Experts urge caution on M&A exploiting low share prices

06:00 | 24/08/2020 Economy

(VEN) - Capital contributions and share purchases by foreign investors have helped Vietnamese businesses gain access to new ecosystems and ensure undisrupted supplies. However, given the current volatility of the stock market and uncertainty of the economy induced by Covid-19, experts are cautioning against so-called “vultures” seeking to buy Vietnamese shares and/or companies at rock-bottom prices.

experts urge caution on ma exploiting low share prices

Major deals

Vietnam has become an attractive destination for foreign investors in recent years thanks to the fast-growing economy and investment encouragement policies. A number of major deals were made in the first half of 2020. For example, Thai-listed Super Energy Corporation Public Company Limited decided to pump up to US$456.7 million into four solar power plants in the southeastern province of Binh Phuoc, while the Siam Cement Group (SCG), a cement manufacturer and a Thai industrial group, announced the decision to buy Bien Hoa Packaging’s shares worth more than US$19 million.

In addition, the Thinh Phat Cables Joint Stock Company, one of the major electrical wire and cable manufacturers in Vietnam, officially merged into the Stark Corporation’s subsidiary Phelps Dodge International (Thailand) Co., Ltd. The deal is considered a shortcut for the Thai investor in order to take advantage of available resources of the Thinh Phat Cables Joint Stock Company to exploit the Vietnamese market and ASEAN.

Stuart Crow, CEO of Asia-Pacific Capital Markets at JLL, said M&A deals in Vietnam would set new records in most fields. With the Vietnamese economy showing signs of recovery and the effect of the newly launched EU-Vietnam Free Trade Agreement (EVFTA), the Vietnamese market will continue to attract foreign investors.

Cautious about M&A deals

Mergers and acquisitions (M&A) have become the most effective investment channel in Vietnam. Instead of spending money on new construction, buyers can contribute capital, buy shares and take advantage of the available infrastructure of existing firms, enjoying preferential mechanisms and policies. Without M&A deals, foreign companies must go through lengthy, time-consuming procedures to start a new project.

Vo Quang Ha, deputy chair of the Handicraft and Wood Industry Association of Dong Nai, said foreign investors, especially China, have contacted local garment and textile and wood enterprises to negotiate capital contributions and share purchases. Under normal conditions, foreign investment together with the transfer of new technologies helps Vietnamese businesses increase their competitiveness. However, these days, foreign investors are targeting domestic businesses because of their low-priced stocks. Other countries in the world are also concerned about foreign investors taking advantage of plunging stocks and the volatile market conditions induced by the Covid-19 pandemic to acquire firms at low prices.

With Vietnam open to global integration, domestic businesses need to be cautious and avoid losing their trademarks in M&A deals.

According to the Ministry of Planning and Investment, M&A deals will increase strongly in the coming time, resulting in high risks of additional Vietnamese businesses being acquired at low prices. In a document sent to the Prime Minister, Vietnam Chamber of Commerce and Industry Chairman Vu Tien Loc suggested suspending M&A activities during the pandemic in order to restrain foreign companies from acquiring Vietnamese businesses.

The Politburo’s Conclusion 77-KL/TW on orientations to handle the impact of the Covid-19 pandemic to support economic recovery and national development also reiterates the potential threat of M&A deals under the current circumstances. Accordingly, the Politburo has requested support for domestic businesses, including state-owned enterprises, private firms and FDI companies, to avoid being acquired by foreign investors.

Thanh Thanh