Tag Archives: market access

Lawyer in Vietnam Dr. Oliver Massmann Public Mergers and Acquisitions: Market Analysis Overview

Largest / most noteworthy public M&A transactions in the past 12 months

Oil gas & Chemicals

In May 2017, Earth Chemical bought 100% stake in A My Gia Joint Stock Company at about USD79.2 million.

Financial

In July 2017, Vietnam International Joint Stock Commercial Bank bought 100% business of Commonwealth Bank of Australia (Ho Chi Minh Branch).

Other

Retail

  • Thai group Singha bought 25% and 33% stake in Masan Consumer Holdings and Masan Brewery respectively at a total of USD1.1 billion.
  • VinGroup bought Maximark at an undisclosed value.
  • In April 2017, Shinhan Vietnam Bank bought the retail business of ANZ at an undisclosed value.
  • In May 2017, Bien Hoa Sugar Company and Thanh Thanh Cong Tay Ninh Sugar Company bought 100% charter capital of HAGL Sugar at about USD58.52 million.

Food

  • In December 2016, Fraser & Neave (a Singaporean beverage company) bought 5.4% of Vinamilk’s shares at USD500 million.
  • In late 2016, Deasang Corp bought 99.99% stake in Duc Viet Food Joint Stock Company.
  • In November 2016, Kido Corporation bought 65% stake in Tuong An Vegetable Oil Company at about USD44.52.
  • In late March 2017, CJ Cheiljedang Corporation bought 20% stake in Saigon Trading Corporation at USD8.2 million, bringing its total ownership in Cau Tre Export Products Processing Joint Stock Company to 71.6%.
  • In May 2017, Kido Corporation bought 27% stake in Vietnam Vegetable Oil Industry Corporation, bringing its total ownership in the company to 51%.

Real estate

  • In June 2016, Mapletree Investments acquired Kumho Asiana Plaza project through the joint venture between Kumho Industrial and Asiana Airlines at USD215 million.
  • In July 2016, Mitsubishi bought the Manor Central Park project from Bitexco Group at an undisclosed deal value.
  • Also in July 2016, VinaCapital bought International Centre Building from Keppel Land Ltd. At USD13.8 million.
  • In September 2016, CapitalLand Vietnam bought Ho Chi Minh Cau Kho Land Plot project from River View Company Limited at USD51.9 million.
  • In the first quarter of 2017, Sulyna Hospitality bought 70% stake in a 4-start resort in Phu Quoc from Berjaya Land at USD14.65 million.
  • In the first quarter of 2017, An Gia Investment Corporation and its partner Creed Group bought 5 apartment blocks of La Casa Project of Van Phat Hung Corporation at about USD40 million.
  • In the same period, CapitaLand announced the purchase of 90% stake in CapitaLand Thanh Nien.

Insurance

  • In June 2016, FWD insurance company, a branch of Pacific Century, started the process of acquiring Great Eastern Vietnam after receiving the licence for this acquisition.
  • In June 2016, New Life RE bought Duxton Hotel from Low Keng Huat at USD49.2 million.
  • In April 2017, Aviva Insurance Corporation bought 50% stake of VietinBank Aviva Joint Venture Company from Vietnam Joint Stock Commercial Bank for Industry and Trade.

The major trends in the structuring of public M&A transactions

In Vietnam, M&A transactions usually take the form of either share or asset acquisitions, with share acquisition transactions outnumbering asset acquisition transactions.

Share acquisitions by foreign purchasers are commonly structured as offshore direct investments. The new investor can:

  • Acquire shares or capital contributions from an existing shareholder in the target (for example, a joint stock company, limited liability company, and so on).
  • Subscribe for newly issued shares of the target (for a joint stock company).
  • Make further capital contributions to the target (for a limited liability company).

In the case of an asset deal, a foreign purchaser must generally establish a new subsidiary in Vietnam.

In addition, M&A transactions can also take the form of a merger. One or more companies of the same type can be merged into another company by transferring all assets, rights, obligations and interests to the merged company, terminating the existence of the merging company.

The 2014 Enterprise Law sets out the types of business structuring that can be used by investors as a result of M&A transactions. In addition, the 2014 Investment Law is the first law that regulates M&A transactions and clearly provides that such transactions do not require an investment registration certificate. Now, the foreign investors must seek approval from the local Department of Planning and Investment of the transaction if the:

  • Target company operates in conditional business sectors applicable for foreign investors.
  • Investment leading to foreign ownership of the target company is 51% or more (in particular, from below 51% to more than 51% and from 51% to above 51%).

In other cases, the target company only needs to register a change of membership/shareholding at the Business Registration Division. This change has ended years of uncertainty and frustration faced by foreign investors seeking entry into the Vietnam market or expansion through M&A transactions.

The level/extent of private equity-backed bids in the past 12 months

Investment in the form of M&A transactions is still the most popular form compared with private equity investment. In recent months, private equity funds have been following the securities market in Vietnam, especially companies carrying out value chain operations. Consumer goods and infrastructure are the sectors that attract the most attention. However, due to limited publicly available information, it is not possible to fully assess the level of private equity-backed bids.

The approach of the competition regulator(s) in the past 12 months

The Vietnam Competition Authority under the Ministry of Industry and Trade (VCA) must be notified of the transaction if participating companies have a combined market share in the relevant market of 30% up to 50%. The VCA will then examine whether the calculation of the combined market share is correct and whether the transaction is prohibited (that is, whether the combined market share exceeds 50%, except in certain cases). The transaction can be conducted when the VCA issues a written confirmation that the transaction is not prohibited under competition law.

For more information on the VCA, see www.vca.gov.vn/Default.aspx?lg=2.

Main factors affecting the public M&A market over the next 12 months

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 is expected to come into force in 2019.

Encouraging signs for foreign investment include:

  • Reformed policies to allow wider access to foreign investors.
  • Formation of the ASEAN Economic Community at the end of 2015.
  • The conclusion of free trade agreements (FTAs).
  • 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 introduction of the new Investment Law, Enterprise Law and other laws and policies are creating an improved legal environment for investment and trade in general, and the M&A market in particular. However, the following factors also affect M&A transactions:

  • 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.

The major expected trends in the Vietnam M&A market include:

  • Bank restructurings.
  • Acquisitions and anti-acquisitions, particularly in the real estate sector.
  • Growing Japanese and Thai investment in Vietnam through M&A transactions.
  • Reform of SoEs.

***

Please do contact the author Dr. Oliver Massmann under omassmann@duanemorris.com if you have any questions on the above. Dr. Oliver Massmann is the General Director of Duane Morris Vietnam.

 

EU-VIETNAM FREE TRADE AGREEMENT – MARKET ACCESS OVERVIEW

OVERVIEW

On 2nd December 2015, after nearly 3 years with 14 rounds of negotiations, President Donald Tusk, President Jean-Claude Juncker and Prime Minister of Viet Nam Nguyễn Tấn Dũng announced the conclusion of the negotiations of the EU-Vietnam Free Trade Agreement (EVFTA). Both parties are undertaking the necessary steps to finalise the ratification process for the Free Trade Agreement (FTA) to enter into force in 2018.

EVFTA is considered one of the most comprehensive and ambitious trade and investment agreements that the EU has ever concluded with a developing country. It is the second agreement in the Association of South East Nations (ASEAN) region after Singapore and it will intensify the bilateral relations between Vietnam and the EU. Vietnam will have access to a potential market of 500 million people and a total Gross Domestic Product (GDP) of USD 15 000 billion (accounting for 22% of global GDP). The other way around, exporters and investors from the EU now have further opportunities to access one of the fastest-growing countries of more than 90 million people in the region.

The real wages of skilled laborers may increase by up to 12% while real salary of common workers may rise by 13%. The macro economy will be stable and inflation rate controlled. Vietnam’s business activities will be booming in the next few years once the EVFTA officially comes into force and Government’s policies, as well as institutional reforms, start showing their positive effects.

Moreover, Vietnam’s GDP is expected to increase by 0.5% annually and increase in exports of 4-6% per year. If this trend continues until 2020, Vietnam’s exports to the EU will increase by USD 16 billion. Until 2025, the EVFTA is estimated to generate an additional 7-8% of GDP above the trend growth rate.

MARKET ACCESS FOR GOODS

Nearly all customs duties – over 99% of the tariff lines will be eliminated. The small remaining number is partially liberalised through duty-free quotas. As Vietnam is a developing country, it will liberalise 65% of the value of EU exports to Vietnam, representing around half of the tariff lines, at entry into force and the remaining duties will be eliminated over the next ten years. For some products, Vietnamese duties will be eliminated over a sevenyear period such as motorcycles with engines larger than 1500cc, car parts and about half of EU pharmaceutical exports. The market will be opened for most of EU food products, i.e. wine, spirits and frozen pork meat after seven years. For dairy products, after a maximum of five years. This is an unprecedented far-reaching tariff elimination for a country like Vietnam, proving its targets for deeper integration and trading relations with the EU.

From the EU’s side, the EU agreed to eliminate duties for 84% of the tariff lines for goods imported from Vietnam immediately at the entry into force of the FTA. Within 7 years from the effective date of the FTA, there will be more than 99% of the tariff lines being eliminated for Vietnam. The EU will eliminate duties for some sensitive products in the textile and footwear sector over a 5-7-year period, with a double transformation rule (instead of a strict yarn-forward rule as in the TPP) and will allow Vietnam to import fabrics from South Korea as an exception to the general rule. The EU also offers access to some Vietnamese sensitive agricultural products via duty-free quotas (rice, canned tuna, surimi, sweet corn, sugar products, etc.). Vietnamese exports of textile, clothing and footwear to the EU are expected to more than double by 2020 as a result of the EVFTA.

We note that, in the region, besides Vietnam, Singapore also concluded an FTA with the EU in 2014. However, this does not affect the competitiveness of Vietnam in trading with the EU. This is due to the fact that Vietnam mainly exports textiles, footwear, agricultural products, etc. while Singapore’s main exports are machines, chemical products and transport equipment. Moreover, while the EU is accelerating procedures to negotiate FTAs with different countries in the ASEAN region, Vietnam should take advantage of this golden time before FTAs with others in the region are concluded and to become a regional hub.

MARKET ACCESS FOR EU SERVICE PROVIDERS

Although Vietnam’s World Trade Organisation(WTO) commitments are used as a basis for thes ervices commitments, Vietnam has not only opened additional (sub)sectors for EU service providers but also commits deeper than in the WTO, offering the EU the best possible access to Vietnam’s market. (Sub)sectors that are not committed under the WTO but under which Vietnam makes commitments are, for example: interdisciplinary research and development (R&D) services, nursing services, physiotherapists and para-medical personnel, packaging services, trade fairs and exhibitions services and building-cleaning services. Moreover, it is noteworthy that the EVFTA contains a MFN clause that allows one party to grant the other party the best treatment that the former is negotiating with other partners under another framework.

We set out below certain Vietnam’s commitments in key sectors with reference to its commitment to the WTO.

Distribution sector

The WTO requires an Economic Needs Test (ENT) for the establishment of outlets for retail services (beyond the first one). The EVFTA requires the same but adds cases for ENT exemption and timeline for ENT abolishment after five years.

Distribution of cigarettes and cigars, publications, precious metals and stones, pharmaceutical products and drugs, explosives, processed oil and crude oil by foreign investors are still prohibited.

wtO eVFtA
 

 

 

 

The establishment of outlets for retail services (beyond the first one) shall be allowed on the basis of an Economic Needs Test (ENT)

 

In case of establishing an outlet less than 500m2 within the area planned for trading activities and already completed construction of infrastructure, ENT is not required.

 

5 years from the date of entry into force of the Agreement, the requirement of the ENT will be abolished.

Power/ energy

wto eVFtA
 

 

 

 

 

N/A

 

Commitments are made in 3 sub-sectors: (i) Production of electricity; transmission and distribution of electricity on own account; (ii) Manufacture of gas; distribution of gaseous fuels through mains on own account; and (iii) Production of steam and hot water; distribution of steam and hot water on own account.

Maritime transport

Sub-sectors wto eVFtA
 

 

Maritime transport services

 

Mode 3 Market Access (MA): joint venture with maximum 49% foreign ownership

 

 

Mode 3 MA: joint venture with maximum 70% foreign ownership

 

internal waterways transport

Passenger transport Freight transport

 

Mode 1: No commitment Mode 3: joint venture with

maximum 49% foreign ownership

 

Mode 1: No restriction Mode 3: joint venture with

maximum 51% foreign ownership

Securities services

wto eVFtA
 

 

Commitments on 6 sub-sectors

Mode 3: foreign securities service suppliers are permitted to establish representative offices and joint ventures with maximum foreign ownership of 49%.

After 5 years from the date of accession, securities service suppliers with 100% foreign-invested capital shall be permitted.

Same commitments in 6 sub-sectors

Commitments on 2 additional services: Provision and transfer of financial data processing; and credit reference and analysis.

Mode 3: Same as the WTO

Telecommunication Services

Non facilities-based services: WTO/ASEAN Framework Agreement on Services (AFAS): maximum 65% foreign ownership forever but in the EVFTA after 5 years, this could be 75%.

Other services – Virtual Private Network (VPN): maximum 70% foreign ownership forever but in the EVFTA after 5 years, this could be 75%.

CONCLUSION

 Vietnam is a country of changes and currently offers increasing opportunities for foreign businesses. The underlying strength of the economy is reflected in, among others, controlled macroeconomic indicators, strong productivity gains and extensive integration into the regional and global economy. It is now time for foreign investors to start their business plans and grasp the upcoming clear opportunities.

Please do not hesitate to contact Oliver Massmann under omassmann@duanemorris.com if you have any questions or want to know more details on the above. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.

Thank you!