Vietnam has remained an attractive destination for foreign investors: In 2020, the total FDI capital to Vietnam was USD28,53 billion. Investment in the form of capital increase is the only increasing proportion of the total FDI that grew by 10,6%. Foreign investors contributed capital to domestic enterprises mainly in the field of processing technology and manufacturing (USD 13,6 billion) as well as water and energy sector (USD 5,1 billion).
Main investors still come from Japan, Korea, Singapore, and China. The retail, consumer goods, and real estate are also very active, and investors tend to focus on leading companies as they have a big market share and strong brand value.
The main drivers of Vietnam’s M&A market are:
- Privatization of state-owned enterprises (SOE). According to Resolution No. 01/NQ-CP issued by the Government in 2021, one of the key tasks in 2021 was to continue strengthening the restructuring, equitisation and divestment of SOEs. The government also aims to publicize equitized enterprises that are eligible but are not listed nor registered for trading on the stock market.
- Trade liberalization as a result of CPTPP, EU- Vietnam FTA, and so on.
- Resolution No. 42 on pilot program of handling bad debts of credit institutions is also the main driving force of M&A in real estate sector as bad debts in real estate sectors accounts for a high percentage of the total bad debts in Vietnam’s market.
Major deals:
- In the middle of June 2020, according to VinGroup, a group of investors led by KKR, including Temasek, spent VND 15,100 billion VND (USD 650 million) to buy more than 200 million shares of VHM, equivalent to 6 % shares of VinHomes (a subsidiary of VinGroup).
- On 9 April 2020, FWD Group announced its acquisition of Vietcombank Cardif Life Insurance Company (VCLI), a joint venture between Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank) and BNP Paribas Cardif.
- At the end of June 2020, after approval by the State Bank, Orient Commercial Joint Stock Bank (OCB) successfully issued 86.68 million shares to Aozora Bank from Japan, through which Aozora officially became to become a foreign shareholder owning 15% of the capital. The estimated value is more than VND 3,100 billion. OCB also officially increased its charter capital from VND 8,767 billion to VND 10,959 billion in October 2020.
- KEB Hana became a major shareholder of Vietnam Development Bank (BIDV) by acquiring 603.3 million shares, equivalent to 15% of BIDV’s capital, in November 2019
- Bao Viet Group has completed the private issuance of more than 41 million shares, approximately 6% capital, for Sumitomo Life Insurance Company (Sumitomo Life), a strategic shareholder from Japan.
- In early April 2020, Stark Corporation (Thailand) bought 100% of the shares (USD 240 billion) of Thinh Phat Electrical Cable Joint Stock Company (Thipha Cables) and JSC Non-ferrous Metal and Copper Plastic JSC. Vietnam (Dovina).
- In November 2019, Thai WHA Utility and Power Company purchased 34% of equity in Duong River Surface Water JSC.
- Mitsui & Co. (Japan) bought 35.1% of Minh Phu Seafood Corporation’s capital.
- In April 2019, DHG Pharma officially became a subsidiary of Taisho after this Japanese unit raised its holdings to 50.78% of total shares.
In Vietnam, how is M&A regulated?
There is no single document regulating M&A activities in Vietnam. The relevant rules are contained in several laws and regulations governing general corporate and investment issues. These laws and regulations include:
- Investment Law No. 61/2020/QH14 and Enterprise Law No. 59/2020/QH14 issued by the National Assembly on 17 June 2020, and their guiding documents, namely Decree No. 01/2021/ND-CP and Decree No. 118/2015/ND-CP. These laws set out the general legal framework, conditional sectors and investment procedures. The authorities responsible for enforcing these laws are the:
· Prime Minister; · local People’s Committee; · Ministry of Planning and Investment; · Ministry of Industry and Trade; · Ministry of Health; and ·Other ministries depending on the business activities of the target companies.
- Law on Securities No. 54/2019/QH14 issued by the National Assembly on 26 November 2019, and its implementing documents, in particular Decree No. 155/2020/ND-CP issued by the Government on 31 December 2020. This Law regulates the acquisition of shares in public and private companies in Vietnam, including public tender offers.
The authorities responsible for enforcing the Law include the:
- State Securities Commission (SSC);
- Vietnam Securities Depository Centre; and
- Ministry of Planning and Investment.
- Competition Law No. 23/2018/QH14 issued by the National Assembly on 12 June 2018, which is enforced by the Vietnam Competition Authority (VCA). Under this Law, any M&A transaction that causes or may likely cause substantial anti-competitive effects on the Vietnamese market will be prohibited.
- Foreign exchange regulations. An investment capital account in Vietnamese dong is a condition, among others, for capital contribution/share purchase or subscription. These regulations are enforced by banks and the State Bank of Vietnam.
- Vietnam’s WTO Schedule of Specific Commitments on Services. This sets outs the ratio of shares that can be owned by foreign investors in various specific sectors.
- Other specific regulations for the acquisition of shares in Vietnamese companies operating in special sectors, such as banking and finance, insurance, and so on. These sectors are highly regulated by the relevant authorities.
What are the most popular industries for M&A and where do these investors come from?
- Processing technology and manufacturing
- Renewable energy
- Water and waste treatment
- Pharmaceuticals
- Consumer retails
Investors mostly come from Singapore, China, Korea, Japan, Thailand.
What are some of the opportunities in the Vietnamese market?
The country’s deeper and wider integration into the world’s economy is offering new opportunities for M&A activities.
Another factor includes the high pressure faced by the government to privatise state-owned enterprises to meet requirements under signed trade pacts, especially the EU – Vietnam Free Trade Agreement, which came into force on 1 August 2020.
Encouraging signs for foreign investment include:
- Reformed policies to allow wider access to foreign investors.
- ASEAN Economic Community single market and production base.
- The conclusion of free trade agreements (FTAs), including the EU – Vietnam FTA and The Comprehensive and Progressive Trans-Pacific Partnership (CPTPP).
- Vietnam’s super rich population is growing faster than anywhere else and is on track to continue leading the growth in the next decade.
- Equitization of state-owned enterprises will speed up.
The major expected trends in the Vietnam M&A market include:
- Bank restructurings.
- Acquisitions and anti-acquisitions, particularly in the real estate sector.
- Growing Korean, Japanese and Thai investment in Vietnam through M&A transactions.
- Reform of SoEs.
Additionally, what are some obstacles and challenges?
Notable obstacles include:
- Divergent interpretations and implementations by local licensing authorities of international treaties such as Vietnam’s WTO Commitments.
- Different licensing procedures applied to different types of transactions (for example, for foreign invested companies and domestic companies, public companies and private companies, and for buying state-owned shares or private shares).
Although legal and governance barriers, along with macro instability and the lack of market transparency are still the greatest concerns for investors, M&A deals in Vietnam are still expected to be one of the key, effective channels for market entry.
How much information about a target company is publicly available, and is a target company required to disclose diligence related information to a potential acquirer?
There is no legal requirement that a bidder must keep information about the bid a secret until the bid is made. However, this can be considered a contractual violation if the parties to the transaction have committed to secrecy in writing. Leaking information before the finalisation of the bid can lead to:
- An increase of the target’s shares price.
- Difficulties in negotiating the terms of the transaction.
- Competition in the market.
How detailed is due diligence typically conducted?
Before officially contacting the potential target, the bidder conducts a preliminary assessment based on publicly available information. The bidder then contacts the target, expresses its intention of buying shares/subscribing for its shares and the parties sign a confidentiality agreement before the due diligence process. The confidentiality agreement basically includes confidentiality obligations in performing the transaction. The enforcement of confidentiality agreements by courts in Vietnam remains untested.
A bidder’s legal due diligence usually covers the following matters:
- details of the target and its subsidiaries, affiliates and other companies that form part of the target.
- Contingent liabilities (from past or pending litigation).
- Employment matters.
- Contractual agreements of the target.
- Statutory approvals and permits regarding the business activities of the target.
- Insurance, tax, intellectual property, debts, and land-related issues.
- Anti-trust, corruption and other regulatory issues.
Is there a tried and tested M&A process in Vietnam?
The acquirer can enter into an exclusivity agreement, terms sheet or letter of intent or MOU that includes a legally binding exclusivity clause. The acquirer can also make use of deal protection mechanisms such as:
- No Shop Provision: included in an agreement between the seller and the buyer that prevents the latter from seeking purchase proposals from third parties in a time frame after the signing of the Letter of Intent
- Termination or Breakup Fees: if the seller accepts a bid from a third party, then they will have to pay the original buyer a fee equivalent to the breakup fee
- Lock-ups: seller is given part-ownership of stock or important assets in the target company
- Stock options: allow the buyer to purchase a number of shares in the target company if a particular pre-agreed event occurs.
For further information, please contact:
Oliver Massmann, Partner, Duane Morris & Selvam
omassmann@duanemorris.com
