Masan swimming further downstream

Masan Group is working to rise higher in the global tungsten value chain

M&A activities in the past 10 years have been growing more prominent in Vietnam, with the total transaction value of $48.8 billion. In 2017 alone, the value was $10.2 billion, 10 times of what it was in 2009. It has been the norm for multinational companies to acquire Vietnamese businesses due to the acquirers’ sheer size, financial capability, and clear strategy to expand their businesses in Vietnam.

Despite all that, there were a small number of M&A deals involving Vietnamese companies gaining ownership in foreign ones. These rare cases usually make headlines and serve to demonstrate Vietnamese companies’ “coming of age” as they begin to expand beyond the borders and become global players. Some of the most noteworthy deals in the last decade include FPT’s purchase of a 90 per cent stake in an American consulting company, Vinfast’s acquisition of GM Vietnam’s entire local business, and Vinamilk’s purchase of Australia’s Driftwood Dairy.

Likewise, Masan Group is no stranger to the use of M&A to expand its businesses and create the most value for consumers, partners, as well as shareholders. Masan Group’s acquisition of Nui Phao – the world’s largest tungsten mine – in the northern province of Thai Nguyen is a prime example of this strategy.

Nui Phao’s acquisition from foreign funds

In 2010, Masan Group broke the news that it had acquired Nui Phao from Dragon Capital through the purchase of full ownership in the mine. As a result, a Vietnamese company officially retained control of the world’s single largest open-pit mine. Since 2010, Masan has invested heavily into Nui Phao mine with the intent of turning it into Vietnam’s “tungsten capital” and unlocking Nui Phao’s untapped potential. In 2013, Masan Resources (MSR), the parent company of Nui Phao Mining, formed a 51:49 joint venture with H.C.Starck (Germany) known as Nui Phao-H.C.Starck Tungsten Chemicals Manufacturing LLC in order to downstream process tungsten.

Just recently, on August 13, 2018, Nui Phao Mining Company, a subsidiary of MSR, acquired H.C. Starck’s 49 per cent stake in the joint venture for the total cash consideration of $29.1 million. The transaction was fully funded by Masan Resource’s cash and equivalents. The joint venture is now a 100 per cent wholly-owned subsidiary of MSR.

Craig Bradshaw, CEO of MSR, said: “I hope Vietnam can be proud of Masan Resources’ ambition and ability, which we will combine with Vietnam’s potential and international execution capability to become a dominant player in the global industrial sector. We embody the “Vietnam Can Do” spirit, and we are strongly positioned not only to significantly increase shareholder value, but more importantly to enhance social economic value as a global representative of Vietnam.”

To date, the joint venture’s tungsten chemicals (Ammonium Paratungstate – APT, Blue Tungsten Oxide – BTO, and Yellow Tungsten Oxide – YTO) annual capacity is 9,000 tonnes, with expected sales volume in 2018 at about 7,000 tonnes. The tungsten chemicals are value-added products of Tungsten Concentrate (TC) – a product of Nui Phao Mining Company. Out of the aforementioned 7,000 tonnes of sales in 2018, approximately 6,500 tonnes were manufactured from TC produced at Nui Phao Mine. MSR aims to procure more TC from outside sources to satisfy the growing demand for tungsten chemical products. From the acquisition, MSR now owns the largest tungsten downstream processing plant in the world by capacity.

Growing from the world’s largest tungsten chemical (APT, BTO, YTO) producer with 36 per cent market share (excluding China), MSR is now on track to proceed deeper into the global tungsten value chain aided by full ownership of the downstream processing plant and technology.

Strategy to become the world’s leading tungsten chemical manufacturer

MSR is continuing to explore opportunities in an effort to achieve its vision of becoming a fully-integrated downstream industrial chemical and metal business of global scale. The management is currently in discussions with carefully selected downstream partners that are strategic in nature and with upstream suppliers as it looks to further secure its supply chain.

Danny Le, head of Strategy and Development at Masan Group, said, “The acquisition is also consistent with the five-year strategy that we have outlined for MSR to develop an integrated business model to generate strong cash flows and profits through commodity cycles. In addition, this will better position Masan Resources for strategic partnerships in the near future and pursue an international IPO to unlock shareholder value.”

MSR posted revenue of VND3.239 trillion ($143.3 million) in the first half of 2018, a 26.6-per-cent increase over the VND2.559 trillion ($113.2 million) recorded in the first half of 2017 as the tungsten prices upside persisted. MSR delivered an attributable net profit of VND300 billion ($13.27 million) in the first half of this year, up 376.2 per cent on-year. With favourable first half business results and higher tungsten realised prices, MSR is expected to yield an improvement in NPAT Post Minority Interest (MI) margin of 5 per cent in the second half of 2018 against the first half, achieving the expected NPAT Post MI of over VND1 trillion ($44.25 million) for the full year of 2018. This deal in particular as well as foreign acquisition by Vietnamese leading companies in general serve as motivation for Vietnamese businesses to further utilise M&A as a tool to acquire the best technology and practices in order to enhance business and better serve Vietnam and its people.