South Koreans grow presence through substantial M&A

August 19, 2020 | 14:30
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South Korean investors are employing mergers and acquisitions as a critical strategic instrument to secure a stronger footing in Vietnam.
1505p7 south koreans grow presence through substantial ma
South Koreans grow presence through substantial M&A, photo: Shutterstock

Conglomerate SK Group is one of the most active investors in Vietnam’s mergers and acquisitions (M&A) market. Most recently, SK Innovation, a part of SK Group, has taken over the operator of Block 16-2 in southern Vietnam after completing acquisition of 70 per cent equity stake last month.

To acquire the operating rights for the block, SK Innovation signed an agreement with state-run PetroVietnam Exploration Production Corporation in last October, and has since received government approval.

Block 16-2 is situated in Cuu Long Basin, the most promising oilfield in Vietnam. The offshore block is the first operational project of SK Innovation in the country.

In May, SK Investment III, a subsidiary of SK Group, also received more than 12 million shares, equivalent to nearly 25 per cent of Imexpharm Corporation’s stocks. The transaction was carried out through Vietnam Securities Depository at an undisclosed value. Most of the shares (11.3 million) were acquired from Dragon Capital Group, while the rest came from CAM Vietnam Mother Fund, Kingsmead, and Mirae Asset.

The deal paves the way for SK Group to tap into Vietnam’s fast-growing pharmaceutical and healthcare market. Historically, the sector’s growth has been backed by growing concerns about the wellbeing of family members, environmental factors, rising household incomes, and the high urbanisation rate which lead to changes in lifestyle and a higher demand in personal healthcare. It is believed that this robust growth will continue into the foreseeable future.

Meanwhile in February, SK Lubricants also acquired a 49 per cent stake in Mekong Petrochemical JSC for ₩50 billion ($42.1 million). The deal, which marks SK Lubricants’ first overseas investment, is also part of its plan to expand in the Southeast Asia region.

Under the agreement, Mekong will distribute SK Lubricants’ products and develop base oil into products. Meanwhile, SK Lubricants said it has established an end-to-end value chain covering production, storage, and retail across Vietnam.

Similarly, Lotte Chemical, a unit of Lotte Group, has acquired Vietnamese high-tech material company Vina Polytech to diversify its overseas business portfolio. Established in 2010, Vina Polytech produces materials for home appliances and mobile items. Located in the northern province of Bac Ninh’s Bac Ninh Industrial Park, the company has registered investment and charter capital of $1.2 million.

Andrew D. Kim, manager of the Global M&A Center at the Korea Trade-Investment Promotion Agency, said that South Korean companies have been active in Vietnam’s M&A market, and not only keen on real estate but also on the manufacturing and heavy industry sectors. “Their interest is becoming more diverse as the market is nearing 100 million in population. There are opportunities in infrastructure and utilities for South Korean investors, but they are also looking to branch out into the consumer sectors,” he said.

On the same note, Kim Heung Soo, chairman of the Korean Chamber of Commerce and Industry, told VIR that as Vietnam’s domestic market has grown steadily over the past few years, South Korean investors have been interested in equity investment and acquisition of Vietnamese companies through M&A activities to acquire the distribution networks as well as existing networks of Vietnamese companies.

For example, Hanwha Group invested $400 million in Vingroup JSC in August 2018, while SK Group signed a $1 billion equity investment contract with Vingroup last year.

South Korean companies are also actively investing in Vietnamese groups in various fields via M&A, like food delivery corporation Woowa Brothers taking over Vietnammm in 2019.

Soo noted that through these deals, South Korean companies are starting to consider investment in markets where it is difficult to acquire new licences, such as in finance and energy. “Because of COVID-19, many economists expect that global economic development and investment this year would see an overall slowdown,” he noted. “We are also afraid that many South Korean companies and investors will hesitate to invest and carry out M&A abroad, including in Vietnam.”

However, Yonhap News Agency recently reported that M&A by South Korean investors rose sharply in the first six months. The value of transactions involving South Korean companies and approved by the Fair Trade Commission (FTC), reached ₩18.8 trillion ($15.8 billion) during January-June, up 48.1 per cent from the ₩12.7 trillion a year earlier, according to the FTC. The number of M&A cases rose to 356 from 270 over the cited period, the commission said, noting that large business groups sought the transactions as part of efforts to realign and diversify business portfolios.

By Olivia Bui

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