28.9 C
Ho Chi Minh City
Monday, June 24, 2024

Bracing for acquisitions

By Quoc Hung

Must read

Mergers and acquisitions (M&A) activities are expected to be intense across various production and business sectors due to inflation, liquidity woes and the hardships faced by numerous businesses. This is an opportunity for M&A investors to secure better deals.

Real estate sector

Keppel Corporation and Keppel Vietnam Fund (KVF) have signed agreements to acquire a 49% stake in two residential projects located in Thu Duc City and belonging to Khang Dien Company. They are set to develop over 200 houses and more than 600 apartments on an 11.8-hectare area, with a total investment of VND10.2 trillion. The deal with Khang Dien is expected to be finalized within this year.

Singaporean investor Keppel has previously undertaken various real estate projects in Vietnam, including Estella Heights, Celesta Rise, Empire City, and Saigon Centre. In an interview with Nikkei in March, Keppel leaders expressed their interest in increasing investments in Vietnam, diversifying away from China to mitigate risks.

This partnership with Khang Dien has sparked a wave of M&A deals in the real estate market, as many real estate businesses have been having trouble obtaining funds for project development and loan repayment. Numerous companies have had to restructure their investment portfolios and transfer projects to secure funds for reinvestment.

Since the beginning of this year, several M&A deals in the real estate sector have taken place across various regions, with negotiations for significant projects expected to conclude and agreements to be signed by late this year or early next year.

Frasers Property Vietnam (FPV) recently announced a tie-up with Gelex Group, a multi-sector investment company, to develop industrial zones in northern Vietnam. The total investment for this project is estimated at US$250 million, with FPV contributing 49%.
According to a report by Bao Viet Securities Company (BSC), M&A activity in the real estate sector is expected to gather steam in 2023-2024 as the era of easy capital comes to an end. Real estate businesses are currently having serious problems with liquidity.

Neil MacGregor, general director of Savills Vietnam, believes that difficult access to financing sources and unsolved issues with investment and legal procedures have compelled local real estate enterprises to seek new funding sources. As a result, M&A activity is expected to increase this year. Despite the challenges, the real estate sector in Vietnam still holds great potential to attract institutional investors, both at home and from abroad. Savills has received numerous requests for advice on transaction structuring and price assessment from local developers. MacGregor predicts that M&A activity this year will surpass that of the previous year.

Buoyant M&A in the banking sector

Apart from real estate, M&A activity in the banking sector has turned livelier since eraly this year after a relatively quiet period. Many foreign investors are now showing keen interest in this sector, while banks themselves view M&A as an important strategy for enhancing their business models.

United Overseas Bank (UOB) from Singapore recently completed the acquisition of Citigroup’s consumer banking segment in Vietnam, which included taking on nearly 580 Citigroup employees. In March, Vietnam Prosperity Bank
(VPBank) reached an agreement to sell a 15% stake to Japan’s Sumitomo Mitsui Banking Corporation (SMBC).

This investment has increased VPBank’s equity to about VND140 trillion, propelling it to the second position in terms of equity in the banking system. With this strengthened capital base, VPBank is better positioned to serve large enterprises, particularly foreign direct investment (FDI) companies and multinationals operating in Vietnam.

M&A has also been a topic of interest during the 2023 season of shareholders’ meetings. Shareholders of VPBank have raised questions regarding the bank’s involvement in the restructuring of troubled banks and whether it has an opportunity to increase the foreign ownership limit to 49%.

Many bank leaders have faced inquiries from shareholders about their plans for the compulsory acquisition of struggling banks. In addition to banks under compulsory transfer, several commercial banks are seeking to merge with other institutions to enhance their finances, expand their networks and market share, and improve competitiveness. In their reports on plans to merge with struggling credit institutions, bank leaders have highlighted the opportunity for stronger growth in assets, charter capital, and credit portfolios. Some leaders view acquiring banks under compulsory transfer as a chance to expedite network expansion, while others see it as a “political task.”

In a report submitted to the National Assembly’s Economic Committee before the fifth session on May 22, the State Bank of Vietnam stated that it had obtained approval from the Government to address four banks under special control, with three of them subject to compulsory acquisition. The four banks are DongABank, and the three banks which the SBV acquired at zero dong — CBBank, OceanBank and GPBank.

The danger of cheap acquisitions

In addition to real estate and banking, foreign investors are injecting funds into shares or acquiring Vietnamese businesses in various sectors. According to data from the Foreign Investment Agency, in the first four months of this year, foreign investors got involved in 1,044 deals to contribute capital to and acquire shares of local enterprises, with a total value of over US$3.1 billion, up a staggering 70% versus the same period last year.

During his testimony to the National Assembly’s Standing Committee, Minister of Planning and Investment Nguyen Chi Dung highlighted that many large enterprises have been forced to sell their assets at only half their actual value to foreign buyers due to tough business conditions and limited capital absorption capacity.

Experts note that the difficult business situation has impacted nearly all industries and trades. Nguyen Ngoc Hoa, chairman of the HCMC Business Association (HUBA), observed that the economic landscape is changing rapidly. Businesses are facing severe difficulties as domestic and international consumption is declining fast, and they are struggling to export their goods.

Approximately 50% of struggling businesses have had to downsize operations and operate at reduced capacity. Many companies have reduced their workforce or cut working hours. Hoa stated, “Some businesses have sold their assets to repay maturing loans to avoid being classified as bad debts.”

The apparel sector is also having problems with both input and output, thin cash flows, and pressure to repay bank loans. Pham Van Viet, general director of Viet Thang Jeans and vice president of the HCMC Textile, Garment, Embroidery, and Knitting Association, said that numerous enterprises in the industry have ceased operations or sold assets and properties to repay loans.

A survey of 9,556 businesses conducted by the Board for Private Economic Development Research under the Advisory Council for Administrative Reform, found that most of them are experiencing exceptional hardships. Up to 92.3% of the surveyed enterprises are planning to downsize, suspend, or halt their operations in the rest of this year.
Of the operational enterprises, 71.2% intend to cut staff by 5% and 22.5% plan to downsize by more than 50%. Notably, business confidence was woefully low.

Analysts point out that the challenging business situation is likely to drive an increase in M&A transactions, with buyers having the upper hand as many businesses are in dire need of cash. Lawyer Truong Thanh Duc, director of ANVI Law Company, expressed concern, particularly for established Vietnamese companies. “The domestic M&A market has already been attractive, and the current hardships faced by businesses are seen as an opportunity for foreign investors to acquire companies and projects at low prices,” he noted.

With a wide array of choices, buyers can negotiate terms that favor their interests. Investors with deep pockets perceive market upheavals as an opportunity to acquire enterprises and projects at favorable prices. Lawyer Duc predicts that foreign investors will become more involved in M&A transactions, given scarce domestic funds, high interest rates, and poor liquidity.

Based on data from the General Statistics Office, it is estimated that over 600 businesses “vanished” from the market on average every day during the first four months of this year. Specifically, 77,001 businesses exited the market during this period, a 25.1% increase over the same period last year.

More articles


Please enter your comment!
Please enter your name here

Latest articles