The document discusses M&A and capital market development in Vietnam. It provides an overview of M&A and FDI trends in Vietnam, noting increasing M&A deal values in recent years. It also identifies some impediments in Vietnam's investment environment like inconsistent regulations. Looking forward, the document predicts continued growth in Vietnam's economy and M&A/capital markets, driven by international trade agreements and reforms. Banking, real estate, and consumer goods are sectors expected to see ongoing M&A activity in the coming years.

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M&A and Development of Capital Market in
Vietnam: NEW BOOM in the making?
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Agenda:
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• M&A AND DEVELOPMENT OF CAPITAL MARKET
IN VIETNAM
• IMPEDIMENTS IN INVESTMENT ENVIRONMENT
• VIETNAM ECONOMIC OUTLOOK AND IMPACT OF
INTERNATIONAL FTAs
• M&A AND CAPITAL MARKET OUTLOOK

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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
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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
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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

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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.
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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
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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
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IMPEDIMENTS IN INVESTMENT
ENVIRONMENT AND M&A DEALS
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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
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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?
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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
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Labor Land
Tax Intellectual Properties Rights
Regulatory Competition law
Corporate/ licensing Environment

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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
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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
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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
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OUTLOOK FOR VIETNAMESE ECONOMY
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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
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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)
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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
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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
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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
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M&A AND CAPITAL MARKET
OUTLOOK IN 2014 -2018
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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
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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
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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
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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
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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
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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!
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DUANE MORRIS VIETNAM LLC
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