Equity purchases lead FDI inflows in HCM City

Illustrative photo. (Source: Photo)

Ho Chi Minh City (HCMC) attracted some US$3.21 billion in foreign direct investment (FDI) in the first half of 2019, an annual rise of 20 per cent. Of note, two thirds of the FDI capital were channeled into the equity purchases of domestic enterprises.

Over 2,300 foreign investors carried out the purchase of equity capital and shares of domestic firms, worth a total of US$2.37 billion. Nearly 42 per cent of the figure went into real estate. In particular, Samty Asia Investment reached a US$22.5 million deal with real estate developer Phat Dat to develop some projects in HCMC, while Frasers Property bought a 75 per cent stake in Tran Thai Lands.

Meanwhile, Mondelez acquired the confectionery business section of KIDO Group, whilst the Dragon Capital investment fund conducted some equity purchases of businesses operating in the realms of real estate, pharmaceuticals, and others.

According to Dominic Scriven Obe, head of the Dragon Capital investment fund, these increasing equity purchases were triggered by foreign investors wanting to minimize risks for their investments.

In fact, equity purchases could help to ease risks for both buyers and sellers. Domestic companies enjoy advantages in their knowledge of the domestic market, state management procedures, and those related to land. However, they suffer from a weak financial capacity, low levels of technology, and struggle to do business internationally. In contrast, these are the strengths of FDI firms, Obe noted.

Economic experts claimed that FDI firms choose equity purchases as a means of saving time to implement procedures in relation to establishing businesses and building production bases. In general, they prefer to pour capital and make investments in technology in order to swiftly improve the production capacity of local partners.

Indeed, foreign investors are allowed to hold a stake scaling up to 51 per cent in domestic businesses. This obviously facilitates foreign investors to pump additional capital into the Vietnamese market.

Dinh The Hien, an economic expert, asserted that equity purchases help to speed up the investment of foreign firms whilst keeping pace with global trends.

Initially, foreign investors pour capital into founding or boosting the operation of local partners, before expanding their investment in equipment and machines in order to increase their business scale, Hien said.

This could pose a big problem if FDI investors pump capital into Vietnamese firms for the purpose of acquiring them rather than helping them improve the efficiency of their production and business.

As a trend, Ho Chi Minh City has been more selective about FDI inflows, placing restrictions on labor-intensive projects and those at a high risk of environmental pollution. Focus is put on high added-value sectors such as processing, manufacturing, and high-tech ones in pursuit of sustainable development.

Tran Quang Thang, head of the HCMC Institute of Economics and Management, said that the city’s investment attraction is aimed at projects that could help to intensify internal forces and give a boost to sustainable development of the city and the country at large. Also, importance would be attached to both quantity and quality of FDI projects.