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Vietnam embarks on record deal spree on looming foreign threat

A worker checks for mistakes on beer along production line of a factory of Saigon Beer Corporation (Sabeco) in Hanoi, Vietnam May 26, 2015.

[HANOI] Vietnam is embarking on an unprecedented dealmaking spree as the economy prepares to open up to greater foreign competition.

Acquisitions involving Vietnamese companies may reach as much as a record US$4.5 billion this year, surpassing US$4.2 billion in 2012, Christopher Kummer, president of the Institute of Mergers, Acquisitions and Alliances, said by e-mail. There have already been US$1.9 billion of deals so far this year, the most in three years, data from the Vienna-based think tank show.

Companies are seeking to bulk up as Vietnam is expected by PricewaterhouseCoopers LLP to be one of the world's fastest- expanding economies through 2050. Vietnam signed free trade agreements with South Korea and a Russia-led group in May, is part of the proposed 12-nation Trans-Pacific Partnership including the US and is working on a similar pact with Europe.

"Vietnamese companies will face a lot more competition when the market gets more open," said Alan Pham, chief economist at VinaCapital Group, the nation's biggest fund manager. "Many local companies have low capitalisation, lack of skilled manpower, inadequate marketing capacity. By using M&A to merge into a larger entity, compensating for each other's deficiencies, they will improve their competitiveness."

The VN Index has gained 8.1 per cent this year, twice the gain in the MSCI Emerging Markets Index.

Vietnam Dairy Products JSC, known as Vinamilk, set aside 4 trillion dong (S$246 million) for dealmaking this year and is looking for targets at home and abroad. Vingroup JSC, the country's biggest listed developer, bought Vietnam National Textile & Garment Group's supermarket chain in April and has announced at least five other acquisitions in the past year.

While the trade agreements will benefit Vietnamese apparel manufacturers and shrimp exporters, they could hurt domestic auto assemblers and food and beverage producers, according to Tu Vu, head of research at Viet Capital Securities JSC. Vietnamese consumers prefer Western brands, so lowering import duties for baby formula and confectionery products would lead to fiercer competition, Vu said by phone June 19.

The best-capitalised domestic companies in Vietnam will make acquisitions to increase their scale even further, Rehan Anwer, Credit Suisse Group AG's Singapore-based head of frontier markets banking, said by e-mail. Deals will likely happen in the consumer, agriculture and real-estate industries, according to Anwer.

"The M&A market is in a sweet spot," Attila Vajda, managing director at Singapore-based advisory firm Project Asia Research & Consulting Pte, said by phone. "Vietnam will be more integrated into the world economy and tax barriers will fall, so it will be easy to operate from here."

FPT Corp, Vietnam's biggest listed technology company, has set aside about US$50 million for acquisitions this year to help achieve its goal of US$1 billion in annual revenue from overseas by 2020, Deputy General Director Nguyen The Phuong said June 23. Last year it bought German utility RWE AG's technology unit in Slovakia, gaining 400 employees focused on SAP SE software and smart-home systems in its first purchase outside Vietnam.

The government is also pushing deals. This month, Prime Minister Nguyen Tan Dung approved the sale of large stakes in some state-owned enterprises to improve competitiveness and boost corporate governance. In February, a new rule took force that encourages bank consolidation by restricting cross- shareholdings among lenders.

Vietnam's stable economy and currency paired with low inflation are giving companies more confidence to make acquisitions, said Tony X Diep, a Ho Chi Minh City-based managing director of Indochina Capital Corp. The government targets economic expansion of 6.2 perc ent in 2015, up from about 6 per cent last year, and has kept inflation below 1 per cent in the first five months of the year.

"A lot of people would be very surprised to see Vietnamese companies buying assets of foreign companies - it shows how mature they are," Mr Diep said. "We will definitely see more deals coming, and things will still be very busy for the rest of the year."