Vietnam's pharmaceutical company looks set for liberalization after the State Securities Commission removed the foreign investor limit for Domesco Medical Import-Export Joint Stock Corp. late-August.
Following the move, Hau Giang Pharmaceuticals, the country's top drug distributor, reiterated its desire to also have its foreign ownership limit, set at 49% by the government, lifted. The company is now 24.5% owned by Tokyo's Taisho Pharmaceutical, which has expressed an interest in taking more control of Hau Giang.
"The key positive impact is that more liquidity will be available for investors in Domesco and [the deal] opens the path for other companies, especially pharmaceutical companies, to lift their foreign ownership limit," said Andy Ho, chief investment officer of VinaCapital.
Domesco's largest shareholder Chilean entity CFR International, which is owned by Abbott Laboratories in the U.S., registered to increase its ownership in the Vietnamese company to 51.7% over September 2016 from the current 45.49%, according to a document posted on the local stock exchange. Domesco, based in the Mekong Delta province of Dong Thap, is among the leading local pharmaceutical companies in Vietnam and is listed on the Ho Chi Minh Stock Exchange.
Vietnam's pharmaceutical market, estimated to be worth $3.5 billion, has attracted foreign investors, mainly from the U.S., Europe, India and South Korea, for years. While foreign companies are allowed to invest directly in product processing, import and export activities, they are not allowed to participate in the pharmaceutical product distribution network under current regulations.
As Vietnam commits to opening up to foreign investment across a number of industries, the government has given the greenlight to companies to adjust their business operations in order to remove the foreign ownership cap.
Domesco said that it received government approval after amending and supplementing some of its business activities, especially in the area of the distribution of goods produced by third parties. It had first mooted the idea of gaining more foreign control last year.
Analysts said that Vietnam's capital divestment plan and the amendment of the pharmaceutical law prioritizing the development of the domestic sector /DELETE a priority/, which will take effect next year, has given the industry hope for greater foreign participation. However, local pharmaceutical companies will continue to face tough competition from foreign rivals, including France-based Sanofi, especially after Vietnam signed a series of free trade agreements.
Tariffs on pharmaceutical imports are projected to decline to zero on the implementation of some trade pacts, including the Trans-Pacific Partnership, along with an increase in the patent limitation on drugs manufactured by foreign pharmaceutical companies of up to 10 years.
About 60% of domestic pharmaceutical consumption is made up of imports and demand is expected to grow at a compound annual growth rate of 13.8% to reach $6.6 billion by 2020, according to healthcare research company GlobalData.
Last year, Vietnam announced that it would remove the foreign ownership limit for listed companies that were not subject to conditional business operations or in "special" sectors. But the Ministry of Planning and Investment had failed to define "conditional business operations" which meant that the process of liberalization had mostly stalled.
In the year since the first company, Sai Gon Securities Inc., announced that it could be fully owned by foreign entities, 10 listed companies have joined the club, including Vietnam state-owned Vinamilk.
Source: Nikkei
Key words : Vietnam's pharmaceutical sector, set to open up, after Domesco.
