Vietnam M&A Review: New laws, FTAs to bolster transactions

The Vietnamese flag (Image by zdiviv, Freedigitalphotos.net)

Barely halfway through 2015, Vietnam has already witnessed a series of alliances and acquisitions involving large domestic names like the Vingroup, the Masan Group, the Pan Pacific; as well as international players from sectors like retail, insurance, telecommunications and legal service.

Following the trend witnessed last year, the consolidation and expansion of business, marked by the furious pace of merger and acquisition (M&A) activities, is expected to continue throughout the rest of the year – across all sectors.

Mega deals in the big picture

A report from the local financial information portal StoxPlus recorded 265 completed M&A deals in 2014, with value totalling $4.66 billion, an increase of 33.1 per cent from 2013.

vietnamgraph1
Vietnam’s M&A deal value recovered from 2013. (Source: StoxPlus’ Vietnam M&A Research Report 2015)

The figure did not take into account a major real estate project, the Vung Ro Resort by the Rockefeller family-backed Rose Rock Group and Vung Ro Petroleum Ltd, with a total investment of $2.5 billion, as the disbursement for the project is still unclear. Counting this project, the total M&A deal value in 2014 could reach $7.16 billion.

The big jump was due to the several mega deals, which StoxPlus calculated at some $2.44 billion. Such deals are likely to include – food firm Kinh Do purchasing PhinDeli (undisclosed) and Vocarimex ($15 million), while selling its baked goods unit to Mondelèz International ($370 million), SapuraKencana Energy (Malaysia) acquiring two oil blocks in Cuu Long Basil, Siam Cement Group taking over Prime Group ($228 million), Standard Chartered Private Equity buying a majority stake in An Giang Plant Protection for $90 million, Pilmico Philippines acquiring 70 per cent in food processor Vinh Hoan 1 for $28 million, and Bien Hoa Sugar and Ninh Hoa Sugar merger ($58 million).

There were undisclosed value deals last year, such as the Vingroup’s takeover of Ocean Retail, Power Buy acquiring 49 per cent of Vietnamese electronics retailer Nguyen Kim, and FPT Software takeover of RWE Slovakia.

Also read: Thai Central Group acquires VN’s Nguyen Kim

Vietnam emerging as strong alternative to traditional outsourcing markets

Vietnam’s realty major Vingroup spends $468m for M&A deals, diversification

The most talked about deal was the  $879 million M&A between Berli Jucker Public Company Limited and Metro Cash & Carry Vietnam. However, the attempt was aborted as the Thai company’s shareholders rejected the offer.

Thailand-based investors led the inbound investment trend in 2014, and Thai interest is expected to increase in the coming years.

Thai cos led Vietnam's inbound M&A in 2014.(Source: StoxPlus' Vietnam M&A Research Report 2015)
Thai cos led Vietnam’s inbound M&A in 2014.(Source: StoxPlus’ Vietnam M&A Research Report 2015)

Inbound M&A into Vietnam totalled more than $3 billion in the year, a big leap of 64.9 per cent as compared to only $1.83 billion in 2013. This proved that the foreign players had regained confidence and interest in the Vietnam market.

Also read: AEC Effect: Thailand cos foray into Vietnam

US investors ranked second in terms of deal value, with 7 deals worth $498.6 million.

Sector appetite of foreign investors saw little change, still focusing on consumers-oriented sectors (food and beverage, retail, real estate), and oil and gas. “Foreign investors still find it attractive to take advantage of the big consumer base in Vietnam, and this theme will likely to continue in the coming years. Meanwhile, oil and gas acquisitions mostly happen at the upstream, where foreign companies acquire oil blocks within Vietnam’s water territory, as local companies are still limited in their oil exploitation capabilities,” the StoxPlus report wrote.

Bolstered by law and incentives

More M&As are expected to come to Vietnam, following the effectiveness of the amended investment law from July. The law will free the foreign companies from adhering to the lengthy investment certificate procedures when buying stake in Vietnamese firms.

Under current law, Vietnam has different licensing procedures for foreign and domestic investors. The investment certificate serves as business registration for foreign investors. “In practice, despite a 45 day maximum statutory time limit, the investment certificate process can take four to six months or longer,” officials from law firm Duane Morris Vietnam LLC stated.

“The new investment law expressly provides that no investment registration certificates will be required for acquisitions of target companies. As a result, the time needed to complete purchase of stakes in Vietnamese entities is expected to be reduced tremendously,” the law firm commented.

Buying into public companies listed on the Vietnamese stock exchanges will not require the certificate either, but foreign ownership of listed companies is still capped at 49 per cent. Local authorities are still working to lift the caps. “Until that day, investors will need to buy unlisted companies to take control.”

In addition, the M&A scene will also be fostered by a number of international trade agreements, which will accelerate investment flow into the country. Most typical are the following three agreements.

The Trans-Pacific partnership (TPP)

TPP is a giant free trade area deal of 12 countries including US, Canada, Mexico, Peru, Chile, New Zealand, Australia, Malaysia, Singapore, Vietnam, Brunei and Japan. It is expected to eliminate tariffs on goods and services, tear down a host of non-tariff barriers and harmonize all sorts of regulations

According to the Vietnam Ministry of Planning and Investment, foreign direct investment (FDI) from TPP countries has made up 50 per cent of the total FDI into Vietnam. As Vietnam joins the negotiation, it will significantly increase investment capital flow in supporting industries, value added services and the technology sector, due to the free investment rule regulated by the agreement. The sectors which Vietnam has competitive advantages shall witness acceleration of M&A.

Also read: VN’s TPP advantage: Opening doors to the US market

The ASEAN Free Trade Area (AFTA)

AFTA is a free trade area agreement, which will help in reduction and elimination of tariffs for items and sensitive agricultural products, of the member countries in South East Asia.

With the elimination of tariffs within ASEAN, trading within the community will be considered “local trading”. Given the consumption growth potential of Vietnam, FDI from ASEAN countries and inbound M&A in agricultural productions, retails and services are expected to increase
exponentially.

For example, 2014 marked a year of emerging Thai inbound M&A into Vietnam.

Also read: AFTA Tax advantage: Thai automobile cos foray into Vietnam

The Vietnam – Korean Free Trade Agreement (VKFTA)

The VKFTA, signed on May 5, removes import tariffs of over 90 per cent of all products traded between Vietnam and Korea.

Currently Korea is the biggest FDI investor into Vietnam. The FTA is expected to triple bilateral
trade between two countries up to $70 billion by 2020, indirectly supporting growth of inbound and outbound M&A between the two countries.

Also read: Vietnam, Korea sign VKFTA, plan to triple trade turnover

Image:Freedigitalphotos.net

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.