HCMC - Lawyers at the Singapore-headquartered law firm Rajah & Tann LLP have suggested Vietnamese companies improve trust and transparency in accounting and business practices so as to attract foreign investors through either joint ventures or mergers and acquisitions (M&A).
Local firms urged to spur transparency
By Mong Binh - The Saigon Times Daily
Christopher A. Muessel of Rajah & Tann LLP gestures in response to questions about legal barriers to M&A and joint venture deals in Vietnam at the business luncheon in HCMC on Thursday - Photo: Mong Binh HCMC - Lawyers at the Singapore-headquartered law firm Rajah & Tann LLP have suggested Vietnamese companies improve trust and transparency in accounting and business practices so as to attract foreign investors through either joint ventures or mergers and acquisitions (M&A).
One of the major issues that foreign investors faced in Vietnam was the lack of their trust in Vietnamese firms when it came to forming joint ventures, Brian Ng, associate director of Rajah & Tann Vietnam, responded to a relevant question at the business luncheon themed “Legal Pointers for M&A and Joint Ventures in Vietnam” in HCMC on Thursday.
Ng told the luncheon, organized by the Malaysia Business Chamber Vietnam (MBC), that Vietnamese companies used different sets of accounts that were not appropriate in the joint venture situation.
Major problems with Vietnamese firms involved the use of sophisticated financial instruments, lack of consistency in financial statements and dealings of local businesses, and absence of business and operational records, including contracts with third parties that meet internationally-acceptable standards, Ng told the Daily after the event that drew more than 50 representatives of local and foreign companies.
To win the confidence of foreign investors, Ng recommended local companies adopt a single set of accounts and maintain their business records relating to cash flow, customer and supplier lists, account payables and receivables among others.
“Local businesses have to be transparent when it comes to their numbers and dealings… I believe that small- and medium-sized enterprises should be educated so that they know the way to dress up their accounts to become more attractive to foreign investors,” Ng said.
In his presentation at the business luncheon, Rajah & Tann LLP’s partner Christopher A. Muessel pointed out import and distribution; infrastructure; real estate; and banking and finance as Vietnam’s hot investment sectors. Particularly in infrastructure, opportunities are waiting for foreign investors in port, road and bridge, railway, energy, mining and telecommunications.
Muessel quoted sources as saying that the energy infrastructure alone should grow at 15-20% per year to resume and back the country’s growth, but the Government did not have sufficient funds for developments in this area.
Despite the fact that Vietnam’s emerging market has been recognized as a haven for M&A deals for foreign companies, Muessel said many local firms were not big enough to catch the eyes of foreign investors, who usually target a private equity investment deal worth least US$5-US$10 million.
The other issue mentioned by Muessel was heavy paperwork and slow approvals for M&A and joint venture deals to go on. “It can be many months before we get a file signed off,” he said and attributed the slowness to involvement of many agencies, particularly big projects with signings worth from US$500 million.
However, Ng said the interest of foreign investors in M&As and joint ventures in Vietnam was on the rise. “When the market goes down, people start picking up bargains and that’s actually more interest. The regional areas beside Vietnam start to become more and more attractive, and that’s why Vietnam has to start to really brush up (law barriers) to make it some more attractive.”
Sources showed there were 345 successful M&A deals with a combined transaction value up to US$1.7 billion last year, a year-on-year increase of some 65%.