Capital cost differential boosts M&A transactions
By Hoang Phi - The Saigon Times Daily
HCMC – The high capital cost differential is a reason for the increasing number of merger and acquisition (M&A) deals recorded last year and this, according to experts at the M&A Forum Vietnam 2012 held in HCMC on Thursday.
Andy Ho, managing director of VinaCapital, said the total value of M&A deals last year amounted to over US$4 billion with foreign entities accounting for 65%, but the increased M&A deals mainly resulted from the differential of capital cost between sellers and buyers.
“Japanese investors have flocked to Vietnam due to the low capital cost in their country and the strong Japanese yen, plus the Vietnamese Government’s incentives for foreign investment activity. Meanwhile, the capital cost in Vietnam is high, so it is the capital cost differential that has led to a rise in the value of M&A deals and pushed up the total value last year to a record high,” he said.
The most vibrant M&A deals are seen in the sectors of fast moving consumer goods, finance and property. Besides, foreign investors regard M&A as the fastest way to penetrate the domestic market instead of establishing a new company.
According to John Ditty, KGMP chairman for Vietnam and Cambodia, Vietnamese enterprises have actively sought cheap capital through investment funds, strategic partners and overseas bond sales.
Good enterprises will continue to attract more capital inflows in the coming time to expand their operations, said Ditty.
Besides, according to experts, the equitization of State-owned enterprises is attractive to foreign investors through M&A as well as private enterprises and those operating in the infrastructure sector.
For example, among 160 enterprises and projects VinaCapital is investing in, there are many equitized firms such as Vinamilk, Phu My Fertilizer and Phuoc Hoa Rubber.
According to Ho from VinaCapital, Vietnam will continue facing challenges such as capital costs and mounting inventories in the second half of the year, M&A activity will grow strongly in Vietnam in both value and number with a rise of 20-40% from the previous year.
The increase in inventories of enterprises, plus the capital shortage and cheap stock prices this year, is appealing to Japanese and European investors, said Ho.