M&A deals fuel investment from Asia

Time for financial investors

Since 2014, the Vietnamese market has witnessed a slew of mergers and acquisitions (M&A) deals in consumer goods, finance, retail, aviation, and real estate. Most of these transactions, which are worth billions of dollars, involve deep-pocketed buyers from nearby countries.

The biggest names are KB, Lotte, Samsung, and KEB Hana from the Republic of Korea (RoK); Shinsei, Saison, ANA Holdings, and JX Nippon from Japan; Keppel Land and CapitaLand from Singapore; and Berli Jucker, Thai Beverage, Central Group, and SCG from Thailand.

Representatives of investment funds in Asia told VIR that as financial investors, they pay close attention to these M&A deals. For example, according to Jarasrak Watanasingha from Kasikorn Asset Management (Thailand), Thai investment funds would use major M&A deals by Thai Beverage or Berli Jucker to assess the appeal of Vietnam’s market in general and listed equities in particular.

“A lot of Thai investors are already familiar with the Vietnam story. However, a lot of them only spring into action upon seeing Thai businesses shaking hands with Vietnamese partners in billion-dollar M&A deals. We’re reassured that the Vietnamese market is worth investing in,” said Watanasingha.

Vietnamese stocks now take up 8.6% of K-AEC, Kasikorn’s US$25 million fund, which invests in fast-growing equities in the ASEAN.

Vietnam’s Ministry of Finance recently revealed that Japanese investors take up 30% of Vietnam’s 24,000 foreign investor accounts. Another 20%, or approximately 5,000 accounts, is owned by Korean investors. It is probably no coincidence that Japan and the RoK are both major M&A investors in Vietnam, in addition to holding the top positions in direct investment.

According to a Japanese fund manager who is currently based in Singapore, the Japanese tend to be very cautious with their investments. To lessen the risks, Japanese investors usually look at Japan’s direct investment and M&A deals in Vietnam when making decisions.

Japan-Vietnam bilateral relations, the recent Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), and sector prospects are other factors to consider.

The RoK's investors, similarly, are prompted by the “New Southern Policy” of the RoK’s President Moon Chae-in. This new policy encourages South Korean investors to seek new opportunities in Vietnam, in both M&A and financial investments.

Dominic Scriven, veteran investor and executive chairman of Dragon Capital Group, told VIR that foreign direct capital often precedes M&A and financial investments. The M&A capital, also called strategic investments, tends to stay in Vietnam long-term and helps improve the standards of corporate governance and business efficiency in Vietnam. As a result, M&A capital is considered an important sign of investors’ trust in Vietnam’s prospects.

“We understand Vietnam”

Fund managers from Asia told VIR that they can empathise with Vietnam’s growth story and even its market struggles. This is because the markets in their own countries have been through similar trajectories in recent decades, with the same problems regarding information transparency, corporate governance, and investor relations.

Pikun Phitya-isarakul, investment manager at Phillip Capital (Thailand), said that Vietnam’s stock market is similar to Thailand’s 20 years ago. According to the investor, conglomerates in Thailand have been growing for 60 years, much longer than their Vietnamese counterparts. Vietnam’s regulators and businesses can thus learn from these regional predecessors and adapt lessons to fit their own situation, said Phitya-isarakul.

“For example, the Thai stock market has successfully carried out non-voting depository receipts or covered warrants for foreign investors. Vietnam can take a leaf out of our book,” Phitya-isarakul noted.

She also praised the increasing openness of Vietnamese business leaders towards foreign capital, which includes frequent meetings with investors and information disclosure in English.

Asian investors say Vietnam can also take lessons about foreign ownership limits from nearby markets. Yeu Huan Lai, fund manager from Nikko Asset Management, gave the example of Singaporean banks. There is no cap for foreign investors at Singaporean financial institutions, but anyone wishing to buy more than 5% is subject to government approval.

“This is the ‘invisible’ barrier that replaces the foreign ownership cap. I believe Vietnam can study the rules of nearby markets and adapt them to the domestic market,” said Lai.