Foreign direct investment inflows to Vietnam through the modes of cross-border mergers and acquisitions (M&A) and new “greenfield” investments are showing diverging trends, with M&A rising and greenfield projects in decline.
Foreign direct investment (FDI) toward launching entirely new businesses, or so-called “greenfield” investments, reached only $13.1 billion in term of new commitment and $10.5 billion in term of disbursement, down 15.3 per cent and 4.9 per cent respectively.
However, there have been an increase of FDI in the country through cross-border M&As during the year, according to the Ministry of Planning and Investment.
Official data is lacking in regard of the FDI sum entering Vietnam through cross-border M&As, but the transactions during the past years highlight the upward trend.
“In the past, Vietnam mostly received FDI through greenfield investments,” said Nguyen Mai, former vice chairman of State Committee on Cooperation and Investment which is now known as Ministry of Planning and Investment. “But we have seen more and more foreign companies invest in Vietnam by acquiring major stake of existing companies in the country. This is along with the trend of global FDI inflows.”
Mai, who is now the chairman of Vietnam Association of Foreign Invested Enterprises, said greenfield investment projects would continue serving as driver of FDI inflows to Vietnam in the future. But he stressed the cross-border M&A mode was become more and more important.
In a report mentioning the outlook of FDI inflows to Vietnam till 2020, the MPI noted that the cross-border M&As would significantly increase in the future as many state-owned companies were restructuring to divest from their non-core businesses. In addition, the current challenges of the economy will force lots of domestic companies to think about M&A transactions with foreign partners.
“In future, cross-border M&As will increase in various sectors including property, finance, infrastructure, telecommunication and manufacturing,” the MPI stated.
During the past year, many foreign companies expanded in the Vietnamese market by acquiring major stakes in Vietnam-based companies instead of establishing new facilities in the country.
For example, Thailand’s SCG a month ago announced that SCG Building Materials Company Limited, its wholly-owned subsidiary, had entered into a conditional shares purchase agreement with the existing shareholders of Prime Group to acquire the domestic company’s ceramic tiles plants and related assets in Vietnam.
Prime Group operates six ceramic tiles plants with the total capacity of 75 million square metres per year and is one of Vietnam’s leading domestic producers with a domestic market share of approximately 20 per cent.
Under the agreement, the Thai company will acquire 85 per cent of stakes in Prime Group at the cost of around $240 million. Following this acquisition, SCG will have a total ceramic tiles production capacity of 225 million square metres, of which 48 per cent is in Thailand, 33 per cent is in Vietnam, 14 per cent is in Indonesia, and 5 per cent is in the Philippines.
In October 2012, Suntory Holdings Limited, a global beverage and wellness company based in Japan, announced to acquire a 51 per cent stake in PepsiCo’s Vietnam beverage business. With the majority stake in PepsiCo’s Vietnam beverage business, Suntory controlled one of the biggest players in Vietnam’s growing beverage market.
Also in the beverage industry, Taiwan’s Uni-President last year acquired a 44 per cent stake at Vietnamese Tribeco, when this producer was in danger of bankruptcy, to become the controlling shareholder at the company.
In the latest cross-border transaction, Hong Kong-headquartered Kerry Logistics, a leading global logistics service provider, two weeks ago secured a majority stake in Vietnam’s Tin Thanh Express to offer integrated logistics services across the country.
Ngoc Linh (Vietnam Investment Review)