COMPANIES COME UP WITH BIG M&A PLANS FROM EARLY IN THE YEAR

A number of companies are pursuing merger and acquisition (M&A) deals this year amid tighter funding from banks.

One of the companies leading the charge is Vietnam Container Shipping JSC (Viconship), which will hold its annual shareholders’ meeting on March 10, earlier than usual to seek shareholders’s approval for its capital hike plan. It plans to issue 121 million shares to existing shareholders at the ratio of 1:1 to raise over VNĐ1.2 trillion and double charter capital to VNĐ2.25 trillion (US$95.3 million) to fund its ambitious M&A strategy.

Viconship’s Q4 financial report outlined the company’s plans to acquire 49 per cent of Vinaship Seaport JSC’s equity and spend VNĐ2.25 trillion to buy a controlling stake in another undisclosed seaport business in Hải Phòng City with the half of funding from the company’s capital and the other half from outside funding.

BIDV Securities JSC (BSC) has identified Viconship’s target as Nam Hải Đình Vũ Port which is managed by a subsidiary of logistic giant Gemadept. According to Gemadept’s Q4 financial report, the company received an unexpectedly deposit of about VNĐ1 trillion at the end of 2022, which is predicted from Viconship. The acquisition is expected to be completed in the first quarter of this year.

Nam Hải Đình Vũ Port is Gemadept's largest container port with a total investment of more than VNĐ1 trillion and began operation in 2014. As of December 31, 2022, Gemadept owns 84.66 per cent of the port’s charter capital, equivalent to more than VNĐ338 billion, but is seeking to divest from this company.

If the acquisition is completed, BSC predicts that Viconship will become the largest port company in Hải Phòng in 2023 with a total capacity of about 2.6 million TEUs (Twenty-foot Equivalent Unit). This would represent a 36 per cent increase over the same period last year and accounting for 30 per cent of the city’s market share.

Đức Giang Chemicals Group JSC is also planning to buy more than 3.44 million shares of Tia Sáng Battery JSC, which constitutes 51 per cent of its charter capital. At the target price of no more than VNĐ39,200 per share, Đức Giang Chemicals is expected to pay around VNĐ135 billion ($5.7 million), equivalent to more than 1 per cent of its market value on the Hồ Chí Minh Stock Exchange.

Bình Dương Water Environment JSC (Biwase), a prominent name in the water industry, has approved a plan of acquiring stakes in five companies operating in the water and environmental sanitation sectors in Long An and Quảng Bình provinces.

In 2022, Biwase invested a total of VNĐ294 billion in purchasing shares of two companies, namely Cần Thơ Water Supply and Sewerage JSC and Cần Thơ 2 Water Supply JSC. This move has increased the number of Biwase affiliates in the water industry to four, with total investment reaching VNĐ768 billion, account for nearly 8 per cent of Biwase’s assets. The company’s M&A plan for this year shows its ambition to expand its scale through M&As.

The easy money period is now over as central banks around the world focus on controlling inflation through raising interest rates and reducing the money supply. In a recent report on global M&A trends, PwC noted that businesses with strong balance sheets will have more opportunities in the context of financial tightening. In Việt Nam, the ratio of capital financing for M&A purposes at commercial banks is being strictly regulated.

The M&A plans have been announced earlier this year by big names with strong financial resources or with relatively modest debt ratios. For example, Biwase has approximately VNĐ1.1 trillion in cash and deposits at the end of 2022. Biwase's debt ratio of 55 per cent but rising profits have helped improve Biwase’s financial capacity. By the end of 2022, its undistributed profit after tax was estimated at nearly VNĐ816 billion, or 42 per cent of the company’s charter capital.

Meanwhile, Đức Giang Chemical reported a big success in 2022 with a record high profit of more than VNĐ6 trillion, 2.4 times higher than in 2021. The accumulated profit by the end of 2022 has increased to VNĐ5.1 trillion, 1.34 times the size of charter capital.

In 2022, M&A activities in the Asia-Pacific region saw a decline and it is expected that it will continue to face many pressures such as inflation and economic recession this year. Despite this, Ong Tiong Hooi, Transaction Services Leader, PwC Vietnam, believes that that Asia-Pacific remains the "best spot" for global growth.

Hooi noted on tinnhanhchungkhoan.vn that companies that want to access the Asian market are looking for investment opportunities outside of China, such as India, Japan and other countries in Southeast Asia. He has listed several reasons for the rise in M&A activities, including the transfer of intergenerational wealth, rapid modernisation within industries, increasing trade between Asian nations and renewed focus on ESG (Envinronmental-Social-Governance) concerns.

In Việt Nam, there will be a trend towards “collected” deals in fragmented markets to expand scale, as well as strategic divestment from a number of Vietnamese enterprises to balance cash flows and deal with bond maturity pressure. There is also a growing trend of corporate splits in large family-owned companies, with asset transfer and deals promoting innovation, selling businesses or shares to finance strategic expansion, particularly in Southeast Asia, to manage political tensions and supply chains in the region.

Although Việt Nam’s M&A market will not be exempt from the challenges faced by the Asia-Pacific region, it still presents opportunities for investment and growth. Six industries have been identified as having the potential to create opportunities for M&A activities, including technology, media and telecommunications, industrial and automotive production, financial services, energy, utilities and mining.

Source: VNS