Overseas packaging groups expand towards Vietnam

With its enticing business and investment conditions, Vietnam’s packaging sector has seen an array of M&A deals in recent years, Photo: Duc Thanh

Thailand’s Siam Cement Group PLC (SCG) last month made a big splash in the market by entering into a 70-per-cent share purchase agreement with Duy Tan Plastics JSC. The former’s subsidiary SCG Packaging (SCGP) is to work with its Vietnamese partners under a 10-billion-baht ($332 million) investment to expand its packaging solution business in Vietnam, where demand for such products is growing.

The investment is part of a 20-billion-baht ($664 million) budget for business expansion and merger and acquisition (M&A) plans. SCGP chief executive Wichan Jitpukdee told The Bangkok Post that the company has been expanding its operations in Vietnam and generated a revenue growth of more than 10 per cent annually.

Last year, SCGP announced the closing of its consolidation with Sovi Packaging JSC in the southern province of Dong Nai’s Bien Hoa city, a company specialising in corrugated boxes and offset laminated packaging. In 2015, SCGP expanded its flexible packaging business by acquiring an 80 per cent stake in Tin Thanh Packing JSC, one of the top five manufacturers of such wares in Vietnam.

SCGP also invested in its packaging paper production base at Vina Kraft Paper Co., Ltd. to meet the rapid demand in the country. The enterprise has holdings in a clutch of other domestic producers including Alcamax Packaging, Packamex Packaging, AP Packaging, and New Asia Industries.

Besides this, global investors like SCGP are also shifting their focus to the market, thus driving their sustainability agenda forward. The company has been implementing its environmental social governance strategy in the past few years, thereby focusing on corporate social responsibility towards the environment and society.

SCGP is also a pioneer in green manufacturing, with various innovations ranging from paper to flexible packaging. With the latest expansion in Vietnam, SCGP is looking forward to partnering with local players to grow its market share in Vietnam sustainably.

“Through all our recent expansion projects, we are expecting to increase sales to an additional 8.5 billion baht ($282.38 million) per year,” Wichan said.

Ong Tiong Hooi, transaction services partner of PwC Vietnam cited the Bank of Thailand’s 2019 data that shows that about 30 per cent of Thai investments in the manufacturing sector have been within the ASEAN region, including Vietnam.

“This is mainly due to active expansion strategies from corporate investors with surplus cash that needs to be deployed,” said Hooi, “as these look into areas and sectors that complement both their growth plans and overall value chain.”

“As Vietnam takes the position of a favoured manufacturing hub, I am not surprised that selected corporate clients have been snapping up packaging companies over the past few years to cater to their manufacturing capabilities as well as provide ancillary services to other companies within Vietnam,” he added.

Flurry of activity

Samuel Son-Tung Vu, partner at law firm Bae, Kim & Lee LLC, noted that SCG’s acquisition of packaging companies could be a restructuring and consolidation of market players, and may be aimed at meeting the growing demand of major consumer product and retail players such as Metro, Big C, Masan Consumer, and SABECO.

Furthermore, SCG’s acquisition could also result from the goal to consume materials provided by its upstream project, the Long Son petrochemical complex in the southern province of Ba Ria-Vung Tau, which is the company’s largest project in Vietnam.

In addition to Thai investors, the packaging industry has drawn attention of other foreign investors. Last year, the International Finance Corporation (IFC) announced a $20-million debt investment in An Phat Holdings to fund its first compostable material manufacturing plant in the northern province of Hai Duong.

The plant with a capacity of 20,000 tonnes per year will be built in about 18 months and completed by the end of 2022. An Phat targets that, by 2023, compostable products will contribute 40-50 per cent to the group’s packaging revenue.

South Korea’s Dongwon Systems also completed the takeover of Tan Tien Packaging (TTP) for $97.08 million, and fully acquired Minh Viet Packaging (MVP) for $21 million. Dongwon Systems is now leveraging the cost competitiveness of TTP and MVP to further expand into the Vietnamese and regional market.

Likewise, Japanese investors are also keen on the local packaging market. In 2018, Sojitz Pla-Net Corporation entered into the packaging material business in Vietnam through equity participation in Rang Dong Long An Plastic JSC (RLP), a subsidiary of major Vietnamese plastics manufacturer Rang Dong Plastic JSC. Previously, Sojitz Pla-Net spent around $4-5 million to scoop up a 20 per cent stake in RLP.

In 2017, Sekisui Chemical acquired 15 per cent of outstanding shares of Tien Phong Plastic JSC, a plastic pipe manufacturer in the northern city of Haiphong. Another Japanese investor, Oji Holdings Corporation, also bought major shares at United Packaging in 2013. Meanwhile, Japan’s Meiwa Pax took over 93 per cent of Saigon Trading and Packaging (Sapaco) for $16.5 million in 2014.

Considering the environment

Ho Duc Lam, chairman of the Vietnam Plastics Association, said that Vietnam’s plastic and packaging industry has been in the spotlight of investors from Thailand, South Korea, and Japan in the past few years. These East Asian investors prefer striking up deals with local partners as a shortcut to penetrate the market.

“In addition, more European and American investors have strengthened their presence in the domestic market. Unlike Eastern investors, Western companies prefer to develop their own facilities in Vietnam rather than acquiring local assets,” Lam added.

Despite the vibrant M&A activities, Vu from Bae, Kim & Lee pointed out some challenges for investors in the packaging industry. Firstly, their products are mainly based on polymers, such as plastic bags, packaging, and bottles, which are largely import dependent.

“Secondly, the treatment of wastes from the production of such products is also a hot topic and raises concerns about environmental protection,” he explained. “Under the Law on Investment, projects that adversely affect the environment will not be considered for extension of operation. Accordingly, local authorities are considering environmental issues when appraising M&A applications of foreign investors, which can be a hindrance.”

Last but not least, to his knowledge, profit margins of packaging companies are often low which makes profit-seeking investors less interested in this sector.

Despite the take up by foreign investors, local packaging businesses can still focus on some key trends to recover and drive their growth during the pandemic-stricken era. Vu believes that the future of the packaging industry lies in biodegradable and eco-friendly products which have great room for growth in Vietnam.

Some Vietnamese companies have made certain achievements in the development and sales of biodegradable packaging products, for example An Phat Bioplastics JSC.

“If local companies can keep up the pace with this global trend, there will be opportunities for them to rise, grow, and find their position in the market, not just domestically but also regionally and even globally,” Vu said.