The M&A market awaits a major deal.

After a period of rapid growth, foreign investment in Vietnam through equity and share purchases has slowed down significantly. The market is awaiting major deals to revitalize mergers and acquisitions (M&A) activity.

On April 9, 2024, CDH Investment announced the completion of its acquisition of a 5% stake in Bach Hoa Xanh (a Vietnamese grocery store chain). Photo: Duc Thanh

Hesitant to contribute capital or purchase shares.

One important piece of information regarding foreign investment attraction since the beginning of the year is that while newly registered capital and additional capital have increased sharply compared to the same period last year, reaching nearly US$10.8 billion (up 35.6%) and nearly US$5 billion (up 19.4%) respectively, investment through capital contributions and share purchases continues to decline.

Specifically, according to the Foreign Investment Agency ( Ministry of Planning and Investment ), in the first seven months of the year, there were 1,795 transactions involving capital contributions and share purchases by foreign investors, with a total capital contribution value of nearly US$2.27 billion, representing a decrease of 3.1% and 45.2% respectively compared to the same period last year.

This is not the first and only year that investment activities through capital contributions and share purchases by foreign investors have declined. Looking at the last five years, 2019 is considered a boom year for this form of investment.

At that time, reporting on the situation of attracting foreign investment, Mr. Do Nhat Hoang, Director of the Foreign Investment Department, stated that investment in the form of capital contribution and share purchase was trending strongly upward and accounted for an increasingly large proportion of total foreign investment. Specifically, in 2017, investment in this form accounted for 17.2% of total registered capital; in 2018 it accounted for 27.9%; and by 2019 it reached 40.7% of total registered capital.

Statistics show that in 2019, the whole country recorded 9,842 instances of foreign investors contributing capital and purchasing shares, with a total capital contribution value of US$15.47 billion, an increase of 56.4% compared to the same period in 2018. However, since that peak, investment in this form has begun to decline. The figure for 2020 was US$7.47 billion, down 51.7%; in 2021 it was US$6.9 billion, down 7.7%; and in 2022 it was US$5.15 billion, down 25.2%. In 2023, although the figure edged up to US$8.5 billion, an increase of 65.7% compared to 2022, it was still only slightly more than half of the "peak" level of US$15.47 billion in 2019.

The setbacks of the three years of Covid-19, coupled with geopolitical instability, have caused a decline in global investment flows, including M&A. In 2023, according to data from the London Stock Exchange Group (LSEG), the global M&A market reached a transaction value of only US$2.9 trillion, a 17% decrease compared to 2022. This marks the first time since the 2008-2009 global financial crisis that the world M&A market has seen a decline of more than 10% for two consecutive years. Specifically, the M&A market in the Asia-Pacific region declined by 25%.

According to Mr. Le Xuan Dong, Director of EY Parthenon - Strategic Consulting, EY Vietnam Consulting Joint Stock Company, in the first half of 2024, the M&A market in Southeast Asia showed a downward trend in both total value and number of transactions. Vietnam was no exception. In this context, it is understandable why investment flows through equity and share purchases into Vietnam also declined.

Anticipating a major deal.

Although no large-scale deals have been finalized since the beginning of the year, a recent report by Savills Vietnam indicates several noteworthy M&A transactions. For example, Kim Oanh Group (Vietnam) partnered with NTT Urban Development, Sumitomo Forestry, and Kumagai Gumi Co Ltd (Japan) to develop The One World, a 50-hectare residential area in Binh Duong province. Similarly, Nishi Nippon Railroad (Japan) acquired a 25% stake in the 45.5-hectare Paragon Dai Phuoc project from Nam Long Group (Vietnam) for approximately US$26 million.

In particular, Tripod Technology Corporation (Taiwan) acquired an 18-hectare industrial land plot in Ba Ria - Vung Tau from Sonadezi Chau Duc. After taking over the land, Tripod Technology invested $250 million to build an electronics components factory there, similar to many other Taiwanese investors who are continuously pouring capital into Vietnam in this sector.

In fact, despite a significant decline from its peak, equity investment and share acquisition activities in Vietnam still show positive signs. Last year, the acquisition of 15% of VPBank's shares by Japan's Sumitomo Mitsui Banking Corporation (SMBC), valued at approximately $1.5 billion, can be considered a typical example.

According to Troy Griffiths, Deputy Managing Director of Savills, the industrial real estate sector will see stable demand, supported by foreign investment inflows and infrastructure development. Consequently, M&A activity in this sector is expected to pick up again.

Recent assessments by economic experts also suggest that, with laws related to the real estate market, such as the Land Law of 2024, the Housing Law of 2023, and the Real Estate Business Law of 2023, coming into effect on August 1, 2024, M&A activities in the real estate sector will receive a boost.

However, the market is still anticipating major deals, and certainly not only in the real estate sector, but also in retail, manufacturing, finance, and banking, as in the past.

Several M&A deals have been completed recently, but mostly on a small scale. For example, CDH Investment, an asset management company based in Beijing (China), acquired a 5% stake in Bach Hoa Xanh; and Levanta Renewables (Singapore) acquired a rooftop solar power project from related companies of Tien Nga Joint Stock Company, one of Vietnam's leading logistics providers.

Meanwhile, Sembcorp Solar Vietnam Pte Ltd - a wholly owned subsidiary of Sembcorp - has also completed the acquisition of a majority stake in three subsidiaries within the Gelex Group, and is expected to continue acquiring 73% of the shares of a fourth subsidiary within the Gelex Group in the second half of 2024…

According to a report by the Ministry of Planning and Investment, in the first seven months of 2024, Japanese investors remained the leading investors among countries and territories investing in Vietnam through capital contributions and share purchases, with a total value of nearly US$595 million. This was followed by Singapore with US$500 million and South Korea with US$323 million. Meanwhile, Taiwanese investors contributed US$160 million through capital contributions and share purchases; Cayman Islands US$184 million; and China US$124 million…

These are the same investors who have long been involved in large M&A deals in Vietnam. Therefore, we will have to wait for them to "spend big" in the near future for investment activities through capital contributions and share purchases to flourish.

Source: https://baodautu.vn/thi-truong-ma-cho-thuong-vu-lon-d222299.html