Options open up in logistics sector

International logistics firms are looking to M&A deals in Vietnam, Photo: Le Toan

On July 8, Hong Kong-based Symphony International Holdings Ltd. acquired a significant stake in the Vietnamese-based Indo Trans Logistics Corporation (ITL) through a wholly-owned subsidiary. The transaction consideration is approximately $42.6 million.

“The opportunity to acquire this interest in Vietnam’s leading integrated logistics company is a good example of our practice of sourcing proprietary opportunities through our own network of business and personal contacts built over 35 years of private equity practice in the region,” said Anil Thadani, director of Symphony International.

“ITL’s strategic mandate fits well with our strategy to invest in and support businesses that complement and benefit from the rising affluent and middle-class in Asia,” Thadani added. “We have looked at ­several opportunities in Vietnam over the years, and ITL has all the attributes of the kinds of businesses we like to invest in – a proprietary deal, a proven management team, and a business that is well positioned to directly benefit from the growth in the region.”

ITL, founded in 2000 as a freight-forwarding company, has since grown to become one of Vietnam’s “national champions” and is the largest independent integrated logistics company with a network spread throughout Vietnam, ­Cambodia, Laos, Myanmar, and Thailand with more than 2,000 employees across its business units and joint ventures.

Also last week Japan’s Sumitomo Corporation, together with the Japan Overseas Infrastructure Investment Corporation for Transport & Urban Development (JOIN) and Suzuyo & Co., Ltd., has acquired 10 per cent stake in Gemadept Corporation, Vietnam’s leading company in port operation and logistics, in order to participate in the port terminal management business in Vietnam.

According to Sumitomo, Vietnam has seen logistics demand grow as production sites have been relocated to that country as part of “China plus one” corporate strategies, propelled by the tailwind of rapid economic growth and a consequent expansion of consumer markets and by the impact of US-China trade frictions.

Container cargo handling volume in 2017 exceeded 12 million twenty-foot equivalent units (TEU) cargo capacity and, with growth expected to outpace the GDP growth rate of 6.5 per cent as per International Monetary Fund forecasts, handling volume should reach about 23 million TEU capacity by 2025. Logistics infrastructure is expected to expand further as part of industrial infrastructure.

Gemadept owns and operates a total of seven ports from north to south, including the ports of Nam Hai, Nam Hai Dinh Vu, Nam Dinh Vu, and the Gemalink deep-sea project. The company handled 1.7 million TEU in container cargo in 2018, giving it a 12 per cent share nationwide and making it the second-largest container terminal operator in Vietnam. Gemadept is also engaged in a broad range of logistics-related businesses, including distribution centres, transportation, project cargo transport, airport cargo terminal operation, and shipping.

In making the investment, Sumitomo concluded a business tie-up and nominated a board member who was elected at Gemadept’s 2019 annual general meeting (AGM) with the aim of strengthening relations and collaboration opportunities. Sumitomo will also be seeking to establish wide-area smart logistics that will enable it to optimise logistics costs and time, reduce environmental impacts, and improve cargo security with technology solutions based on the Internet of Things.

By teaming up with JOIN and Suzuyo for this investment, Sumitomo is looking to achieve greater logistics efficiency that will improve the convenience and competitiveness of companies and communities in Vietnam, including tenant companies in industrial parks, and thereby contribute to the economic growth of Vietnam and neighbouring countries.

Le Duy Hiep, chairman of the Vietnam Logistics Business Association, said that foreign logistics companies, especially those from Japan and South Korea, have had a presence in Vietnam for the past decade. In recent years, newcomers are flocking to the market to capitalise on a rising demand for logistics and increases in import and export activities.

“In addition, overseas logistics firms are fastening up operations in the delivery sector to serve the fast-growing e-commerce market in the ASEAN, including Vietnam. In particular, they have become more active in mergers and acquisitions (M&A) by taking over stakes in local logistic service providers,” Hiep said.

According to 2018’s Vietnam Logistics Report by the Ministry of Industry and Trade, M&A activities have maintained a growing momentum since 2017 when more foreign companies sought entrance into the Vietnamese market. One of the major deals in 2017 was CJ Logistics’ purchase of a large stake in Gemadept. The South Korean logistics provider acquired 49 per cent of Gemadept Shipping and 51 per cent of Gemadept Logistics Holdings.

Speaking at Gemadept’s 2019 AGM, deputy general director Nguyen Thanh Binh said that investors will increasingly inject capital in logistics assets apart from human resources and technology. The M&A strategy helps stakeholders to improve competitiveness in the market and that Gemadept is looking for M&A opportunities with other companies in the transport and distribution fields to complete its ecosystem.

He further noted that in light of the strategy, Gemadept posted an annual growth of 20-30 per cent for its logistics businesses, higher than its average growth of 15 per cent annually.

According to Hamza Harti, managing director of FM Logistic Vietnam, the industry is gaining maturity on a yearly basis, with many international investors deciding to enter the market. Harti attributed the interest to strong and sustained GDP growth, a young population with increasing purchasing power, a growing modern retail market, and an expansion in export-import turnover.

According to the General Statistics Office, Vietnam’s trade turnover in the January-June period hit $245.48 billion, an all-time high for the six-month period.

Also, the country’s Decree No.163/2017/ND-CP enacted in December 2017 concerning the removal of restrictions on the commercial presence of foreign investors in the logistics sector is forecast to give a push to the local market.

“In light of the incredible growth of the industry, the demand for logistics services will ¬surge, leading to ¬immense opportunities for business development,” said Vaibhav Saxena, lawyer at the Vietnam International Law Firm.

“With the removal of restrictions on the form of commercial presence of foreign investors, Decree 163 will considerably enhance the flow of FDI into Vietnam’s logistics, and encourage the sustainable development of this sector in all modes of transportation,” he said.

Vietnam ranked above Thailand to join the top 10 markets in the UK’s Transport Intelligence’s 2019 Agility Emerging Markets Logistics Index, which evaluates the overall competitiveness of 50 emerging markets based on logistics strength.

According to Agility, Vietnam’s international logistics market was the standout driver of its overall performance in the 2019 index. It rates as the fifth-largest market for intensive goods trade by value, and advantage expected to strengthen further as growth in both imports and exports is hoped over the next five years.