Vietnam is urged to remain cautious on SOEs stake sales, with the aim of receiving the most benefits instead of the quantity of M&A deals, said experts at the press meeting in Hanoi on July 24.
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In the last 10 years, Vietnam's M&A market witnessed nearly 4,000 M&A deals with total value of US$48.8 billion, stated Vice Minister of Planning and Investment Nguyen The Phuong at the meeting.
Last year, Vietnam posted a record of US$10.2 billion in deal value, of which the US$4.8-billion Thai Beverage's purchase of 53.6% of the largest domestic brewer Saigon Beer Alcohol Beverage (Sabeco) stood out as the country's largest ever deal.
M&A deal value in the first six months of 2018 climbed 39% year-on-year to US$3.35 billion, which is projected to go up to US$6.5 billion for this year, down from a record US$10.2 billion in 2017.
"Vietnam's M&A market is at the doorstep of a new era. However, there remain potential risks which are needed to be addressed and dealt with for M&A to flourish," Phuong added.
Additionally, Phuong also pointed out a number of challenges for Vietnam, including internal weakness of the economy, growing global uncertainties and protectionism, and trade wars among major economies.
According to the report at the forum, SOEs equitization and divestment process underwent substantial changes last year. For the first time in 2017, the government disclosed the list of SOEs marked for divestment and equitization as a reference for investors and the market.
Moreover, a number of large corporations were included in the list of SOEs being equitized in 2017, including Binh Son Refinery and Petrochemical (BSR) and PetroVietnam Power (PV Power). Those deals brought a return of nearly VND140 trillion (US$6 billion) for the state budget.
Nevertheless, some SOEs had not lived up to market expectations and failed to reach targets set in divestment and equitization process, the report stated.
"The initial public offering (IPO) of Becamex IDC saw a modest return of VND588 billion (US$25.22 million) compared to the expectation of VND9.65 trillion (US$413.9 million). Reasons behind this low return were the company's inefficient business performance and a considerable amount of debt," said a forum's representative.
Another example was Song Da Corporation. Under its equitization scheme, a total of 219.7 million shares were expected to be auctioned with starting price of VND11,000 (US$0.47) apiece, while the government would retain 51% stake until 2019. However, the company sold only 790,900 shares, equivalent to 0.35% the amount on offer at the IPO.
Focus on quality
A successful divestment is based on numerous factors, according to Le Hai Yen, a representative of Bao Viet Securities Company (BVSC). For example, there should be a question of whether investors intend to fulfill their commitments with the company after completing the acquisition.
Yen referred to the Sabeco deal, in which the brewer has undergone a significant transformation in the aspect of corporate governance. As such, shareholders are expected to receive benefits from the change.
Phan Duc Hieu, vice director of the Central Institute for Economic Management (CIEM), said returns from SOEs equitization are low compared to the number of enterprises on offer.
Consequently, the success of a M&A deal depends heavily on investors' decision, Hieu continued.
"There should be a strategy for SOEs stake sales, with the aim of receiving the most benefits from the deal," he added.
Hieu recommended the government to proceed with the sales of SOEs stake as planned to avoid unnecessary risks. "I am confident that the establishment of the State Capital Management Committee will facilitate the SOEs' equitization and divestment in the coming time," Hieu stressed.
