VietNamNet Bridge – The frozen real estate market has put big difficulties on the domestic building material industry, but has brought the golden opportunities to foreign groups to take over domestic companies.



A lot of M&A deals made

The deal of Indonesian Sement Gresik buying back 70 percent of Thang Long Cement stakes from Geleximco, worth $230 million, has caused a shock to the public.

The deal, wrapped up in late 2012, was the first deal carried out outside Indonesia by Sement Gresik, the biggest cement manufacturer in South East Asia. It stirred up the public because it took only four months to complete the affair, from the day the two sides began the negotiations to the day the procedure is fulfilled.

Another big merger and acquisition (M&A) deal on the building material market was the one under which Thai Siam Group bought 85 percent of Prime Group’s stakes, worth VND5 trillion. Prime is considered the “big guy” in its field – making tiles, now holding 20 percent of the Vietnamese market.

The business deal, plus the purchase of 20 percent of stakes of the two Vietnamese biggest plastics companies – Binh Minh Plastics and Tien Phong Plastics (through its subsidiary Nawa Plastic), have helped turn Siam into a giant in the Vietnamese building material market.

Siam reportedly once talked with the Ministry of Construction about a project on developing a cement plant in Vietnam. However, in 2011, the group spent 5.5 million dollars to buy 99 percent of the Buu Long Cement Plant in Dong Nai province which has the capacity of 200,000 tons per annum.

No sign of recovery has been seen in the building material market over the last three months. Manufacturers have sold 10 tons of cement so far this year, or just fulfilling 19 percent of the yearly plan. The inventory cement volume has decreased to 5.5 percent, not because of the better sales, but because of the lower productivity.

The sales of construction glass reportedly were equal to 65 percent of the same period of the last year. Meanwhile, the consumption of other kinds of materials was equal to 70 percent.

A senior official of the Ministry of Construction, when asked about the market prospect in 2013, said that in the best scenario, he hopes the market would not be worse than in 2012.

Domestic firms will be taken over by foreigners

Nguyen Van Thien, Chair of the Vietnam Cement Association, has noted that the current big economic difficulties would provide a fertile land for merger and acquisition activities.

Thien said M&A proves to be the best solution for the enterprises which are now on the verge of bankruptcy. Meanwhile, foreign groups now can buy businesses at low prices. This proves to be the solution which is much better than setting up new production bases in Vietnam and start from the very beginning.

However, Thien has warned that the building material market may fall into the hands of foreign companies. If so, profits would be made by foreign companies and would be transferred abroad. Meanwhile, the materials for cement production are the domestic natural resources.

“In this case, Vietnam would lose its natural resources, while it has to serve as the production site and bears the environment pollution,” Thien said.

Nguyen Quang Cung from the Vietnam Building Material wonders why foreign investors still want to buy the stakes of building material manufacturers, and if the investors can see the bright prospect of the industry in the near future.

“Cement, bricks, steel have been left unsold. Why do the foreign investors still keep their interest in the enterprises in the field?” he questioned.

Phap Luat