VIETNAM M&A IN 2016 AND 2017 OUTLOOK€¢ M&A in industrial goods, retail sector, consumer goods,...

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AGENDA:

• VIETNAM’S ECONOMIC OVERVIEW

• MAJOR M&A TRENDS IN VIETNAM IN 2016

• UPDATES ON NEW INVESTMENT LAW, ENTERPRISE

LAW AND THEIR IMPLEMENTING DECREES

• FOREIGN EQUITY CAP LIFITED UNDER DECREE NO.

60/2015/ND-CP

• VIETNAM’S RECENT INTEGRATION TO REGIONAL

AND INTERNATIONAL ECONOMY

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WHICH COUNTRY HAS ITS TWO MAJOR CITIES

RANKED AS MOST DYNAMIC CITIES

ON THIS PLANET EARTH ?

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Welcome to the most dynamic country on this

planet : Vietnam!

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Increasing Foreign Direct Investment

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Vietnam M&A during 2013-2016

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Source: IMAA

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Deals overview in 2016

• Main foreign investors in M&A deals: Thailand, Japan, Korea,

United States, and other European countries to prepare for the

new trade agreements

• Retail and real estate are the most attractive sectors to investors

in terms of deal value

• M&A in industrial goods, retail sector, consumer goods, real

estate, agriculture sector, pharmaceuticals, technology … are

also active.

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Notable M&A deals in Vietnam in 2016

• In April 2016, Central Group (Thai Group) bought BigC Vietnam at

USD1.1 billion

• TTC Holdings (Thailand) bought Metro Vietnam at USD710 million

• In December 2016, Fraser & Neave ( a Singaporean beverage

company) bought 5.4% of Vinamilk’s shares at USD500 million

Note: Owner of Fraser & Neave is also owner of TTC Holdings

• In January 2016, Mobifone bought 95% of AVG’s shares at USD400

million

• In April 2016, Mirae Asset (a Korean securities company) together

with AON BGN Investment Company (an UK company) bought

Keangnam Hanoi Landmark Tower at USD350 million

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Main drivers of Vietnam M&A 2016

• New Investment Law and New Enterprise Law

• Revision of foreign real estate investment

• New FTAs (AEC, TPP, EU-VN FTA)

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INVESTMENT LAW, ENTERPRISE LAW

AND THEIR IMPLEMENTING DECREES

EFFECTIVE FROM 01 JULY 2016

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Definition of foreign investor

• New Investment Law: Very simple definition!

Foreign investor is any foreign individual or organization incorporated under foreign law doing

business investment activities in Vietnam

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New Negative List!

• All non-prohibited business activities are permitted “Investors are entitled to conduct business investment activities in

industries and trades which are not prohibited by this Law.” (Art. 5.1,

new Investment Law)

• Removal of many baby permits

• Reduction of conditional and prohibited activities –Old Law

conditional activities: 386・prohibited activities: 51

–New Law

conditional activities: 267・prohibited activities: 6

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Types of Foreign Invested Economic Organization

(FIEO) under the new M&A procedures

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A

Offshore Investor

F1

Company in Vietnam

with 51%+ ownership

by A

F2

Company in Vietnam

with 51%+ ownership

by F1

F3

Company in Vietnam

with 51%+ ownership by

A and F1

F1, F2 and F3 are considered

as FIEO and subject to

investment requirements

applicable for Offshore

Investor

Others: subject to

requirements applicable for

domestic investor

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M&A procedures for foreign investors under new 2014

Investment Law

• Appears to be simple!!! Only registration required, no more IRC

Satisfying the requirements for investment

Submitting application dossier

Assessment by the licensing authority and decision making after 15 days

Save up to 4-6 months

• Subjects:

foreign investors making investment in conditional business activities for

foreign investors;

F1, F2 or F3 holding 51% or more of the targeted economic enterprise after

the M&A

Exclusion: Company other than F1, F2 and F3:

Registration to amend the ERC (for LLCs)

Notification of the change in foreign shareholders (for JSCs)

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FOREIGN EQUITY CAP LIFTED IN

PUBLIC COMPANIES

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Rules on foreign ownership in a listed company

• If Vietnamese law, including international treaties, provides for a specific

ownership cap, the maximum foreign ownership (MFO) must not exceed such a

cap.

• If Vietnamese law treats a business activity as conditional on foreign investment

(pursuant to the list of conditional sectors under the Investment Law) but does

not yet provide any ownership limit, MFO must not exceed 49%.

• If Vietnamese law provides ownership limit for public companies in specific

business sectors (for example, 30% for banking), MFO must not exceed such

limit.

• If a public company conducts different business activities in which MFOs have

been provided differently, the MFO will not exceed the minimum ratio specified

in relation to the business activities which such company is conducting, unless

otherwise stipulated in any applicable international treaty

• In cases that do not fall within the above 4 groups, MFO can be up to 100%.

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Positive effects of the relaxed foreign equity cap

• Foreign investors are no longer restricted from investing in public

listed companies

• More investment opportunities for foreign private equity investors

to invest in majority stakes in companies. However, the

Government still takes certain control over conditional business

sectors where MFO is still limited in the Investment Law and the

company’s charter (if any).

• Enhance market liquidity and capitalization levels.

• Easier to find strategic investors (lessons learned from failed IPOs

of Vietnam Airlines and other big companies).

• Accelerate companies’ restructuring and equitization of state-

owned enterprises 20

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State-owned enterprises open up to foreign investors

(Decision No. 58/2016/QD-TTg)

Sectors in which the state will retain ownership of over 65% (there are

4 companies in total) include:

• Operation management of airports; operating flight area services;

• Navigation information services, surveillance, aviation meteorological

services;

• Mineral mining of large scale according to current regulations on

classification of mine scale;

• Exploration, development and exploitation of oil and gas mines; and

• Finance and Banking (excluding insurance, securities and fund

management companies, finance companies and financial leasing

companies).

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State-owned enterprises open up to foreign investors

(Decision No. 58/2016/QD-TTg) (cont.) Sectors in which the state will retain ownership of 50%-65% (there are 27 companies in

total):

• Production of basic chemicals;

• Air carriage;

• Enterprises whose market share is 30% or higher, having a role to ensure major balance of the

economy and stabilize the market, operating in the following areas:

a) Rice wholesale;

– b) Focal petroleum imports.

• Production of cigarettes;

• Provision of telecommunications services with network infrastructure;

• Growing and processing rubber, coffee in strategic areas, mountainous and remote area linked

to national defense and security;

• Enterprises ensuring basic needs for the development of production and improving material

life, spirit of ethnic minorities in mountainous, remote and isolated area;

• Electricity retail business (consistent with the formation and development of the electricity

market levels).

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VIETNAM’S RECENT INTEGRATION

TO REGIONAL AND

INTERNATIONAL ECONOMY

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TPP

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Vs.

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TPP out – Impacts on Vietnam

• US is the biggest trading partner of Vietnam in the TPP.

Abolishment of the TPP will definitely cause Vietnam’s

losing out of market access to the US.

• However, TPP is not only about trade. It also sets out very

high standards for business practices which will in turn

prompt Vietnam to make reforms and increase

competitiveness.

• Whether there is TPP or not, Vietnam will continue the

growth momentum as a result of an enhanced trading

environment and increased access to markets.

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EU – Vietnam Free Trade Agreement

(EVFTA)

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EVFTA – Comprehensive agreement

• Trade in goods

Market access for goods – tariffs

Rules of Origin

Export duties

Technical Barriers to Trade (TBT)

Sanitary and Phytosanitary Measures

Customs and Trade Facilitation

Administrative Cooperation in Customs Matters

• Services and investment:

National treatment

Liberalisation commitments / market access

Investment to state dispute settlement

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Cross-cutting issues

Dispute Settlement and Investment

Dispute Settlement

Government Procurement

State Owned Enterprises & Subsidies

Intellectual Property Rights

Geographical Indications

Trade and Sustainable Development

Cooperation and Capacity building

Annexes (car; green tech and pharma)

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EVFTA – High protection for investors

• Improvement of intellectual property rights

• Better access to EU’s third important trading partner - ASEAN

• EVFTA secures a modern reformed investment dispute resolution

standard – Investor-State Dispute Settlement (ISDS)

– Independent International Tribunal will be competent to all conflicts about

investment protection provisions (5 year transitional period for Vietnam)

– A court of Appeal will be established

– UNCITRAL rules on transparency in treaty-based investor-state arbitration

are implemented which guarantees a high standard of juridical transparency

– The decisions of the tribunal are enforceable and cannot be questioned by

local jurisdiction

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WTO ANALYSIS OF LIBERALIZATION

OF MARKET ACCESS

• Typical restrictions: number of opened sectors, JV requirement,

limits on foreign-owned shares, permission requirement

Copyright Oliver Massmann - All rights reserved

Country Limitation of market access*

Country Limitation of market access*

Malaysia medium Myanmar high

Indonesia medium Cambodia medium

Philippines medium Laos medium

Singapore low India high

Thailand medium China medium

Brunei high Vietnam low

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Getting the deals done

• Conduct a careful Due Diligence

(including legal and financial)

• Make sure all business lines of the target entity are

transferred to the new entity upon the deal completion

• Note that M&A activities are administered by the

Foreign Department under the Department of Planning

Investment and dossiers are subject to very strict

examination

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M&A Outlook 2017

• Simplified M&A procedures under new Investment Law, relaxed foreign cap

in listed companies, equitization plan and high protection for investors in the

EVFTA will boost M&A process this year.

• Start-up trends in Vietnam will drive more M&A, especially in technology

sector

• Planned IPO of Dung Quat Oli Refinery Plant and Electricity Generation

Corporations (GENCOs) under the Electricity of Vietnam

• Real estate sector will continue to see a number of M&A big deals, especially

in sale and purchase of real estate projects (FDI in real estate sector in 2016

ranks No. 3, an increase of 12% compared with 2015)

• There is great room for growth in the retail and consumer goods sectors.

Modern trade channels such as supermarkets and convenience stores only

account for less than 30% of sales, while the government targets a double

number within the next 4 years.

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Questions & Answers

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DUANE MORRIS VIETNAM LLC

Thank you very much!

HANOI OFFICE HO CHI MINH CITY OFFICE

Pacific Place, Unit V1307/08, 13th Floor, Suite 1503/04, Saigon Tower

83B Ly Thuong Kiet, Hoan Kiem District 29 Le Duan Street, District 1

Hanoi, Vietnam Ho Chi Minh City, Vietnam

Tel.: +84 4 39462200 Tel.: +84 8 3824 0240

Fax: +84 4 3946 1311 Fax: +84 8 3824 0241

Contact email:

[email protected]

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mailto:[email protected]

mailto:[email protected]

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References (1)

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References (2)

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References (3)

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References (4)

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VIETNAM M&A IN 2016 AND 2017 OUTLOOK€¢ M&A in industrial goods, retail sector, consumer goods,...

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