M&A activities increase and carry potential risks

VCN - As an important investment channel promoting growth for businesses and the economy, in the context of many domestic enterprises weakening due to the Covid-19 pandemic, the possibility of being acquired by foreign enterprises through M&A is high and it is necessary to take measures to protect enterprises in some important and sensitive sectors.
The M&A market has cooled down during the Covid period The M&A market has cooled down during the Covid period
M&A market has cooled down during Covid-19 period M&A market has cooled down during Covid-19 period
Southeast Asian M&As gathering momentum Southeast Asian M&As gathering momentum
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Positive signals

The inflow of foreign investment into Vietnam has tended to shift remarkably with M&A taking up a large proportion and rapidly growing since 2018. It is understandable that foreign investors increasingly prefer the M&A form because investing in Vietnam in this form is faster than direct investment to establish a new legal entity.

Data from the MPI showed that in 2019, there were nearly 10,000 instances of capital contribution and share purchase by foreign investors with a total value of the capital contribution of US$15.5 billion, up 56.4% compared to the same period in 2018. This figure in 2018 was nearly 6,500 instances of capital contribution and share purchase with a total value of the capital contribution of nearly US$10 billion, an increase of nearly 60% compared to 2017. In the first 10 months of 2020, there were nearly 5,500 instances of capital contribution and share purchase by foreign investors, down 27.4% over the same period with the value of capital contribution reaching US$6.1 billion.

Deputy Minister of Planning and Investment Tran Quoc Phuong said according to statistics, except for 2014, Vietnam had always been one of the top three M&A destinations in Southeast Asia for Japanese investors in terms of the number of transactions over the past 10 years.

“In 2019, the transaction volume of Japanese investors in Vietnam reached the highest level ever with 33 transactions. This shows that the valuation of Vietnamese companies is increasing and FDI investors are more and more interested in the Vietnamese market,” said Phuong.

However, the MPI leaders stated that in the context of Vietnam's deep integration into the international economy, trade and investment, there was also a need for a reasonable balance between M&A activities and domestic enterprises’ demand, to avoid key economic sectors and fields being controlled and acquired by foreign investors. Simultaneously, it is necessary to build, develop and preserve domestic brands.

Avoid key economic sectors being taken over

Besides the positive signals, the fact that the M&A trend is increasingly accounting for a large proportion and has a fast growth rate leads to concerns about domestic enterprises being acquired, notably when capital from China and Hong Kong (China) through M&A surged in value.

According to Nguyen Bich Lam, former General Director of the General Statistics Office, Chinese investors with the government's support have appeared in M&A deals with foreign enterprises that are on the verge of bankruptcy or are facing difficulties due to the pandemic.

Therefore, governments have urgently introduced solutions to protect enterprises that might go bankrupt due to the Covid-19 pandemic from foreign acquisition.

This warning is noticeable, because in fact, after M&A, there were some cases in which Vietnamese enterprises have fallen into a situation where a major foreign shareholder had gained corporate governance rights, such as Coteccons Construction JSC.

Accordingly, in June 2020, Coteccons’ major shareholders including Kusto and THE8TH Pte. Ltd asked to hold an extraordinary general meeting of shareholders, requested the Chairman of the Board of Directors of Coteccons to resign.

At that time, Coteccons questioned whether or not the relationship between Kusto, THE8TH, Ma Dao Trading Pte. Ltd. and other individual shareholders in colluding to dismiss the Coteccons’ founders at all costs to complete the acquisition of this company, as well as whether or not this group of shareholders violated the law on tender offers and information disclosure to illegally own Coteccons’ shares.

Three months after the shareholders meeting, Coteccons Chairman Nguyen Ba Duong has resigned, his successor was Mr. Bolat Duisenov, the representative of foreign shareholder Kusto.

To avoid key economic sectors being controlled and acquired by foreign investors, especially investors from China, or hiding from other countries that are in fact China, economic expert Nguyen Bich Lam said the government needed to determine the limit that allows foreign investors to hold shares in equitized enterprises.

“In particular, the state management agency is responsible for reviewing large and typical M&A deals in the past few years to realize shortcomings, thereby summarizing experiences in state management in the foreign investment sector for the future,” said Lam.

By Hoai Anh/ Ha Thanh

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