M&As in Vietnam are forecast to reach $4.1 billion in 2019 and domestic IPOs $4.5 billion, according to the recent Global Transactions Forecast Report from Baker McKenzie.

“Notwithstanding a solid domestic economy, Vietnam still sees some cooling in M&A deals during 2018, and we now expect completed M&A deals to come in at under $3 billion for the year,” the report noted. “But a number of deals announced in 2018 will be completed in the coming year, indicating that M&A deal numbers will rebound in 2019.” With reforms to further facilitate foreign investment now underway and with the ratification of the CPTPP, inbound investment in particular is expected to accelerate through 2019-2021. Meanwhile, the report added, the strength in IPOs seen through 2018 is set to continue, and more State divestments from major State-owned firms will be seen in the coming few years.

M&As in the Asia-Pacific have increased in value in 2018, in line with Baker McKenzie’s expectations. Chinese domestic M&As cooled, partly driven by tighter credit conditions, but inbound M&As have gathered pace as overseas firms’ move to protect access to the Chinese market in the event of future trade barriers. India has seen a particularly strong year, with total M&As of around $80 billion. Japan and Australia have both seen stronger inbound and domestic activity this year.

Moving into 2019, underlying conditions for M&As appear solid, with most emerging Asia-Pacific economies being better insulated against US Fed rate hikes than in the past, though they remain vulnerable to US protectionism. Japan is set for an economic rebound and Australia is expected to enjoy robust growth. M&As in Vietnam and India will benefit from important policy reforms, which should make inbound investment more attractive, according to the report. Meanwhile, in China, consolidation in heavy industry and upgrading manufacturing capabilities will be key structural drivers of M&As in 2019 and beyond. But with growth shifting towards a new normal of around 6 per cent and the government seeking to further reduce financial risk via slower credit growth, M&A value in China is forecast to remain noticeably lower than in 2015-2016.

The depreciation of several key currencies in the region (including China’s renminbi) against the dollar in the closing stages of this year will also undermine the dollar value of Asia-Pacific deals in 2019. “We forecast total M&As in the region to rise to $751 billion in 2019. But as in other parts of the world, growth is slowing, meaning equity markets and deals are likely to take a pause in 2020. A modest upturn in growth in 2021 and the stabilization of global liquidity conditions point to a cyclical deal upturn the following year.”

Experts warn investors of legal risks in M&A transactions

Despite a slew of opportunities given to foreign investors to conduct merger and acquisition (M&A) transactions in Vietnam, investors might encounter legal risks when disputes arise.

Speaking at a seminar under the theme: “Closer Look into Legal Risks & Disputes in M&A Transactions,” held by the Vietnam International Arbitration Center (VIAC) and Korean Commercial Arbitration Board on December 20, Pham Duy Nghia, an arbitrator from VIAC, mentioned the Lavenue Crown project at 8-12 Le Duan Boulevard in District 1, a prime location in the central business district, as he pointed out the legal risks investors might face when they acquire stakes in State-owned firms.

Nghia raised questions related to the legality of the transfer format, usage rights and the revocation of the land designated for lease and transfer. He also wondered who would take responsibility if investors’ interests were affected.

From the story of the land dispute at 8-12 Le Duan Boulevard in District 1, Nghia said that M&A deals between State-run enterprises and foreign investors are complicated, not only in terms of the Enterprise Law, the Civil Code or the Investment Law but also in terms of compliance with the Land Law and the Law on Management and Use of Public Property.

As such, the arbitrator suggested investors carefully research M&A deals before conducting transactions to minimize these risks.

In addition to the Government’s commitment to creating favorable conditions for foreign investors and State-owned firms’ strict compliance with business laws, it is necessary for investors to understand the country’s laws and legislation and to flexibly apply regulations to successfully secure deals, Nghia remarked.

Truong Nhat Quang, a lawyer with YKVN, said that many risks have arisen during M&A transactions with Vietnamese firms.

Also, Quang attributed disputes over M&A deals to incompatibility between British or U.S. law and Vietnamese law.

Quang said that even though M&A activities are on the rise, providing various opportunities, investors need to prepare for their investment to cover project costs, workforce and legal consultation to alleviate the effects of possible disputes.

Vietnam Economic Times/SGT