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Taking hold

Released at: 08:00, 29/01/2017

Taking hold

Photo: Viet Tuan

Vietnam has seen continued interest from foreign investors keen to strike M&A deals.

by Linh San

On December 12 the Thai-owned Fraser and Neave (F&N) completed the purchase of 5.4 per cent of the Vietnamese dairy giant Vinamilk for almost $500 million. Each of F&N’s subsidiaries - F&NBev Manufacturing and F&N Dairy Investments - bought 2.7 per cent at the starting price of VND144,000 ($6.39) apiece during Vinamilk’s public auction. F&N therefore increased its holding in Vietnam’s largest concern from almost 11 per cent to 16.35 per cent, while Vinamilk’s State shareholder, the State Capital Investment Corporation (SCIC), saw its holding reduced to 39.35 per cent.

This final deal of 2016 was one of 32 conducted throughout the year worth a total of $2.5 billion, according to the latest figures from Mergermarket. Merger and acquisition (M&A) activity in Vietnam was subdued in 2016 in value and volume compared to 2015, which was a record year, with 48 deals worth $4.8 billion, but strong momentum has been maintained for the last five years.

Thai strike

The Vinamilk share purchase marks yet another move in the deal-making spree of Mr. Charoen Sirivadhanabhakdi, the Thai magnate behind ThaiBev, who completed the acquisition of Metro Cash & Carry Vietnam for 655 million euros earlier this year, and reportedly the Melia Hanoi Hotel and retail distributor the Phu Thai Group in 2013. 
As per Vinamilk’s disclosure, F&NBev Manufacturing and F&N Dairy Investments submitted documents on December 7 to the State Securities Commission and the Ho Chi Minh City Stock Exchange, where Vinamilk is listed as the largest stock in terms of market capitalization, for the purchase of 2.7 per cent each. This was the maximum percentage any single investor was permitted to buy at the December 12 auction, with Vietnam deciding to sell the first part of 9 per cent from the State ownership in the dairy company. The two transactions were valued at around $499.4 million and helped Mr. Sirivadhanabhakdi expand his business interests in Vietnam.

Given the lackluster economic growth at home, Thai companies are increasingly keen to invest in neighboring Vietnam. Two other Thai companies - Siam City Cement and the Central Group - recently took over Lafarge Vietnam and Big C Vietnam, respectively. 

Siam City Cement signed an agreement to buy LafargeHolcim’s entire 65 per cent holding in LafargeHolcim Vietnam for $890 million. LafargeHolcim Vietnam operates one integrated cement plant and four cement grinding plants with a grinding capacity of 6.3 metric tons per year. The company is also a leading ready-mix concrete producer operating seven plants in southern Vietnam. The sale is subject to regulatory and shareholder approvals. 

While this is Siam City Cement’s first foray into Vietnam, the Central Group is already operating two department stores in Vietnam and also acquired a 49 per cent stake in electronics retail chain Nguyen Kim in 2015.

Local and international media have also been reporting that Central Group has acquired online fashion site Zalora’s businesses in Thailand and Vietnam. The group has been tipped to enter the e-commerce space for some time and sources say it has struck a deal to buy the two country businesses from Zalora for around $10 million each. 
Investors from Singapore, Hong Kong and Japan have also arrived in Vietnam after buying stakes in Vietnamese partners. 

Consumer leading

The consumer segment dominated deal activity in 2016, with three deals worth $1.17 billion, according to Mergermarket. It remains among the most attractive spaces given Vietnam’s population size and increased spending. In 2015 the consumer sector saw nine deals worth $1.1 billion. 

Euromonitor has forecast that consumer spending will increase by 47 per cent from now to 2019. Vietnam’s beer market will grow 33 per cent, reaching 4.8 billion liters, while consumption will fall in Thailand. 

Central Group CEO Tos Chirathivat said earlier that if the group was able to acquire Big C its sales in Vietnam would double from the current $600 million. “The size of the economy in Vietnam is smaller than us [Thailand] but it’s growing at a fast rate,” he told reporters at Central Group’s annual press conference in March last year. “In the coming five years it will be growing and growing.”

Energy mining and utilities was another segment that saw an upward swing, with eight deals worth $494 million compared to only three deals worth $49 million in 2015. Factors such as international trade agreements and meeting energy needs likely played a role. 

Real estate taking off

M&A activity in Vietnam’s real estate segment continued where it left off in 2015, with deal volumes increasing over recent months and many successful transactions conducted. Cushman & Wakefield reported that in 2015 there were 28 deals in Vietnam’s property market, 18 of which were estimated at around $1.2 billion. As at September 2016 there was 24 deals completed, 18 of which were estimated at about $882 million.

The market continues to see strong interest from foreign investors from South Korea, Japan and Singapore. 

The most notable transaction in the final months of 2016 was the $51.9 million acquisition of a prime site in District 1, Ho Chi Minh City, by CapitaLand Vietnam, according to JLL Vietnam. It now holds 100 per cent of the 0.5 ha site and will build apartments for sale and serviced residences. This is the first time a foreign developer has gained access to a site in District 1 and it will be interesting to see how the market reacts to the introduction of such a luxury boutique project in the area.

Mitsubishi Corporation, meanwhile, purchased a stake in a joint venture with the Bitexco Group to develop The Manor Central Park in Hanoi. In Hoang Mai district in the capital’s southwest, the project is an integrated part of The Manor Central Park township and includes residential, commercial, office, education, entertainment and sport facilities. In the first phase, Mitsubishi and Bitexco will develop 240 low-rise units and two high-rise buildings with a total of 1,036 apartments.

Another recent deal was VinaCapital acquiring the International Center Building in Hanoi from Keppel Land for $13.8 million. The International Center is just a short stroll from scenic Hoan Kiem Lake, the Hanoi Opera House, the Ministry of Trade, and the State Bank of Vietnam. It offers over 7,000 sq m of Grade A office space and remains a preferred address for multinational corporations.

The M&A market may see huge demand coming from foreign investors, who are still eagerly seeking “clean and clear” development sites. Despite the existing difficulties in finding good quality stock in the market, the sector is expected to be strong in 2017 thanks to major growth momentum in Vietnam over past years amid lower activity in the region.

According to CBRE Vietnam, the country’s real estate market is in the sights of many foreign investors and will welcome some new faces in the time to come. Mr. Marc Townsend, Managing Director of CBRE Vietnam, has said that Vietnam has become a notable investment destination in Southeast Asia. 

Prospects for 2017

Vietnam is still a small emerging market compared to other markets in Southeast Asia such as Singapore, Malaysia, Indonesia, Thailand and the Philippines. Deal activity has remained strong, however, with low inflation, rising consumption, and increased export demand. Free trade agreements are bringing Vietnam into the wider international market. Changes in investment laws make acquisitions by foreign companies quicker and more transparent and this will spur M&A in the country. 
According to Ms. Riddhima Saxena, Southeast Asia Bureau Chief at Mergermarket, sectors of interest from a foreign investor’s perspective and likely to be active include consumer, healthcare, financial services, education, and energy. All are linked to growing internal demand from consumers, who are seeing rising incomes and the lifestyle changes that come with it. 

There is no doubt that Vietnam has recently become a favored destinations for M&A among foreign investors, particularly from Thailand, Japan, South Korea, and Singapore. However, the Vietnamese Government has yet to consolidate laws governing M&A to streamline capital flows from foreign countries while counterbalancing the protection of local businesses, as it has planned. Local enterprises are also yet to develop a win-win mentality when approaching M&A, and many negotiations take too long and closing can be difficult to achieve.

 If the government continues to improve the investment environment then foreign investment flows will continue to increase in 2017. Along with its advantages, Vietnam still has much to do to attract investment capital, regarding customs procedures, taxation and access to lending. Its deeper and broader integration into the global economy will offer it more opportunities in M&A activity.

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