​Attracting FDI to Vietnam through M&A deals

In the context of integration, especially the America-China trade conflict which is having complicated developments, many economic experts think that the FDI capital flow is coming to Vietnam under many forms, notably M&A activity.

The government’s facilitation policy has experienced significant changes, especially after the new generation of free trade agreements were signed with other countries in the region and on the world, namely the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), and the EU-VN Free Trade Agreement (EVFTA), etc. The facilitation policy is expected to create the catalysts for M&A to be implemented strongly, contributing to the general development of the economy.

Vice Minister of Planning and Investment Vu Dai thang said that new strategic directions have been issued for attracting foreign investment in the direction of selectively prioritizing foreign investment attraction and cooperation, shifting from quantity to quality, with high added value, using effectiveness and technology as measure relevant to environment protection and sustainable development, etc. Besides, the Government also advocates new forms of investment such as the non-capital contribution transboundary investment and the expansion of the M&A method.
According to Vice Minister Vu Dai Thang, these positive signals open a new millennium for M&A activity in Vietnam with breakthrough opportunities, turning M&A into an important channel for attracting foreign investment.



In fact, recently, the market has witnessed some “famous” M&A deals bringing huge revenues for companies and the Government, such as SK Corporation (Korea) becoming the strategic shareholder of Vingroup Corporation with 1 billion USD of share; or the deal of selling 15% of share of the Bank for Investment and Development of Vietnam (BIDV) to Keb Hana Bank of Korea for the price of 885 million USD.

Previously, we have witnessed the cooperation between Phat Dat Real Estate Development Joint-stock Company and Samty Asia Investment Pte. Ltd, and the Japanese leading real estate development agencies through the Vietnam New Urban Center LP Fund with the total investment valued at 22.5 million USD. Meanwhile, the VinaCapital Ventures Fund has also officially announced the 4 million USD investment in the Rever real estate brokerage technology.

Besides cases with successful capital mobilization, there have also been ones with failure, even though they are of great interest to foreign companies who invest excitedly. However, both sides could not reach a mutual agreement in asset pricing, leading to the fail in contract value agreement.

Director of R&D DKRA Vietnam Nguyen Hoang said that in the past time, M&A activity has been bustling; in which, the field of real estate accounts for the highest rate of capital contribution. Not only do M&A projects promote the real estate and banking market, but it also helps increase the attraction of the financial and securities markets.

Due to the current deep global integration, M&A activity will have many development potentials and chances, especially as Vietnam is being one of the major foreign capital attractions. However, some international investors and companies are still showing hesitation when approaching and researching the M&A activity in Vietnam because of multiple reasons; the majority of which are concerns regarding financial policies and procedures. The inconsistency in implementing investment procedures prolongs multiple M&A transactions, increasing costs and prices.

Head of the Investment Banking Services and The VPBank Securities Company Tran Thi Bao Ngoc notes that as they can predict this scenario, a large number of foreign investors have asked for the intervention of professional legal consultants. However, it is impossible to be sure about when the result of the transaction will end or if it will intertwine with the plan or not.

Therefore, according to Mrs. Ngoc, if the market opening commitment is carried out, the M&A regulations will need to be in line with the international practices and to support investors in clearing transactions.

Evaluating assets and investigating values to reach an agreement on the price for each M&A deal are difficult. Thanks to his experience, Mr. Nguyen Hoang remarks that the reasons why various M&A trade failed are because the investigation report falls short to their expectation, and there is a major difference in pricing, not to mention those arising in the evaluation process leading to the price adjustment, causing psychological effects to the investors.

Relating to the M&A of some joint-stock projects and companies with the majority of their capital held and managed by the Government, many economic experts assert that, because of the slow equitization and problems in divestment and State-owned companies reform, no matter how potential the investment capital flow is, or how much investors care about the project, it will still be difficult to reach an agreement between the seller and buyer.

Besides, leaders of several economic groups, corporations and state units still lack awareness and the determination in operational innovation, financial transparency and strict implementation of regulations to ensure the market principles or group interest in equitization and divestment of state capital, etc. This is a barrier that needs to be eliminated to clear an easy and advantageous way for foreign capital flow to find their opportunities in Vietnam.

Deputy Minister of Planning and Investment Vu Dai Thang says that to make a breakthrough, Vietnam's M&A market expects innovation and reform in the process of promulgating and implementing policies of competent agencies while conducting activities to connect the transactions between the seller and the buyer.

Compiled by VNA - Translated by Vietnam Credit