Fine-tuned policies needed to unleash foreign investment in Vietnam’s M&A market

Although the Vietnamese M&A market has been signaling a positive outlook, the country is still in need of revising its legal framework to eliminate obstacles and attract more quality investors, experts said.

Real estate is expected to see more M&A deals this year.

According to Pham Duy Khuong, managing director of ASL Law firm, the M&A market is governed by laws on enterprises, foreign investment, land, and competition, among others. However, the current legal framework for the market has not kept up fully with changes in M&A structures and concepts, causing confusions and uncertainties among many investors.

Under the current regulations, Khuong said, most M&A transactions in Vietnam need to be approved by authorized agencies, which can take up to several months. Especially when the deal involves conditional business, the time of waiting will even be longer as it is carried out by many different agencies.

A survey by Corporate Investment and Mergers & Acquisitions Center also showed that one of the obstacles to M&A deals in Vietnam is the time consuming approval process.

In addition, the provisions of the Law on Competition stipulate M&A transactions that lead to a market share acquisition of 30-50% in a ‘relevant market’ must be notified to the Vietnam Competition Authority. Transactions leading to a combined market share of over 50% are prohibited, except in certain cases.

In fact, the implementation of these regulations is challenging for both businesses and authorities because it is difficult to determine what constitutes a ‘relevant market’ according to the law. Due to this ambiguity, investors must make their own decisions and determine if they have to go through a merger control process before proceeding.

This creates a potential risk that the parties involved might get penalties for legal violation, or that the transaction might be canceled, Khuong said.

Positive market

The M&A market in Vietnam this year will reach some US$7-7.5 billion, equivalents to  the value in the past two years, Vietnam Mergers & Acquisitions Forum (MAF)’s research group and Corporate Investment and Mergers & Acquisitions Center forecast.

Experts said that real estate will continue to be a big magnet for investors this year. In addition, industrial production, services, construction and construction materials are also major appealing sectors for M&A activities thanks to the relocation of production from abroad into Vietnam to take advantage of free trade agreements signed by Vietnam and to mitigate impacts of the US-China trade war.

Besides, the increasing domestic demand due to the rapid population growth and rapid urbanization will also have significant impacts on the attraction of M&A activities in services and consumer goods.

It is also forecast that the market will continue to be mostly represented by foreign investors this year, with big players from Singapore, South Korea, Japan and Thailand. However, domestic investors should become more and more prominent and more active in the battle fought for market share.

Vietnam reported huge M&A transactions involving overseas investors last year, buoyed by favorable policies on improving the country’s business environment, along with the potential coming from bilateral and multilateral free trade agreements.

Leading the largest M&A deals in the country last year were investors from South Korea, Hong Kong, Singapore and Japan, who poured aggressively in sectors such as consumer goods, retail, real estate, telecommunications, energy, infrastructure, pharmaceuticals, and education.

The top deals in the year included SK Group which, through its investment arm SK Southeast Asia Investment. decided to invest US$1 billion to acquire a 6.1% stake of conglomerate Vingroup, while becoming the largest foreign shareholder of Masan Group following an agreement worth US$470 million.