Foreign businesses accelerate indirect investment in Vietnam

Thaco plans to issue over 30.3 million shares for Singapore’s Jardine Cycle & Carriage

Foreign investors have been making more indirect investments into Vietnamese firms via capital contribution or share acquisition so as to make a shortcut to jumpstart their business in the local market.

Amid the trend, Japan’s Taisho Pharmaceutical last week took the spotlight, announcing that it had successfully acquired an additional 20.6 million shares of Hau Giang Pharmaceutical Company (DHG).

The deal, which raised Taisho’s holding in the Vietnamese firm to 66.4 million, or equivalent to 50.78 percent of DHG’s charter capital, has made DHG a subsidiary of Taisho after the Japanese company started to invest in DHG three years ago.

Another foreign name Singapore's Jardine Cycle & Carriage has recently also approved a plan to acquire more than 30.3 million shares of Truong Hai Auto Corporation (Thaco), equivalent to a 1.34 percent stake. The plan will be carried out this year.

After the issuance, Jardine Cycle & Carriage will increase its holding in the Vietnamese auto maker to 26.57 percent.

The above-mentioned names are only among many foreign investors who are keen on Vietnamese firms this year. Reports from the Foreign Investment Agency under the Ministry of Industry and Trade showed foreign capital pouring into Vietnam via capital contribution and share acquisition has increased sharply.

In the first quarter of this year, there were 1,653 deals with a total value of US$5.68 billion, three times the amount of the same period last year, accounting for 52.6 percent of total registered capital.

This is the first time the foreign indirect investment has been higher than that of foreign direct investment (FDI) though at the same time, registered FDI capital into the country also jumped by 80 percent over the same period last year.

Noticeably, there were 785 new FDI projects being granted licenses in the first three months of this year, accounting for less than half of the numbers of successful capital contribution and share purchase transactions by foreign investors in the same period.

Of the total, investors from Asian countries, including Japan, the Republic of Korea, Thailand and China have been pumping investments into real estate, consumer goods, distribution, retail, construction material manufacturing, chemicals, financial service and pharmaceuticals.

Market attractiveness

With a population of nearly 100 million people, Vietnam’s market holds great potential. The country’s high and steady economic growth in the past years has strongly drawn foreign capital and investment in local firms, seen as the shortest way for foreign investors to enter the Vietnamese market.

Oliver Massmann, general director of Duane Morris Vietnam, said many foreign investors are showing increasing interest in Vietnam and want to enter the market through the acquisition of local firms’ stake.

Vietnam’s rapid integration into the world economy is bringing new opportunities for the country’s M&A market, given macro-economic recovery and policy reforms to broaden foreign investment and the conclusion of trade agreements negotiations, including the Comprehensive and Progressive Agreement for Trans-Pacific Partnership and the upcoming signing of EU-Vietnam Free Trade Agreement, Massmann said.

In addition, Massmann said, revised laws such as the Enterprise Law and the Investment Law, have also created a better and more conducive business environment for stake acquisition deals in the country.

According to the National Financial Supervisory Commission, foreign investment flow to Vietnam through stake acquisition is a trend. The government’s finance watchdog explained that foreign investors prefer this investment form as it can help them rapidly step in the Vietnamese market to seize business opportunities.

Through mergers and acquisitions, foreign investors avoid cumbersome and time-consuming investment license procedures and can spend time for learning and researching the market.