The Vietnamese government’s bold moves to fast-track the ­divestment of state-owned enterprises is opening more opportunities for foreign ­investors, but more needs to be done to shake up the ­languid process.


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The Vietnamese government’s new moves aim to shake up interest in the divesment of SOEs such as Bao Viet


The government on ­November 9, 2018 issued Decision No.1515/QD-TTg on the procedures and process of ­transferring the rights and ­responsibilities of the ­agencies representing the state capital at state-owned enterprises (SOEs) to the Committee for Management of State Capital, which touched on the equitisation of SOEs.

Prime Minister Nguyen Xuan Phuc may also have a meeting with SOEs this week, showing the government’s strong determination to further accelerate the sluggish equitisation of SOEs, and increase their operational efficiency, thus creating more feasible opportunities for foreign investors to acquire their stakes.

Mergers and acquisitions (M&A) remains a key investment channel to foreign investors. Initial statistics on the value of M&A deals involving foreign investors from 2016 to 2017 were quite impressive, accounting for 77 per cent of the total value of M&A deals in Vietnam.

Last year, the government enacted Decree No.126/2017/ND-CP on the equitisation of full state-owned companies, providing new and clearer procedures for the selection and offering of shares to qualified strategic investors, facilitating foreign investors to enter the SOE equitisation process.

The impact of this major legal development will be closely monitored by the business community as its practical applications unfold. As shown by statistics from the Ministry of Planning and Investment, stake acquisitions by foreign investors continued to surge and reached an on-year rise of 35.8 per cent to $6.3 billion in the first 10 months of 2018.

With hundreds of SOEs to be equitised and new bold measures expected to be worked out by the Vietnamese government after the meeting this week, the value of M&A deals is expected to rise even higher.

Key investment route

The Ministry of Finance reported that Vietnam currently has over 500 SOEs – including seven groups, 57 corporations, and 441 enterprises managed by ministries and localities. It is expected that by 2020, there will be about 150 SOEs, including lottery and utility companies, and three groups of PetroVietnam, EVN, and Viettel.

At present, investors from Singapore, South Korea, Japan, and Europe are the most interested in the equitisation of SOEs in Vietnam, with a focus on retail, consumer goods manufacturing, and real estate. Especially, EU investors now see the upcoming ratification of the EU-Vietnam Free Trade Agreement (EVFTA) as a chance for them to venture further into the M&A scene.

“Our members are looking for opportunities in stake sales from SOEs. With the recent strong moves from the government to accelerate the process, more opportunities will be available for foreign investors,” Jazreel Lim, president of the Singapore Business Association of Vietnam, told VIR.

Industry insiders said that Hanoi Beer Alcohol and Beverage JSC (Habeco), leading drugmakers Domesco, Traphaco, and Hau Giang Pharmaceuticals JSC, and others such as Bao Viet Holdings and Vietnam Vegetable Oils Industry Corporation are on foreign investors’ radars.

The involvement of foreign investors in state divestments has improved business governance and operational efficiency at SOEs, with dairy giant Vinamilk amd Domesco as outstanding examples.

After being divested by the state, Vinamilk now has F&N Dairy Investments and Platinum Victory – a fund of Jardine Cycle & Carriage (JC&C), a multi-industry regional business group – as its biggest foreign shareholders. Vinamilk aims to capture 60 per cent of the domestic milk market in the next five years, and continue to expand abroad, especially in emerging markets like Laos and Myanmar.

Domesco, which has Abbott Laboratories – one of the world’s leading nutrition groups – on the board with 51.7 per cent, recorded good performance across 2017 and set high profit targets for this year.

Solutions to stagnancy

Despite some improvements and strong interest from foreign investors, the pace of SOE equitisation this year has been somewhat languid. Only 10 out of the 85 SOEs set for equitisation during the year have so far carried out the plan.

Among cities and provinces, Ho Chi Minh City has 39 SOEs planned for equitisation in 2018, but none of them have finished procedures so far. The southern metropolis at the October meeting with Deputy Prime Minister Vuong Dinh Hue proposed delaying the equitisation process. Accordingly, the city will equitise 32 SOEs next year and the remainder in 2020.

Several industry insiders said that plenty can be done to speed up equitisation, thus attracting more investors.

“The government’s recent efforts are only a starting point, the key is whether SOEs are ready to be sold. Moreover, buyers often want to buy a controlling stake,” said Lim.

The issues raised include the transparency of corporate history, book keeping, corporate evaluation, and the process of equitisation. For example, proper, true, and accurate documentation related to the company should be made accessible to potential strategic investors to conduct legal and financial due diligence in advance of the listing of shares.

Besides, state ownership should be reduced below 50 per cent in sectors of interest to foreign investors to allow them to take control of the company, thereby enhancing the deals’ attractiveness.

Antoine Logeay, Chairman, EuroCham Legal Sector Committee

The numbers and value of completed mergers and acquisitions (M&A) transactions in Vietnam have grown steadily in recent years and are expected to grow further during 2018 and 2019, especially if the EU-Vietnam Free Trade Agreement (EVFTA) is ratified and enters into force as anticipated.

Vietnam’s 2014 Law on Investment (LOI) and 2014 Law on Enterprises (LOE) represent significant milestones in the development of the legal framework for M&A activities in Vietnam. Their implementation has also contributed to the simplification and streamlining of relevant administrative and regulatory procedures in Vietnam. Still, some legal barriers remain and could be easily removed to further boost M&A in the country.

- Continue to reduce the number of ‘conditional’ business sectors (below the current 243 listed in Appendix 4 of the LOI);

- Remove the requirement for foreign investors and some foreign-invested companies to obtain both an investment registration certificate and an enterprise registration certificate in order to establish an entity in Vietnam;

- Remove the requirement for foreign investors to obtain an ‘M&A approval’ before implementing any private M&A transaction;

- Reduce the degree of discretion wielded by the local licensing authorities in relation to the review and revisiting of the commercial terms of M&A transactions;

- Improve the clarity and consistency of the procedures applicable to M&A transactions;

- Set clearer and more uniform guidelines for the use of direct or indirect investment capital accounts in relation to M&A transactions;

- Ensure faster and smoother processing of the tax clearance procedures necessary for implementing M&A transactions and the transfer of purchase consideration;

- Clarify the basis for calculating the market share of a target company in relation to a possible ‘economic concentration,’ for the purposes of Vietnam’s Competition Law;

- Define clear criteria for determining what constitutes the ‘relevant market(s)’ in relation to ‘economic concentration’ transactions, for the purposes of Vietnam’s Competition Law; and

- Ensure that the Vietnam Competition Authority has the power and capability to scrutinise ‘economic concentration’ transactions and make decisions in a more efficient and timely manner.


VIR