Reports from the Ministry of Planning and Investment’s Foreign Investment Agency (FIA) showed that foreign investors conducted 4,551 transactions to contribute funds and acquire shares in local firms with a combined value of some US$5.3 billion in the first eight months of the year, up a staggering 50.9 percent from a year earlier.
Foreign investors contributed capital or bought stakes in 1,200 local firms in August
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Meanwhile, new foreign direct investment (FDI) approvals in Vietnam in August have not been significant. During the month, there have been only 262 FDI projects licensed, with total registered capital of US$280 million.
As such, the rise in investment capital from foreign investors mainly depends on foreign indirect investment, including capital contribution and share purchase.
FIA data showed that the wave of capital contribution and share purchase has mainly come from Thai, Singaporean, Japanese and Korean investors. A notable deal to date this year was the capital contribution of leading global private equity firm Warburg Pincus to Becamex IDC Corp to form the US$200 million joint venture BW Industrial Joint Stock Company, which focuses on the development of institutional-grade industrial and logistics properties across Vietnam.
According to experts, the capital contribution to or share purchase of foreign investors in domestic projects is one of the forms of merger and acquisition (M&A). Many foreign investors consider it the most effective and fastest way to penetrate and expand operations in the Vietnamese market.
Expert Nguyen Tri Hieu said instead of directly investing in new projects, which requires registration procedures and uncertainty, foreign investors choose to buy shares of companies with existing strong brands in the market.
In addition, foreign investors have also boosted their indirect investments though M&A after the government issued Decree No. 60/2015/ND-CP, which allows the increase of foreign ownership in listed and public companies from 49 percent to 100 percent, except for some companies operating in conditional business lines.
Foreign SMEs show rising interest
Minister of Planning and Investment Nguyen Chi Dung is upbeat about the future of foreign indirect investments, including M&A, in Vietnam, which he considers a more flexible process than direct investment.
Experts also forecast that the foreign indirect investments will continue spiraling upward in spite of FDI projects comprising a high proportion of total foreign funds.
Warrick Cleine, chairman and general director of KPMG in Vietnam, said that the Vietnamese M&A market is rising strongly at a rate of 17 percent per year.
Experts said instead of seeing only big names from abroad involved in Vietnam-based M&A transactions as in the past years, the M&A fever will extend to foreign small- and medium-sized enterprises (SMEs), especially those from Japan and South Korea.
Jiun Park, senior deputy managing director at the Korea Trade Investment Promotion Agency (KOTRA), said that many South Korean SMEs have enquired about the process of doing M&As in Vietnam. Park called this “the third wave of investments from South Korea”, following the first wave conducted by conglomerates in labor-intensive industries and the second one by consumer goods companies.
A characteristic of the third wave is strategic alliances between South Korean and Vietnamese companies, Park said, adding that the South Korean partner can provide modern technology, while the Vietnamese side can help with brand presence, market share, and product distribution in Vietnam.
