Vietnam ma report 2015

13 Vietnam M&A Research Report 2015 | Issue 5 | 13 February 2015 • In our previous Vietnam M&A Research Report, Issue 2 dated back from 2012 during the heart of economic crisis, we anal

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StoxPlus Corporation

thuan.nguyen@stoxplus.com

+84(4) 35626962 (ext 111)

StoxPlus Corporation lan.nguyen@stoxplus.com +84(4) 35626962 (ext 109)

StoxPlus Corporation giang.ha@stoxplus.com +84(4) 35626962 (ext 109)

StoxPlus Corporation anh.phuong@stoxplus.com +84(4) 35626962 (ext 109)

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Vietnam M&A Research Report 2015 | Issue 5 | 13 February 2015 3

PERSPECTIVES OF FOREIGN INVESTORS ON SOE IPOS: A STOXPLUS SURVEY 71-78

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We are pleased to bring to you the Vietnam

M&A Research Report 2015 (Issue 5) In

addition to the M&A data mining, we also

focus on equitisation progress of Vietnamese

State-owned enterprises including IPOs,

divestures from non-core businesses and

equitized SOEs in this Issue

In this year, the recorded deals from SOEs are

only a few However, we believe SOE

restructuring progress will be accelerated

quickly in coming period, and new

opportunities for M&A will emerge from

second wave of equitisation, the prominent

trend which has been analyzed in our recent

issues

Our M&A report utilized extracted database

with over 15 years of historical data in

Vietnam In addition to data analysis, the

report also relies on the authors extensive

knowledge and experience in advising deals in

Vietnam We have surveyed relevant foreign

and local institutional investors as well as

conducting a number of in-depth interviews in

with experienced M&A advisers and

Government officials in during our

preparation

We strongly believe that this report will be

valuable to institutional investors, investment

companies and foreign players who are

considering M&A as a strategy to set a

foothold or to expand their businesses in

Vietnam

About StoxPlus

This report is prepared by a team of experienced analysts, researchers and data clerks at StoxPlus StoxPlus is a leading financial and business information provider in Vietnam Our services include provision of high quality data feeds, analytic tools and market research

StoxPlus is now serving a client portfolio of over 100 corporate data clients including securities companies, research houses, asset managers, investment companies, and thousands of sophisticated individual investors

Our Research division has been established as

an independent research house in Vietnam to provide local insights to our clients at quality standards of the World’s prestige advisory firms

If you have any questions about this report or our services, please don not hesitate to contact Thuan Nguyen, CEO of StoxPlus at thuan.nguyen@stoxplus.com or +84- 4-3562

6962, ext 111

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5

Vietnam M&A Research Report 2015 | Issue 5 | 13 February 2015

3 ASEAN Association of Southeast Asian Nations

15 IPSI Industrial Policy and Strategy Institute

17 MARD Ministry of Agriculture and Rural Development

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118 34 61 299

1,719 1,117 1,140 1,750

6,319 5,142 3,504 4,663

Deal Value Number of deals

Vietnam M&A market is back on an upward trend

with deal value totaling US$4.66bn: StoxPlus’

database recorded 265 completed M&A deals in 2014

with value totaling US$4.66bn, an increase of 33.1%

from 2013 (total deal value recorded by StoxPlus in

2013 was US$ 3.504bn) The US$4.66bn did not take

into account a major real estate project Vung Ro

Resort by Rose Rock Group and Vung Ro Petroleum Ltd

with a total investment of US$2.5bn, as the

disbursement for the project is still unclear If

counting this project, the total M&A deal value in 2014

could reach US$7.16bn

• M&A activities in 2014 also increased in terms of

number deals, with 265 completed deals compared

to 196 deals in 2013, and nearly reached the record

of 267 deals in 2011 (when Vietnam M&A market was

at its peak) Vietnam M&A market has clearly shown

signs of warming up in 2014, with more activities as

well as major mega deals

The increase in deal value in 2014 was driven by a

number of mega-deals There were 07 M&A deals in

2014 whose deal value was at least US$100mn,

including: Berli Jucker Pcl acquiring Metro Cash &

Carry Vietnam, SapuraKencana Energy acquiring two

oil blocks in Cuu Long Basil, Mondelez acquiring Kinh

Do Confectionery, and four other real estate

projects Total value of these 07 mega-deals

amounted to US$2.44bn, or 52% of the total Vietnam

M&A market in 2014 It was due to the presence of

mega-deals that Vietnam M&A market had such a big

jump in deal value in 2014 compared to 2013

Vietnam M&A deal value, 2003 – 2014

Inbound M&A by country, 2014

Thai investors led the inbound investment trend

in 2014, and Thai interest is expected to increase in the coming years Inbound M&A into

Vietnam totaled US$3.024bn in 2014, an big jump

of 64.9% compared to only US$1.83bn of inbound M&A in 2013 This proved the regained confidence and interest of foreign players for Vietnam market

In terms of deal value, Thai investors ranked first among countries and territories investing in Vietnam with only 01 deal but investment value is US$870mn (Berli Jucker Pcl acquiring Metro Cash & Carry Vietnam), equivalent to 29.1% of total inbound deal value United States ranked second in terms of deal value, with 07 deals totaling

US$498.6mn

Sector appetite of foreign investors has not changed much, still focusing mostly in consumers-oriented sectors (food & beverage,

retail, real estate), and oil & gas Foreign investors still find it attractive to take advantage of the big consumer base in Vietnam, and this theme will likely to continue in the coming years Oil & gas acquisitions mostly happen at the upstream, where foreign companies acquire oil blocks within

FranceLuxembourgSouth KoreaIrelandNGONorwegianUndisclosedFinlandDenmarkIndonesiaUKSingaporeJapanHong KongIsraelMalaysiaUSThailand

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The acceleration of SOE privatization: According the

data announced by the Government, over the period

2011 – 2014, there has been 247 SOE IPOs Among

which, StoxPlus was able to identify 169 IPOs via public

and our own sources The rest 78 IPOs were

unidentified There were 148 SOE IPOs in 2014 itself

given the above Government’s efforts, signaling a

promising prospect for SOE IPOs in 2015

Even though the quantity of SOE IPOs has been

increasing, the quality of IPO reflected in average

percentage of private investors shares after public

auction was an issue Overall, the Government still

holds 90% on average after IPO of one SOE

Consequently, M&A activities generated from SOE IPOs

were minimum: Only 37 SOE IPOs attracted

institutional investors and led to M&A deals (1.16% in

market capitalization value and 14.7% in deal number)

Divestment progress from non-core business of SEGs and SCs has been slow: Divestment from non-

core business of SEGs and SCs are an important part

of the overall SOE restructuring process As of 2014, the Government has approved the Restructuring Plan

of 20/20 SEGs and SCs until 2015, which details the list of companies to be divested According to StoxPlus database, there are 296 companies that SEGs and SCs are required to divest or fully divest by

2015

According to StoxPlus’ review from public sources, out of the 292 required divestment, only 18% or 52 companies have been divested, 6% are currently in the divestment process, and the rest are either unidentified (36%) or having no plan on divestment (40%)

SOE IPOs from 2008 - 2015

There are still many investment opportunities from

the SOE IPOs: As stipulated in Decision 929 issued on

July 17th 2012, the Government committed to a plan

to equitize 531 SOEs by the end of 2015 Hence, the

actualization of IPO plans at remaining SOEs is

expected to be aggressively urged in the coming year

The promising sectors for M&A of SOE IPOs will come

from Telecommunications, Constructions and

materials, Retail, and Travel & Leisure

Sector Number of IPOs Charter Capital (in VNDbn)

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According to StoxPlus’ targeted survey of foreign investors, foreign interest in SOE IPOs is high:

Investors regards highly the M&A opportunities from SOE equitization process: 11% are very positive, 53% positive, 31% neutral, and only 5% are not at all positive about SOE equitization This is a very positive sign for higher foreign participation in SOE IPOs and divestment in the coming year

There has been little divesture of existing state

capital from already equitized SOEs From our review

of changes in State Capital at listed companies on

HOSE, HNX and Upcom, 2014 marked a humble year of

divesting State Capital at equitised companies In

particular, only 121 divestures were resulted from 941

entities being listed on Stock Exchanges or managed by

SCIC

As a result of these divestures, average ownership level

of State reduced slightly from 36.06% in 2013 to 36.01%

in 2014 on the stock market, including companies on

HOSE, HNX and UpCom Even though the Government is

directing enterprises to divest State Capital, this

change is minimal in comparison with desirable level of

State ownership in the whole market

Sector # of Company State Ownership

Positive 53%

Neutral 31%

Not at all positive 5%

Overall sentiment: How positive are you with M&A opportunities from

SOE equitization?

However, there are still many key challenges and issues that need to be overcome to make SOEs more attractive, in particular the disclosure of information for investment opportunity screening:

The biggest challenge faced by foreign investors is the lack of transparency and information about the SOEs and their IPO plans

StoxPlus faced the same issue when documenting this report Despite our thorough research methodology and extensive data mining from various sources, we were only able to identify 169 IPOs out

of 247 IPOs, or 68% of the total SOEs that have been reported to be equitize by the Government’s report The rest 78 IPOs are unknown

Without the information about the SOEs and their IPO / equitization plans, it would be impossible for investors to screen for investment opportunities in the SOEs Hence, transparency is the first and foremost important issue that needs to be improved

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Vietnam Economy Context in 2014 – An economy in recovery

• Vietnam economy saw clearer signs of recovery in 2014 Since 2013, Vietnam economy started seeing signals

of recovery after economic crisis topped in 2012 This year 2014’s GDP achieved an estimated growth of 5.98% against 2013 while having inflation at the lowest rate over 10 years

• During 2014 the country’s sovereign risk ratings has been improved which allowed government bonds to be issued on international capital markets, raising US$1 billion with higher capitalization level and more

favorable terms Also, Vietnam has risen two spots ranking in the World Economic Forum’s (WEF) Global

Competitiveness Report 2014–2015 The country now ranks the 68th out of 144 countries

Figure 1: Vietnam GDP Growth 2005 – 2014

(% y-o-y)

Figure 2: GDP Growth by sector 2014 (%)

• The economic growth is critically supported by continuous stability of macroeconomic environment In terms

of GDP growth in details, we determine that strengthening services sector as well as industrial and

construction sectors were the key drivers Besides, relatively flat domestic demand has stimulated even faster recovery

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Monetary policy played an important role in stabilizing the economy

Figure 4: Exchange rate fluctuation 2012 - 2014 Figure 3: Short-term rates 2008 - 2014

Figure 5: Inflation rate 2009 – 2014 (%)

[VALUE]%

5 10 15 20

Source: StoxPlus from GSO

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Figure 6: State Budget of Vietnam 2004 - 2014

-4.9 -4.9 -5.0

-5.7 -4.6

-6.9 -5.6

Source: StoxPlus from ADB & GSO

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• In our previous Vietnam M&A Research Report, Issue 2 dated back from 2012 during the heart of economic crisis, we analyzed the trend that ASEAN firms increasingly acquired controlling stake in Vietnamese

distressed companies During the economic downturn 2009 - 2012, many of Vietnamese enterprises are

described as being financially distressed due to excessive financial leverage and extremely high cost of

capital (for example, many cement companies such as Thang Long Cement had Debt to Equity (D/E) ratio

of 11 as of year-end 2012) Even though these enterprises has strong fundamental operation, it was

payment of financial loans that threatened their business Those business issues are severely affected by the prolonged domestic economic recession All of the above made the valuation of Vietnamese enterprises very low during the period, which generated opportunities for foreign investors to implement their strategy

to expand operation into Vietnam market through M&A The M&A in this period is recognized by many

acquisition of banks, enterprise’s conversion of debt to equity, acquisition of foreign investment firms with distress enterprises

• However, this trend is unlikely to be continue in this period given several major economic signals:

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FDI disbursement in Vietnam is increasing

Figure 7: FDI registered 2000 - 2014 Figure 8: FDI registered by country 2014

Figure 9: FDI registered by sector 2014

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Figure 10: FII into Vietnam 2003 - 2014

Figure 11: M&A deals of listed companies 2011 – 2014

Source: StoxPlus from SSC

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Regulation development is becoming catalyst for M&A acceleration

• During period 2014-2015, the effectiveness of several regulations contributed positively on the dynamics of M&A market in Vietnam Those regulations include Circular 111/2013/TT-BTC, Circular 36/2014/TT-NHNN, Resolution 15/NQ-CP and Decision 37/2014/QD-TTg

• Circular 111/2013/TT-BTC: On the implementation of Law on Personal Income Tax

 Effective date: October 1st 2013

 Key features relating to M&A:

Regarding incomes from transferring shares, call options on shares, bonds, treasury bills… and

incomes from transferring shares of the persons in the joint-stock company according to the Law on Enterprises If the share owner is Vietnam resident, he/she has the options of either paying PIT

equally 0.1% transaction value or 20% profits generated from the transferring of shares

 Implication for M&A:

Previously, there is no clear information on which treatment of PIT calculation shall be applied for income from transferring of shares at local JSC Circular 111 opened up clear options for shareholders and reduced their stress on PIT calculation treatment, allowing their transferring process to be

accelerated As a result, M&A activities is encouraged to increase

• Circular 36/2014/TT-NHNN: Stipulating minimum safety limit and ratios for transactions performed by credit institutions and branches of foreign banks

 Effective date: February 1st 2015

Regarding commercial bank’s purchase and holding of stocks of other credit institutions: Commercial banks are only entitled to purchase or hold stocks of fewer than two (02) other credit institutions; Also, commercial banks could hold stocks of another credit institution at the rate of below 5% of

voting stocks of these credit institutions

The effective of this regulation shall contribute to eliminate cross-holding issue at commercial banks, which is one of the biggest issues in Vietnam banking system today As banks are forced to divest stake at other banks, M&A opportunities will come to private investors who plan to acquire those stake in 2015

• Resolution 15/NQ-CP and Decision 37/2014/QD-TTg: Solutions for speeding up equitisation and

withdrawal of state capital from enterprises, and criteria for enterprises holding by the State

 Effective date: February 1st 2015 and August 6th 2014 respectively

Based on the criteria and classification of state enterprises and their role in development of sectors, state groups, corporations and enterprises shall determine the holding rate of state capital which must not exceed 65% of the charter capital The Government determined categories of SOEs which the State holds a certain level of ownership

The Government has strongly enforces equitisation process of SOEs and a lot of attractive SOEs shall

be equitised in period 2014 – 2016 Many SOEs which are not fall within criteria for holding by the

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Some international trade agreements will significantly increase

investment flow into Vietnam from 2015

M&A market

TPP TPP is a giant free trade

area deal of 12 countries including US, Canada, Mexico, Peru, Chile, New Zealand, Australia, Malaysia, Singapore, Vietnam, Brunei and Japan It's expected to eliminate tariffs on goods and services, tear down a host of non-tariff barriers and harmonize all sorts of regulations

• Tariffs: Cut most of the tariff lines (at least 90%)

• Services: Increase the openness of service sector, particularly financial services

• Investments: Strengthen the provisions relating to foreign investment and investor protection

• Intellectual Property Rights: Increase the level of protection

of intellectual property rights higher than the WTO (WTO +)

• Measures SPS, TBT: Tighten the requirements for sanitary and phytosanitary and technical barriers

• Competition and public procurement: Enhance competition, especially in the field of public procurement

• The labor problems: especially the issue of the right of association (union), the right to collective negotiations and general laborers, regulations prohibit the use of all forms of forced labor, prohibition exploitation of child labor, the provisions do not discriminate in the labor force

According to MPI, FDI from TPP countries has made up 50% of total FDI into Vietnam Participation of Vietnam in TPP will significantly increase investment capital flow in supporting industries, value added services and the technology sector due to the free investment rule regulated by the TPP agreement Sectors which Vietnam has competitive advantages shall witness acceleration of M&A

ASEAN FTA AFTA is a free trade area

agreement which aims to the reduction and elimination of tariffs among items and sensitive agricultural products of member countries in South East Asia (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, Vietnam)

• Items' reduction and elimination of tariffs: tax rate decreased

to 0-5% by 2006 and eliminate tariffs in 2015, with some flexible items in 2018

• Items of information technology (consistent with an item of WTO) will eliminate tariffs in 3 years: 2008-2010 12 fields will be removed earlier than in 2012 (instead of 2015), which has 9 fields of goods including timber and wood products, automotive , rubber, textiles, agricultural products, aquatic products, electronics, information technology, healthcare (equipment, drugs)

• Sensitive agricultural products: including 89 tariff lines which are agricultural products, unprocessed, including some types

of rice, fruit, food, sugar These items do not have to eliminate tariffs, with tariff reduction schedules from current tariff in 2004 to the highest tax rate 5% in 2013 (except for the road is 2010)

With the elimination of tariffs within ASEAN, trading within the community is considered as local trading Given the consumption growth potential of Vietnam, FDI from ASEAN countries and inbound M&A in

agricultural productions, retails and services are expected to increase exponentially For example, 2014 marked a year of emerging Thai inbound M&A into Vietnam

• The newly finished bilateral agreement shall regulate the trade of goods and services, customs procedures, intellectual property standards, food hygiene and safety, and origin rules

Besides, it commits to remove e-commerce and legal institutions barriers

• Key business areas affected by the agreement include automotive, electronics, and textiles sectors Goods receiving preferential treatment include plastic materials, steel products, electrical cable, home appliances, and specific high

cc vehicles

• South Korea shall cut import tariffs on farm products, seafood, garments and textiles and mechanical products from Vietnam Rice which is classifies as a sensitive product by South Korea was not included

Currently Korea is the biggest FDI investor into Vietnam The FTA is expected to triple bilateral trade between two countries up to US$70 billion by 2020, indirectly supporting growth of inbound and outbound M&A between Vietnam and Korea

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Activities Review

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M&A market is back on an upward trend with 265 deals valuing US$4.70bn in 2014

• The growth of Vietnam’s GDP reached 5.9% in 2014, an increase of 5.42 % compared to 2013, making Vietnam the second fastest growing economy in the world (behind China) After a few years being slowed down due to the economic crisis, Vietnam economy has gradually stabilized In the same trend with the macro economy, Vietnam M&A market also showed signs of recovery in 2014 after two years on a declining trend

Source: StoxPlus Notes: 28 out of 265 deals do not disclose their deal values and do not provide reasonable estimation basis

Figure 12: Vietnam M&A deal size and number of deals, 2003 – 2014

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Deal size analysis: Mega deals in 2014

Figure 13: M&A deal size, 2014

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Vietnam M&A Marker 2014: Further Data and Figures

Figure 14: Breakdown of deals by value in 2014

Figure 15: M&A Vietnam Market 2014, by sector

Outbound 0.1%

Real Estate

Retail

Food & Beverage

Oil & Gas

Chemicals

Construction & Materials

Industrial Goods & Services

Banks

Personal & Household Goods

Travel & Leisure

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Vietnam M&A Marker 2014: Further Data and Figures

Figure 16: M&A Vietnam Market 2014, by sub-sector level 4

IT Furnishings Nondurable Household Products

Recreational Services Industrial Machinery Oil Exploration Education Diversified Industrials Broadline Retailers Mining

Rubber Retail Iron & Steel Car Commercial Vehicles &

Trucks Specialty Finance Electrical Components

& Equipment Forestry Cement Electric & telecom material

Industrial supplier

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Inbound deals dominate with 70% of M&A deal value

Figure 18: Inbound M&A, 2013 Figure 19: Inbound M&A, 2014

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Inbound M&A by Country: Thailand spotlight

Figure 20: Thailand M&A deals from 2011 – 2014

Source: StoxPlus

Profile of SCG

• SCG was established in

1913 following a royal decree of His Majesty King Rama VI to produce cement, the main building material for infrastructure projects

• SCG has grown continually and diversified into three core businesses, namely SCG Cement-Building Materials, SCG Paper and SCG Chemicals

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Inbound M&A by Country: Thailand spotlight

Profile of ThaiBev

Profile of BJC

• Building Partnerships in Thailand since 1882

• The company’s inception was first created through

a partnership between the Berli and Jucker families

• Originally, BJC engaged

in rice milling, mining, timber, shipping, importing, and other activities

• BJC prospered over the years to become a major Thai import and export firm

• ThaiBev was established in 2003

• ThaiBev is not only Thailand is leading beverage producer, but also one of Asia is largest beverage producers

• Their business consists

of four segments: spirits, beer, non-alcoholic beverage, and food

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Why the surge of Thai investment in Vietnam in recent years?

Thai tycoons seek to

diversify away from

their home market,

take market share or

your market share

will be taken.”

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Thailand investment inflow – An outside-in perspective

AWR Lloyd is an

independent and specialized

corporate finance firm with

an exclusive focus on the

energy, mining, metals and

infrastructure industries in

the Asia-Pacific region

AWR Lloyd has been active

in providing financial

advisory and strategy

consulting services in

Vietnam for over a decade

Their main focus to date has

been helping Vietnamese and

international clients with

feasibility studies and

investment evaluation in the

oil, gas and infrastructure

sectors

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Inbound M&A by Country: United States spotlight

Figure 21: United States M&A deals from 2011 – 2014

Source: StoxPlus

Figure 22: United States M&A deals 2014 by sector

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Review GEM and its investment in Vietnam:

Global Emerging Markets ("GEM") is a $3.4 billion alternative investment group that manages a diverse set of investment vehicles focused on emerging markets across the world

Inbound M&A by Country: United States spotlight

Figure 23: GEM’s investment structure in Vietnam

Source: StoxPlus

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Inbound M&A by Country: Japan spotlight

Figure 24: Japan M&A deals from 2011 – 2014

Figure 25: Japan M&A deals 2014 by sector

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Inbound M&A: Sector analysis

Figure 26: Inbound deals by sector, 2013

Source: StoxPlus

Food &

Beverage 31%

Real Estate 24%

Utilities 11%

Travel &

Leisure 2%

Banks 2%

Others 3%

Figure 27: Inbound deals by sector, 2014

Industrial Goods & Services

Personal & Household goods

Construction & Materials

Banks Travel & Leisure

Technology

Health Care

Oil & Gas

Retail Utilities

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Inbound M&A: Retail spotlight

Figure 30: Top 10 markets where Retailers intend to open stores

Source: CBRE survey- How active are retailers in Asia pacific 2014

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Vietnamese products at risk due to foreign participation in retail

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Inbound M&A: Real Estate spotlight

Figure 32: Inbound Real Estate M&A by country, 2014 Figure 31: Inbound Real Estate M&A , 2012- 2014

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Inbound M&A: Food & Beverage spotlight

Figure 34: Inbound Food & Beverage M&A by country, 2014

Source: StoxPlus

Figure 33: Inbound Food & Beverage M&A , 2012- 2014

There has been an upward

trend in Food & Beverage

M&A market after the

significant decreasing in 2012

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Inbound M&A: Food & Beverage spotlight

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Domestic M&A: A busy year for domestic real estate deals

Source: StoxPlus

Figure 35: Domestic M&A by sector, 2014

Real estate is the busiest

sector for domestic deals

with 35 deals and deal

value totaling US$790

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Domestic M&A: Food & Beverage

Figure 36: Domestic Food & Beverage M&A , 2011- 2014

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Domestic M&A: Construction & Materials

Figure 37: Domestic Construction & Materials M&A , 2011- 2014

Source: StoxPlus

Construction & Materials

has been slowly recovering

from the economic crisis

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Domestic M&A: IPO and M&A of local SOEs are a major

theme for domestic deals in construction

Acquirer Name Target Company/Assets Type Ownership Target % of Shares Acquisition Stake type

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