acquired a stake. The deal made Singapore the largest investors in Vietnam’s M&A market in the first six months of 2018.

Moving forward

According to the 2019 Asia Pacific Mergers and Acquisitions Review from global law firm Herbert Smith Freehills, the perception amongst foreign investors that acquiring an existing business in Vietnam is a quicker route to market than establishing a project from scratch remains strong. This has been spurred on by the ongoing equitisation of state-owned enterprises, Vietnam’s ever improving legal regime under the Law on Investment the Law on Enterprises, and increased liberalisation, which is helping to draw more crowds by making it easier for funds to structure their investments and to invest in more sectors with greater certainty.

Foreign ownership limitations which historically restricted overseas investment continue to be eliminated either sectorally – as phase-in periods for full foreign ownership contained in the 2007 World Trade Organization accession become effective – or for listed companies that, under new regulations, pass the appropriate shareholder resolutions to own more than 49 per cent.

According to the Herbert Smith Freehills report, the general outlook for the Vietnamese economy is expected to continue to be positive in 2019, with the country set to continue to be seen as one of the more attractive ­investment destinations in Southeast Asia, thanks to high economic growth in the ­country, its large and ­expanding consumer market, and strengthening position as a production hub.

Sectors that are expected to see particular attention including renewables, green power and ­infrastructure, ­retail, hospitality and tourism, and logistics.

The precise consequences of the new Law on Competition, which will take effect on July 1 are still not entirely known, but given its potential broad scope, investors can expect to see competition consideration playing a larger role in inbound M&A, in turn leading to potentially longer time frames between signing and closing transactions as regular sign-off or clarification is sought.

From January to November 20, 2018, there were 582 foreign-related M&A deals valued at $7.6 billion in ­Vietnam, up 44.4 per cent on 2017 and accounting for 24.7 per cent of the total newly-registered foreign ­investment.