Vietnam becomes preferred destination for Asian investors

Vietnam becomes a preferred dealmaking destination for Asian investors

Japan-based Mizuho Bank is scheduled to buy 7.5 per cent of Vietnamese firm M-Service, which manages the e-wallet MoMo, in a deal worth $170 million. The transaction, which is anticipated to close by the end of the year, would result in collaboration between the payment app and Vietcombank, a Vietnam-based bank in which Mizuho previously invested. MoMo controls more than half of the payments business in Vietnam, and its 20 million users would become part of a super-app.

Meanwhile, Japanese mega financial institution Sumitomo Mitsui Financial Group (SMFG) has acquired 49 per cent stake in Vietnam's largest consumer finance company FE Credit. The Japanese bank is investing more than $1.4 billion in FE Credit, making it the largest deal of Vietnam's mergers and acquisitions (M&A) market this year.

Speaking at the Vietnam M&A Forum 2021, Masataka “Sam” Yoshida, head of the cross-border Division of RECOF Corporation and CEO of RECOF Vietnam Co., Ltd. said, "Although the COVID-19 pandemic has lowered M&A activities in Vietnam in 2020 and in the first 10 months of 2021, Vietnam is the second M&A market for Japanese investors in ASEAN, trailing behind only Singapore in terms of the value of transactions. In the past, Vietnam was hardly among the top three countries due to the difference in the size of enterprises."

According to RECOF’s M&A database, Vietnam achieved a deal value of $416 million in 2020, which was 2.95 times as much as in 2017. In addition, there was an exceptional deal in 2021 between SMBC Consumer Finance and VP Bank. This deal, together with other transactions, helps Vietnam to solidify its second position in Southeast Asian countries.

"The interest of Japanese investors in Vietnam continues to be strong. Despite the pandemic situation, Vietnam is sixth on the list of M&A destinations for Japanese investors so far this year. India and China, which are ranked fourth and fifth respectively, fluctuate in this annual ranking, so it is not out of the way that Vietnam can overtake them."

Yoshida further pointed out that M&A in Vietnam will be a trendy activity for Japanese companies that has the potential to last for years to come. The first trigger is that Japanese investors have to find new markets outside of Japan as most of the sectors in the country have reached maturity. For instance, 29 per cent of the Japanese population is over 65 years old, meaning the average age of Japanese people is almost 20 years higher than the Vietnamese population.

"The second trigger is using M&A as a growth strategy, which is backed up by the abundant accumulated cash during the last 20 years – reaching $2.12 trillion as bank deposits," Yoshida said. "Due to the increasing pressure from shareholders, the money has started to flow into the M&A market which broke records in 2021 with over 4,000 deals for all segments."

Also at the Vietnam M&A Forum 2021, Warrick Cleine, chairman and CEO of KPMG Vietnam and Cambodia, said that financiers from markets in South Korea, China, and Taiwan are strong believers in the development potential of Vietnam. To illustrate, for the first time China has been ranked in the top 5 funding sources for M&A in Vietnam in 2021, with eight deals worth nearly $600 million so far this year.

In May, Alibaba Group led a $400 million funding in the retail unit of Vietnamese conglomerate Masan Corporation, marking its first investment in one of Asia's fastest-growing economies.

And in August, the second-largest mobile operator in Taiwan, Taiwan Mobile, invested $20 million in Tiki's Series E funding round, also entering the Vietnamese market.

The latest report by KPMG on M&A in Vietnam reveals that South Korean investors have completed 19 transactions worth $621 million in the first 10 months of the year. South Korean investors still consider Vietnam one of the most attractive markets due to solid economic growth and prospects.

In terms of geographical location, as large South Korean companies including Samsung, LG, Hyosung, and Hyundai Motors established production sites or subsidiaries in the northern region of Vietnam, other companies will follow, resulting in more South Korean investments in the northern region. However, investment in the southern regions including Ho Chi Minh City has been increasing as the consumer market and overall growth of the regional economy in the city and the southern region are more attractive.

According to the report, sectors that draw attention from South Korean investors include e-commerce, fintech, and logistics. The growing interest in e-commerce and fintech is in line with the attraction of businesses that do not require personal contact.

Experts at the Vietnam M&A Forum 2021 agreed that Vietnam's M&A market remains on the radar of Asian investors. In 2020, Vietnam is still one of the three countries and territories that achieve positive economic growth in Asia. The country is expected to post a GDP growth of 3-3.5 per cent. The Vietnamese government has taken quick action to boost post-pandemic recovery. All of these factors are expected to contribute to a rebound in dealmaking activity post-pandemic.