DMC rethinks ownership cap

In a resolution released by the Board of Directors (BoD) in early April, Domesco (DMC) plans to seek its shareholders’ permission to remove the foreign ownership cap at the annual shareholders meeting on April 23.

The firm will also seek its shareholders’ approval to make changes to several business activities, including retail drug sales, drug import and export, and others.

“Raising foreign ownership at pharma firms is a controversial topic because if a Vietnamese pharma firm has foreign partners which hold a stake of more than 51%, this could result in Vietnamese firms being labelled as a foreign-invested enterprise, thus depriving them of their profitable rights to distribute medicines,” Tran Thi Hong Tuoi, analyst at BIDV Securities, told VIR. 

For DMC, the fear of being acquired is not a problem, its foreign stakeholder CFR International, which currently holds a 45.94% stake in DMC, has already started to intervene in DMC’s operations by appointing Luong Thi Huong Giang as general director of the company in 2014. 

Andrew Hamish Lane, a representative of the US-based Abbott Laboratories, which acquired a 99% stake in CFR International, has been on the BoD since 2015.

DMC, which currently has five pharma production plants in the country, is expanding its drug production operations. 

The firm is set to begin construction on a costly drug factory in the southern province of Dong Thap in 2016.

Industry insiders are wondering if the DMC move could create a domino effect in the local drug market, as many listed domestic drug producers, including leading players like Imexpharm (IMP), Hau Giang Pharmaceutical Joint Stock Company (DHG), and Traphaco (TRA), are hesitating to raise limits on foreign ownership from the current 49%. 

These firms may not want to give up their distribution business, may be waiting for the official list of conditional businesses, or may fear acquisition.

IMP, which is believed to have the most advanced production lines, has become a magnet for foreign investors, who want controlling stakes in the company. However, the Vietnamese enterprise is reluctant to lift its foreign ownership cap out of fears of being acquired.

The situation is similar for DHG, which dominates the southern market, and TRA, which holds a large percentage of the northern market. Their foreign shareholders are mainly financial investment organisations.

Many leading pharma groups have targeted DMC, IMP, DHG and TRA, which have nationwide distribution networks and advanced drug production assembly lines, using merger and acquisition deals to penetrate the Vietnamese market.

According to industry insiders, the Vietnamese pharmaceutical market, which is valued at US$3.5 billion, will continue to be on the radar of global drug companies and investment funds including Mekong Capital, Dragon Capital, and JP Morgan.