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Omassmann - euro champresentation_m&a and capitalmarket


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M&A and Capitalmarket

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Omassmann - euro champresentation_m&a and capitalmarket

  1. 1. ©2010 Duane Morris LLP. All Rights Reserved. Duane Morris is a registered service mark of Duane Morris LLP. Duane Morris – Firm and Affiliate Offices | New York | London | Singapore | Los Angeles | Chicago | Houston | Hanoi | Philadelphia | San Diego | San Francisco | Baltimore | Boston | Washington, D.C. Las Vegas | Atlanta | Miami | Pittsburgh | Newark | Boca Raton | Wilmington | Cherry Hill | Princeton | Lake Tahoe | Ho Chi Minh City | Duane Morris LLP – A Delaware limited liability partnership OLIVER MASSMANN – PARTNER DUANE MORRIS VIETNAM LLC M&A and Development of Capital Market in Vietnam: NEW BOOM in the making? 1
  3. 3. M&A and Development of Capital Market in Vietnam • Development of Capital Market in Vietnam:  Vietnam is developing as a so-called frontier market  Even still having the concern on high rate of non performing loans and the inefficiency of the State Owned Enterprises (SOEs), Vietnam capital market has many attractive opportunities on the eye of the foreign investor  With its’ steady growth, sustainable macroeconomic conditions, stable foreign exchange rate, Vietnam has captured the attention of numerous global investment funds  Vietnam’s capital market has an advantage to offer more investment opportunities compared to its neighboring countries 3
  4. 4. M&A and Development of Capital Market in Vietnam REGIONAL COMPARISON OF COMPETIVENESS ON MARKET ACCESS Vietnam ties in first place with Singapore • *Typical restrictions: number of opened sectors, JV requirement, limits on foreign-owned shares, permission requirement 4 Country Limitation of market access* Country Limitation of market access* Malaysia medium Myanmar high Indonesia medium Cambodia medium Philippines medium Laos medium Singapore low India high Thailand medium China medium Brunei high Vietnam low
  5. 5. M&A and Development of Capital Market in Vietnam • Foreign Direct Investment in Vietnam:  Total newly registered and added capital in 2013 is nearly USD 22 billion, an increase of 69 percent compared to USD 13.013 billion in 2012  By April 2014, Vietnam had 16,323 valid FDI projects, with a total registered capital of 237 billion USD, according to Ministry of Planning and Investment  Vietnam attracted 4,855 billion USD in FDI for the first four months of 2014  Will Vietnam still be a FDI good destination?  Even with a sharply FDI drop in recent years and current cautious economy, 2013 FDI increase shows Vietnam’s attraction as a FDI good destination  Plant move of Japanese and Korean giant industrial firms into Vietnam  Example of Samsung: In 2013, kicked off the construction of mobile production plant with a total investment of USD 3.2 billion. 5
  6. 6. Capital Market and M&A Activities in Vietnam • M&A Activities in Vietnam:  M&A activities in Vietnam have seen steady growth after Vietnam officially became member of the World Trade Organization in 2007  Especially Vietnam has risen 5 times the deal value from $1.08 billion since 2009 to a record breaking $5.1 billion USD in 2012  First M&A wave in Vietnam from 2008- 2013 when the Japanese investors kept coming to Vietnam with total M&A value of US$1.2 billion in 2012. Japan leads the nations that bring M&A deals to Vietnam in terms of both quantity and value  There has also been an emerging wave of ASEAN investors taking over Vietnamese firms  FMCGs is considered the most attractive, with the total M&A transaction value up to US$ 1 billion, accounting for 25% of the total M&A value in Vietnam while the banking and real estate sectors have always been very robust in M&A with the big deal value 6
  7. 7. Capital Market and M&A Activities in Vietnam • M&A Activities in 2013: About $4 billion for the M&A Market in Vietnam in 2013 due to the lack of large-scale deals  Notable 2013 M&A deals:  Transfer of Vincom Center A: From Vingroup to Vietnam Infrastructure and Property Development Group with a deal value of VND9.823 trillion  Warbug Pincus buys 20.02 percent of Vincom Retail’s stakes: $200 million to acquire 20.02 percent of stakes in Vincom Retail in May 2013  Lotte Legend Saigon: Lotte bought 70 percent of Legend Saigon’s stakes from Kotobuki Group at $62 million  KKR invested more in Masan Consumer by acquisition of shares valued at US$200 million  Western Bank merged with the PVFC to become Pvcombank  DaiABank merged with HD Bank and additionally HD Bank bought French financial company SGVF to turn it into a 100% locally owned firm 7
  9. 9. Impediments in Investment Environment and M&A Deals • Main Obstacles in Investment Environment in Vietnam:  Macroeconomic instability  Low labor quality  Outdated infrastructure  Legislative and bureaucratic obstacles  Slow site clearance  Inconsistent application of regulations  Rapidly changing legal and policy environment 9
  10. 10. Impediments in Investment Environment and M&A Deals • Insufficient Regulatory Background on M&A:  Vietnamese law does not provide clear acquisition procedures for investors  The MPI was supposed to prepare draft M&A Guidelines, but nothing has been issued until now  Long anticipated clarification? 10
  11. 11. Impediments in Investment Environment and M&A Deals • Insufficient Regulatory Background on M&A:  M&A involves a very wide range of legal areas:  Legislative system: – Investment Law – Enterprise Law – Securities Law – Vietnam’s Commitments on WTO Accession – Decision No. 88 of the Prime Minister dated 18 June 2009 11 Labor Land Tax Intellectual Properties Rights Regulatory Competition law Corporate/ licensing Environment
  12. 12. Impediments in Investment Environment and M&A Deals Example 01: Foreign Capital Accounts • Foreign investors must observe Vietnamese foreign exchange control laws:  Decree 160/2006/ND-CP dated 28 December 2006  Decision 88/2009/QD-TTg dated 18 June 2009  Circular 05/2014/TT-NHNN dated 12 March 2014 • Decree 160/2006/ND-CP distinguishes between two types of capital accounts for capital transactions  Direct investment-capital foreign currency accounts => For the foreign investor who is issued IC for project implementation in Vietnam  Indirect investment-capital Vietnamese Dong accounts => Generally for the foreign investor who involves in M&A deals, purchase and sales on the securities market, entrustment of investment in VND, etc… • WHAT IF the foreign investor acquires the Vietnamese target company? • => Convert the capital account from VND to foreign currency 12
  13. 13. Impediments in Investment Environment and M&A Deals Example 02: Handling of cross-border M&A deal: • MPI has never issued any guidance on how to issue IC to foreign investors for cross-border M&A deals • Currently, cross-border M&A projects are handled under a different approach: (i) to amend the target's ERC first, then the target company to apply for an IC (not associating with incorporation of such company) • BUT MPI gave internal instruction to DPIs that "there is no guidance in the laws for issuance of IC in replace of ERC for foreign buy-in project" etc • Therefore Hanoi DPI refuses most of IC application dossiers since then, until there's guidance from MPI • HOWEVER other DPIs still accept the IC application dossiers for foreigner buy-in local company • Practical solution from the cases accepted by other DPIs: The target company moves its’ head office to the province, city where the DPI accept the dossier 13
  14. 14. Impediments in Investment Environment and M&A Deals • Investment Legislation Reform  Vietnam is actively working to better its’ legal framework, especially simplifying administrative procedures in the fields, in order to attract more foreign investment in the coming time  2014 proves to be a crucial year as a long set of new laws will be coming:  New Law on Enterprises is under drafting session which promises solutions for many issues during the implementation of the current Law  Law on Investment is under review also and it may be in line with the Law on Enterprises  New decree on PPP which would repeal the Prime Minister’s pilot decision may be soon passed but the first draft was not really sophisticated and it needs substantial revision 14
  16. 16. Outlook for Vietnam’s economy • Outlook for Vietnam’s economy in 2014:  In 2014, Vietnam is expected with a brighter economic situation:  Macro economy and monetary policy will remain stably  The inflation will be under control, estimated rate of between 7-8 %  2014’s GDP is estimated to rise from 5.8 -6%  Exports, especially FDI manufacturing companies, will push the growth of Vietnam’s economy in 2014  Stronger reform of institutional and administrative procedures to improve investment environment 16
  17. 17. Outlook for Vietnam’s economy • Outlook for Vietnam’s foreign direct investment in 2014:  Capital disbursement by FDI projects reached about 4 billion USD in reviewed period, representing a year-on-year increase of 6.7 percent  Korean investors topped the list with both newly-registered and additional capital totaling 1.12 billion USD, followed by Japanese and Singaporean with 531 and 479.1 million USD, respectively by April 2014  FDI into the real estate sector ranked second in the first quarter of 2014, proving that foreign investors have developed renewed interest in the property markets  Forecast that FDI is likely to increase significantly and the market will receive more large-scale FDI property projects in 2014  More FDI to Vietnam when the foreign investor to enter into and form Vietnam as a manufacturing center to export to the big worldwide markets when Vietnam concludes Trans Pacific Partnership agreement (TPP) and the FTA with the EU (EVFTA) 17
  18. 18. Impact of TPP and EVTFA on Vietnam • Impact on Institutional and Business Environment:  Vietnam is forced to perform the reform of institution, transparency of the legal framework, to amend and enact many laws such as enterprise law, investment law  Impact on the business environment through the commitments on customs, border measures and  Commitment on customs : When implemented, the customs procedures will be greatly changed and reduce quite much time  Vietnam is forced to reform the State owned enterprises and the banking system  Governmental Procurement Agreement: No further delay • => More transparent investment environment, ventilation and reduce business costs 18
  19. 19. Impact of EVTFA and TPP on Vietnam • TPP’s Impact on Vietnam’s Economy:  Vietnam will enjoy strong economic and trade expansion and is expected an additional 1% economic growth per year from this agreement  Vietnam is expected to gain significantly from the TPP’s considerable plans for tariff and duty reduction  Vietnam’s export will enjoy the agreement’s great benefits when the US and Japan are one of the biggest partners of Vietnam, especially the garment and textiles sector  Export to the US would increase by 13-20% a year until 2017, fetching total export of US$ 25-30 billions  The foreign businesses are planning to enter Vietnam in preparation for a post-TPP business climate 19
  20. 20. Impact of EVTFA and TPP on Vietnam • EVFTA’s Impact on Vietnam’s Economy:  Vietnam’s annual economic expansion rate may grow an additional 15% every year  Tariffs for most of Vietnamese export product to the EU will gradually reduce to 0% and Vietnam’s export to EU is expected to grow about 35% for next few years  The real wages of skilled laborers may increase by up to 12% while real salaries of common workers may rise by 13%  The EVFTA is the legal framework for a more stable relationship in bilateral trade for Vietnam when competing in the international market  The EVFTA will generate greater effects, e.g. increased quality of investment flows from EU, acceleration of the process of sharing expertise and transfer of green technology and the creation of more employment opportunities 20
  21. 21. M&A AND CAPITAL MARKET OUTLOOK IN 2014 -2018 21
  22. 22. M&A and Capital Market Outlook in 2014 -2018 • M&A and Capital Market Outlook:  Vietnam’s economy still remains upbeat as the Government is on the right track to keep the inflation stay low, stabilize the macro economy  The Government may loosen the foreign ownership caps with 2014 to give the investors even more room to boost holdings  The prospect of a TPP and EVFTA with the increase of trade deals will be great outlook for Vietnam to attract more foreign capital  The reform of SOE by equitization and IPO: Targeted to equitize 432 companies in 2014 -2015 which definitely provides a good number of companies for the stock market and robust 22
  23. 23. M&A and Capital Market Outlook in 2014 -2018 • M&A and Capital Market Outlook:  M&A activities in Vietnam expected to maintain an annual growth rate of 25-30 per cent over the next five years  The firms from Japan and ASEAN using M&A to enter Vietnam’s market will continue to be a major trend in the future  Banking and real estate will continue to be robust for M&A in the next few years since the banking system is still being stepped up for restructuring process while the real estate market is in frozen and many property investors are facing with financial difficulties  The M&A activities in consumer goods will be also active as the F&B industry in Vietnam is one of the most attractive investment industry in the eye of the equity fund and foreign firms 23
  24. 24. M&A and Capital Market Outlook in 2014 -2018 • More banking M&A transactions in 2014-2018:  M&A activities will continue to be buzzing as the number commercial banks will be reduced to 13-15 in 2017  GP Bank acquired 100% by the UOB of Singapore may open the M&A wave in 2014  Pressure for divestment from banking area of SOE’s in 2014 - 2015 will lead to more M&A activities: EVN still holds 16.02% stake in ABBank, Vietnam Oil and Gas Group (PVN) owns 20% stake in Ocean Bank  The banks will be more active in finding new foreign strategic partners when the pressures from competition and capital requirements may push smaller banks to look to new foreign investors to achieve expansion  To resolve the banking problems, the weak banks will be merged with other big banks 24
  25. 25. M&A and Capital Market Outlook in 2014 -2018 • M&A activities in FMCG sector remains robust:  The FMCG market is the most attractive industry in Vietnam and expected to see more M&A deals as it remains the attractive to international investors  Vietnamese consumer goods sector posted one of the highest growth rate in Asia • Distribution and retail sector:  With the population of about 90 millions , mostly in the working age and having income more and more increased, the distribution and retail continues to attract a great deal of attention despite the ongoing concerns over legal restrictions facing foreign investors 25
  26. 26. M&A and Capital Market Outlook in 2014 -2018 • M&A Outlook in IT industry:  The M&A activities in IT sector is expected to be more active as the venture funds and enterprises are seeking investment opportunities  The investor will target in the companies operating in e-commerce, internet service, e-payment, inventory management solutions, online forwarding and delivery and internet services related to training, healthcare and finance and real estate  The investors from Japan, Singapore and Russia are planning to invest in Vietnam’s IT market by purchasing shares, investing in or acquiring an entire company not only to make gain but also to set up a staring point in the new 26
  27. 27. RECOMENDATION • MORE POSITIVE outlook for M&A activities and capital market when Vietnam enters into new trade agreements • BUT, the protectionist policies may hinder the development of Vietnam’s economy like the WTO’s aftermath • HOWEVER, there are great financial benefits and opportunities for foreign investors who persevere in Vietnam’s business sectors! 27
  28. 28. DUANE MORRIS VIETNAM LLC Thank you very much! Duane Morris Vietnam LLC Duane Morris Vietnam LLC Pacific Place, Unit V1307/08, 13th Floor, Suite 1503/04, Saigon Tower 83B Ly Thuong Kiet, Hoan Kiem District 29 Le Duan Street, District 1 Hanoi, Vietnam Ho Chi Minh City, Vietnam Tel.: +84 4 39462200 Tel.: +84 8 3824 0240 Fax: +84 4 3946 1311 Fax: +84 8 3824 0241 Contact email: 28