In September 2015, Vietnam allowed foreign investors to invest in businesses across sectors. Since then, foreign holdings across a large number of listed companies have gone up — in some up to 100 per cent. These include names like Saigon Securities Inc and the Vietnam Dairy Products JSC (Vinamilk) . Several private as well public companies across industries are likely to see a heightened level of M&A activity in the near future according to Nguyen Minh Ngoc, head of corporate finance at Bao Viet Securities, a top brokerage house in Vietnam.
In an interaction with DEALSTREETASIA, he said the norms like – 25 per cent stake and and two seats on the company board – will make investment in a Vietnamese company an attractive bid for foreign institutions. Edited excerpts from the interaction: How will the removal of foreign ownership limit in Vietnamese companies affect their stocks?
The privatisation of state companies should be liberalized in accordance with market rules. The stocks of businesses that have removed the foreign ownership limit of 49 per cent might not see immediate increases, but the move has unblocked the challenges in raising funds. The stocks will attract more interest from investors in the future. Businesses in general will benefit from this policy. Does it mean the state will be radical in divesting its holdings in the companies?
It does not necessarily mean that Vietnam will take a more sweeping action for privatisation. However, with all of the other policies underway, the state pkans to hold larger stake only in the major industries related directly to the economy and the national security. I think it is completely reasonable as an economic management strategy. What should companies, who seek to unfreeze the overseas investment capital into their business, prepare for removing the limit?
There are barely any obstacles in terms of legal procedures. The companies will only need to seek approval from a shareholder meeting before they file for opening up foreign holding limit to 100 per cent. So the challenge does not stem from the law, but from the companies themselves, because the approval to slash the limit depends on the votes the largest shareholder at state firms, which is obviously the state.
The regulation for removing the limit mentions the foreign ownership extension for a segment of “companies operating in areas with specific conditions”, but this segment is defined in another legal document that firms and investors are still awaiting. Is it clearly an obstacle to the privatization process? It might slow down privatisation. However, companies that recognize themselves as not positioned in this segment can totally execute the process. Vinamilk, for example, is a consumer product company, which has announced the removal without the presence of the documents.
Although the state has not issued any detailed regulations about the above mentioned segment, the recent privatisation moves, including the intention to slash state holdings in large state corporations such as Habeco and Sabeco (the country’s two largest brewers) from over 80 per cent to below 51 per cent, is a progressive message to investors. Will the removal create a new big wave of M&A into Vietnamese firms?
I believe there will be a strongly increasing trend of overseas investors buying in Vietnamese companies, especially leading firms of their respective sector, such as Vinamilk, Habeco, Sabeco and businesses in the telecoms industry. So how much equity is attractive to a foreign buyer? Let’s not talk about businesses without competitiveness or management ability, because they are very unattractive to foreign investors. Foreign investors will find a well-managed Vietnamese firm, very attractive, especially if they have a voice on the board. Some 25 per cent equity and more in the targeted company, and two seats in the BoD, will give them the impetus to invest.
Source: dealstreetasia
Key words : Vietnam, Stronger M&A activity expected, after removing, foreign ownership limit.
