Vietnam ma research report 2016

StoxPlus is pleased to introduce Vietnam MA Research Report 2016, the 6th issue on this industry. This report presents a board range of topics, both sectorspecific and crosscutting market issues. In addition to the MA data mining, we also focus on MA opportunities and capital flows into Vietnam thanks to a number of FTAs, namely VietnamSouth Korea FTA, TPP. Our MA report utilized extracted database with over 5 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 strongly believe that this report will be valuable to institutional investors, investment companies and foreign players who are considering MA as a strategy to set a foothold or to expand your businesses in Vietnam. Below are the most critical findings in our 6th issue: 1) Vietnam MA continued its upward trend: Vietnam MA in 2015 recorded 341 deals with total value of US5.20bn. This indicates a 23.1% increase in terms of number of deals (compared to 277 deals in 2014) and 9.7% increase in deal value (compared to US4.74bn). 2) Inbound MA into Vietnam accounted for 46% of MA deal value and totaled US2.42bn in 2015, 21% lower than in 2014. There were only 98 inbound deals originated by investors from familiar countries such as Hong Kong, Thailand, Japan, South Korea, US, Malaysia and Singapore. 3) Domestic MA was also busy with total deal value of US2.70bn. For domestic MA, the most favored sectors include: (i) Banks, (ii) Real Estate with 29 deals totaling US776.7mn, and (iii) Food Beverage with 37 deals valued at US449.0mn. The acceleration in banking MA was due to the financial sector restructuring as set out in Decision No. 254QĐTTG. Bank MA is expected to continue in 2016. 4) 2015 marked the year of Vietnam’s further integration into the global market with many new FTAs signed. Viet Nam concluded negotiations for four free trade agreements (FTAs), including those with the Eurasian Economic Union, the European Union, South Korea and the TransPacific Partnership, during 2015. FTAs are likely to boost capital flows into Vietnam in the coming time, both in terms of trading as well as investment, including MA activities. 5) Capital flow from Japan has dropped in recent years, but is expected to bounce back after TPP is signed. In 2015, twoway trade between Vietnam and Japan totaled US24bn, with Vietnam experiencing a trade surplus. Due to TPP and removed tariffs, trade activities will likely increase, especially seafood exported from Vietnam and plastic products imported from Japan to Vietnam. 6) Thailand investors have been increasing investment in Vietnam for years, and are expected to do so after AEC is established. Vietnam has become a favorite investment destination of Thai firms, especially in Industrial Goods and Retail. 7) In our last issue of Vietnam MA report, we have analyzed very detailed opportunities from privatization of SOEs. As SOE IPOs accelerated in 2015, many opportunities have been realized. During 2015, there were 104 SOE IPOs, accounting for 40.0% of 289 IPOs targeted for the year. The most active sectors for IPOs include (i) industrials, (ii) consumer goods and (iii) consumer services, accounting for 85% total IPO deals. 8) 2015 also marked significant improvement in legal framework on foreign investment, supporting MA activities in the coming years. For onthe–stockmarket MA, Decree 602015NDCP relaxed the thresholds for foreign ownership. Depending on the target company’s business lines and its shareholders’ approval, these changes could enable foreign investors’ acquisition of up to 100% of a local company’s charter capital.

Thuan Nguyen, FCCA

Hai Khieu

Research AssociateStoxPlus Corporationhai.khieu@stoxplus.com+84(4) 35626962 (ext 108)

Anh Nguyen

Research AssociateStoxPlus Corporationanh.phuong@stoxplus.com+84(4) 35626962 (ext 108)

M&A Opportunities from Global Integration

Vietnam M&A Research Report 2016 – Issue 6

08 January 2016

Table of contents

@ 2016 StoxPlus Corporation

All rights reserved All information contained in this publication is copyrighted in the name of StoxPlus, and as such no part of this publication may be reproduced, repackaged, redistributed, resold in whole or in any part, or used in any form or by any means graphic, electronic or mechanical, including photocopying, recording, taping, or by information storage or retrieval, or by any other means, without the express written consent of the publisher.

3 Vietnam M&A Research Report 2016 | Issue 6 | 8 January 2016

We are pleased to bring you the Vietnam M&A

Research Report 2016 (Issue 6) In addition to

the M&A data mining, we also focus on M&A

opportunities and capital flows into Vietnam

thanks to a number of FTAs, namely

Vietnam-South Korea FTA, TPP

Our M&A report utilized extracted database

with over 5 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 your 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 More details can be found at www.StoxResearch.com

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

No Word Stands for

1 AEC ASEAN Economic Community

2 AnDate Announcement Date

3 ASEAN The Association of Southeast Asian Nations

5 CAGR Compounding Annual Growth Rate

7 ECs Economic Corporations

9 FTAs Free Trade Agreements

10 GCs Government Corporations

11 GRDI Global Retail Development Index

12 GSO General Statistics Office

13 HNX Hanoi Stock Exchange

14 HOSE Ho Chi Minh City Stock Exchange

15 IPSI Industrial Policy and Strategy Institute

16 MAC Middle and Affluent Class

17 MARD Ministry of Agriculture and Rural Development

19 MNCs Multi-National Corporations

20 SBV The State Bank of Vietnam

21 SCs State Corporations

22 SEGs State Enterprise Groups

23 SOE State-Owned Enterprise

24 SSC State Securities Commission

25 TBT Technical Barriers to Trade

26 WEF World Economic Forum

Acronyms

5 Vietnam M&A Research Report 2016 | Issue 6 | 8 January 2016

Sources and Completeness of Data

• Data works in Vietnam are actually a very tedious and time consuming job due to lack of a sound reporting system and regulations This is particularly true for M&A activities In many case where the seller finds it positive for their public relation or investor relation works, they would be proactive in spreading the news

• In many cases, including the public and listed companies, we found it hard to obtain an official explanation in a deal that has been actually concluded This is particularly true in Real Estate sector where it is sensitive from tax perspective if the deal value and details are announced

• As such, we combine a variety of sources and data mining skills to uncover as many as possible unannounced M&A deals that have happened Even though our database is yet comprehensive, we believe our methodology is as exhaustive as possible to identify M&A deals in Vietnam

Public domains

Unannounced deals – Surveyed by StoxPlus

Unannounced deals – Unidentified

(Unknown unknown)

Sources and Completeness of Data

• Our sources of M&A data include:

• Public information and media releases;

• Data announced by reliable portals such as Bloomberg and Thomson Reuters;

• Large shareholder transactions on HOSE and HNX from Fiinpro platform;

• Review changes of management team of all public companies from Fiinpro platform;

• Data mining from financial statements of large corporations in Vietnam;

• Press release from all private equity funds

• We believe that our database might not include all M&A transactions but it is the most comprehensive in Vietnam and have covered all the market in all material aspects

Deal Value

• If deal value is not publicly and explicitly disclosed, we calculate the deal size from deal parameters such as purchase price per share We also obtained deal size and value from our intelligent network where possible

Deal Valuation Multiples

• In calculating price earning ratio (P/E), we use the acquiree latest EPS For deal P/B,

we take the deal price divided by book value per share in a pre-deal basis, this means the cash proceed from the transaction is not included in the book value

Sector Classification

• We adopt the Industrial Classification Benchmark (ICB) for all sector classification

Our Methodology

7 Vietnam M&A Research Report 2016 | Issue 6 | 8 January 2016

• This material is prepared by StoxPlus Corporation for information purpose

only This material is not intended to recommend or suggest any

particular transaction

• Any information contained in this material shall be used at your own

discretion and risk StoxPlus Corporation will not be subject to any

liability for any consequence caused by the information contained in this

material

• This material may be changed without any prior notice Content of this

material may be changed according to any changes in the situation, or

effects of the additional information after its preparation, and StoxPlus

Corporation shall undertake no obligation to update, revise or

complement the content of this material according to the changes

• While this material is prepared based on the public information and other

information StoxPlus Corporation duly obtained, StoxPlus Corporation has

not independently verified its accuracy, completeness, or suitability for

your use, also shall not guarantee them

• StoxPlus Corporation reserves the copyright of this material This material

is protected in accordance with the copyright laws of Vietnam and other

countries, as well as the treaty provisions regarding the copyrights signed

between Vietnam and other countries For any purpose whatsoever, no

one shall be entitled to duplicate, summarize, quote, or reprint this

material, or disclose it to the third party without StoxPlus Corporation’s

prior consent

Executive Summary

Vietnam M&A continued its upward trend: Vietnam

M&A in 2015 recorded 341 deals completed with total

value of US$5.20bn This indicates a 23.1% increase in

terms of number of deals (compared to 277 deals in

2014) and 9.7% increase in deal value (compared to

US$4.74bn)

Small and medium deals still dominated the market

Particularly, M&A deals with value less than US$25mn

stayed at 288 out of 341, equivalent to 84% of total

deal number

Inbound M&A into Vietnam accounted for 46% of

M&A deal value and totaled US$2.42bn in 2015, 21%

lower than in 2014 There were only 98 inbound deals

originated by investors from familiar countries such as

Hong Kong, Thailand, Japan, South Korea, US, Malaysia

and Singapore In terms of deal volume, Japanese were

the most active investors with 15 inbound deals,

totaling US$310.4mn, or 12.8% of total inbound value

In terms of deal value, Hong Kong investors topped

with 05 Real Estate deals, 02 Retail deals and 01 Travel

& Leisure deal, having total investment of

US$1,101.5mn or 45.5% total inbound M&A deal value

Domestic M&A was also busy with total deal value

of US$2.70bn For domestic M&A, the most favored

sectors include: (i) Banks, (ii) Real Estate with 29 deals totaling US$776.7mn, and (iii) Food & Beverage with 37 deals valued at US$449.0mn.The acceleration

in banking M&A was due to the financial sector restructuring as set out in Decision No 254/QĐ-TTG Bank M&A is expected to continue in 2016

Meanwhile, Construction & Materials and Industrial Goods & Services saw the most deals happened with

48 deals and 38 deals, respectively There has been

an ascending trend in the two sectors in M&A market after the significant decreasing in 2013

2015 marked the year of Vietnam’s further integration into the global market with many new FTAs signed Viet Nam concluded negotiations for

four free trade agreements (FTAs), including those with the Eurasian Economic Union, the European Union, South Korea and the Trans-Pacific Partnership, during 2015 FTAs are likely to boost capital flows into Vietnam in the coming time, both in terms of trading as well as investment, including M&A activities We looked into the cases of 3 countries: South Korea, Japan, and Thailand to analyze potential impacts of FTAs on the capital flow from these countries

South Korean investors will be able to take advantage of VKFTA and increase investment in computers, machinery & parts as well as plastic products With the VKFTA signed and taking effect,

bilateral trade of the two countries is expected to double in 2017 to US$70mn As VKFTA takes effect, Vietnam will remove 16 import taxes for machineries,

31 import taxes for electronic products, 15 import taxes from home appliances from South Korea Companies such as LG, Samsung, and Posco will enjoy lower material costs, and have more incentives to expand their production sites in Vietnam as a result

The most favored sectors in Vietnam for inbound

M&A by foreign investors in 2015 were: (i) Real

Estate, (ii) followed by Industrial Goods & Services

(17 deals with total value of US$178.2mn), (iii)

Retail (7 deals totaling US$165.5mn)

9 Vietnam M&A Research Report 2016 | Issue 6 | 8 January 2016

Capital flow from Japan has dropped in recent years,

but is expected to bounce back after TPP is signed.

In 2015, two-way trade between Vietnam and Japan

totaled US$24bn, with Vietnam experiencing a trade

surplus Due to TPP and removed tariffs, trade

activities will likely increase, especially seafood

exported from Vietnam and plastic products imported

from Japan to Vietnam

Japanese firm could increase investment in textile,

which is the top sector from Vietnam to Japan

currently One such case is Itochu, who invested 5% in

Vinatex – the leading textile corporation in Vietnam –

back in 2014 After the deal, Itochu continued to sign a

business alliance with Vinatex to build its capacity on

dyeing and textile materials production The reason is

to take advantage of TPP and country of origin

(“COG”) requirement Currently, Vietnamese

companies imported most of the textile materials If

the materials are not made in Vietnam, the product

cannot meet the COG requirement of TPP and thus

export taxes would still be applied Therefore, the

investment of Itochu in Vinatex made sense in order

for them to take advantage of TPP’s removed tariffs

Thailand investors have been increasing investment

in Vietnam for years, and are expected to do so after AEC is established Vietnam has become a

favorite investment destination of Thai firms, especially in Industrial Goods and Retail

Top 3 export sectors to Thailand for 11M2015 included Phones & Accessories, Machinery & Part and Crude Oil Meanwhile, this country mainly exported petro & gas products, Machinery & parts (for construction of plant) and Electric home appliances which became Vietnamese customers’ preference in recent years

In our last issue of Vietnam M&A report, we have analyzed very detailed opportunities from privatization of SOEs As SOE IPOs accelerated in

2015, many opportunities have been realized

During 2015, there were 104 SOE IPOs, accounting for 40.0% of 289 IPOs targeted for the year The most active sectors for IPOs include (i) industrials, (ii) consumer goods and (iii) consumer services, accounting for 85% total IPO deals

Among all recorded SOE IPOs in period 2011 – 1H2015, only 40 deals resulted in M&A, accounting 15% in deal numbers M&A deals from SOE IPOs focused on several key sectors in which the targeted enterprises were dominant players Sectors that attract

institutional investors include construction, transportation services, food & beverage, and textile

2015 also marked significant improvement in legal framework on foreign investment, supporting M&A activities in the coming years For on-the–stock-

market M&A, Decree 60/2015/ND-CP relaxed the thresholds for foreign ownership Depending on the target company’s business lines and its shareholders’ approval, these changes could enable foreign investors’ acquisition of up to 100% of a local company’s charter capital

For not-on-the-stock-market M&A, effective as of 1 July 2015, the new Law on Enterprises (LOE) and the new Law on Investment (LOI) offer foreign investors relaxed ownership thresholds and simplify the investment procedures

These legal improvements coupled with Vietnam’s full market openings to foreign investments in 2015 and fueled by the local economy’s heightened productivity rates, all suggest that now is the right time for buyers and sellers to actively engage in M&A transactions

Top 5 export sectors from Vietnam to

Japan by value (US$mn)

2,620 2,065 1,431 1,195 1,502

1,774 1,255

932

650

490

- 500 1,000 1,500 2,000 2,500 3,000 Textile products

Transportation vehicles & parts

Machinery & parts

Seafood products

Crude Oil

8M2015 2014

Section 1: Vietnam M&A Activity Review

1.2 Inbound M&A1.3 Domestic M&A1.4 Outbound M&A

11 Vietnam M&A Research Report 2016 | Issue 6 | 8 January 2016

M&A activity in Vietnam has been on an upward trend

Global M&A deals are on an

upward trend with forecasted

deal value of US$4.1 trillion in

2015 The strength of BOM,

regulatory pressures and

economic patterns — GDP

growth, equity market stability

and cost of capital — will be

the key factors to support or

disrupt the projected growth

In this respect the recent full

value of major equity market

indices, which is in line with

the high of 2009, should be

followed closely for signs of

excess valuations.

Source: StoxPlus Notes: 14 out of 341 deals do not disclose their deal values and do not provide reasonable estimation basis.

Figure 2: Vietnam M&A deal size and number of deals, 2003 – 2015

• Thanks to the warming up of the Vietnamese economy, Vietnam M&A was sharing the a similar trend with the Global M&A market The growth of Vietnamese GDP reached 6.50% in Q3/2015 and 7.01% in Q4/2015, an increase of 15.6% compared to the same period in 2014

• The factors that supported deal-making in 2014 seem likely to be sustained in 2015, propelling a fresh round of robust M&A activities in Vietnam

• In all, 341 transactions were closed in the year 2015, a 23.1% increase over the 277 deals made in

2014 Total value was up about 9.7%, from US$4.74 billion in 2014 to US$5.20 billion in this year A large part of 2015's increase was a surge in small or medium-deals of US$5 million or less, which

made the average transaction size lower than the previous time

Figure 1: Global M&A deals forecast, 1996-2015

1.1 2.3 3.3

1.3 2.1

3.9 3.2 2.7 2.7

3.6 4.1

0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 4.50

Vietnam M&A also saw an

upward trend with 341 deals

recorded with total value of

US$5.20bn.

118 34 61 299 1,719 1,117 1,140 1,750

6,319 5,144 3,510 4,741 5,202

0 50 100 150 200 250 300 350 400

Our database recorded an

increase in the number of mega

deals in 2015 which are mainly

in real estate and banking

sector

Source: StoxPlus

Figure 4: Vietnam M&A deal size and number of deals, 2015

Figure 3: M&A number of deal by size, 2013 - 2015

Source: StoxPlus

Domination of mega deals: 12

mega-deals (deal value of at

least US$100mn) accounted for

approx 52% of total Vietnam

M&A market in 2015.

Deal size analysis: Small & medium deals continued to dominate the market

• In terms of deal volume, small and medium deals dominated the market The year 2015 witnessed

many more small/medium M&As which could clearly surpassed 2014 Particularly, M&A deals with value less than US$25mn stayed at 288 out of 341, equivalent to 84% of total deal number Compared to

2014, the proportion of small/medium M&A deals increased by 7%

• Among our identified 341 deals in 2015, deals with value of US$1mn or lower accounted for

approximately 28%, a 13% increase in comparison to 2014 (77 deals); US$ 1-5mn deals accounted for

29%; US$ 5-25mn deals in popularity with 27% total deals; big and mega deals (US$25mn+) only

accounted for 16% However, in terms of deal value, mega deals accounted for 52% of total M&A deal value in 2015 despite a small number compared to small/medium M&A deals

0 500 1,000 1,500 2,000 2,500 3,000

Less than US$1mn US$1-5mn US$5-25mn US$25-50mn US$50-100mn More thanUS$100mn

13 Vietnam M&A Research Report 2016 | Issue 6 | 8 January 2016

Vietnam M&A Marker 2015: Further Data and Figures

Figure 5: Breakdown of deals by value in 2015

Figure 6: M&A Vietnam Market by sector in 2015

1,101

310

209 193 126

79 59 49 42 40 33 0

200 400 600 800 1,000 1,200

Vietnam M&A Market 2015: Further Data and Figures

Figure 7: M&A Vietnam Market by sub-sector ICB level 4 in 2015

Containers & Packaging 104.2 7

Food Retailers & Wholesalers 15.3 5

Clothing & Accessories 8.7 2

Fixed Line Telecommunications 0.2 1

-Specialized Consumer Services - 1

Section 1: Vietnam M&A Activities Review

15 Vietnam M&A Research Report 2016 | Issue 6 | 8 January 2016

Review

1.1 Vietnam M&A Activities Review

1.3 Domestic M&A1.4 Outbound M&A

M&A activity in Vietnam has been on an upward trend

Figure 8: Breakdown of M&A deal size by category

Source: StoxPlus

Inbound M&A into Vietnam

sized at US$2.42bn in 2015,

accounted for only 46% of

Vietnam M&A deal value.

• Inbound M&A into Vietnam totaled US$2.42bn in 2015, 21% lower than the same period in 2014 Among 341 M&A deals completed in 2015, there were only 98 inbound deals originated by investors from familiar countries such as Hong Kong, Thailand, Japan, South Korea, US, Malaysia and Singapore

• In terms of deal volume, Japanese investors were the most active ones with 15 inbound deals in the year 2015 Real Estate, Industrial Goods & Services, Travel & Leisure and Retail were sectors that Japanese investors mostly focused on M&A deal value by Japanese investors reached US$310.4mn, equivalent to 12.8% of total inbound value, followed by US investors with 10 deals (US$126.2mn)

• Regarding deal value, Hong Kong investors topped with total investment of US$1,101.5mn or 45.5% total inbound M&A deal value Of which, there were 05 Real Estate deals, 02 Retail deals and 01 Travel & Leisure deal See Figure 10 below for other countries

0 200 400 600 800

1,000

Thailand US Malaysia Israel Hong Kong Japan Singapore UK Indonesia Denmark Finland Undisclosed Norwegian NGO Ireland Minority Majority

0 300 600 900 1,200 Hong Kong

Japan Thailand South Korea

US Malaysia Singapore Canada Finland Taiwan Philippines Kazakhstan na UK Caymand…

Domestic Inbound Outbound

Section 1: Vietnam M&A Activities Review

17 Vietnam M&A Research Report 2016 | Issue 6 | 8 January 2016

Inbound M&A: Sector analysis

• The most favored sectors in Vietnam for inbound M&A by foreign investors in 2015 were: (i) Real

Estate, (ii) Industrial Goods & Services (17 deals with total value of US$178.2mn), and (iii) Retail (7

deals totaling US$165.5mn)

• Among inbound deals, real estate was the top sector attracting strong interests of foreign investors with 20 deals totaling US$1,637mn It accounted for 69% of the total inbound M&A deal value in 2015 Compared to 2014, sector appetite of foreign investors has slightly changed from consumers-oriented sectors (food & beverage, retail, real estate) to industrial sectors such as industrial goods & services and Construction & Materials In 2015, foreign investors still found it attractive to take advantage of construction projects due to the the warming up of real estate industry Industrial Goods & Services mostly happened at some sub-sectors as logistics, industrial suppliers including commercial vehicles, transportation and electronic equipment

0 200 400 600 800 1,000 Retail

Real Estate

Food & Beverage

Oil & Gas Travel & Leisure

Banks Chemicals

Industrial Goods & Services

Construction & Materials

Personal & Household Goods

Automobiles & Parts

Technology

Utilities Financial Services

Basic Resources

Minority Majority

Foreign investors’ preference

changed from

customer-oriented sectors to industrials

sector to take advantages of

FTAs and warming up real

estate sector.

-200 300 800 1,300 1,800 Real Estate

Industrial Goods & Services

Retail Construction & Materials

Insurance Basic Resources Food & Beverage Financial Services Technology Travel & Leisure Utilities Oil & Gas Personal & Household Goods

Media Telecommunications

Minority Majority

Retail 29%

Real Estate 24%

Food &

Beverage 21%

Oil &

Gas 13%

Others 2%

Real Estate 68%

Industrial Goods &

Services 7%

Retail 7%

Construction

& Materials 5% Insurance

4%

Others 9%

Inbound M&A: Real estate spotlight

There are 18 inbound real

estate deals in 2015 with total

value at US$1.60bn, doubling

that figure of the year 2014.

Figure 14: Inbound Real Estate M&A , 2012 – 2015

Source: StoxPlus

• Vietnam M&A market 2015 continued to witness the upward trend in real estate sector after the

buoyant year 2014, especially for deal value According to StoxPlus’ database, real estate was the most attractive sector for foreign investors with 19 deals totaling approx US$1.64bn

• There was an increase in the number of mega in-bound real estate deals from 2 in 2014 to 4 for

the year 2015

Acquiror name Acquiror nation Target company/ asset Seller % Stake acquired Type Deal value (US$ mn)

Gaw Capital Partners Hong Kong Empire City Tien Phuoc & Tan Thai Co., Ltd 50.0% Majority 600.00 Chow Tai Fook Corp (Hong

Kong) Hong Kong Nam Hoi An Project VinaCapital 77.5% Majority 387.25Creed Group Japan An Gia Investment An Gia Investment 20.0% Minority 200.00 Warburg Pincus LLC US Vincom Retail Co Ltd n.a n.a Minority 100.00

• The most significant trend in real estate in 2015 was the surge of interest from foreign investors with remarkable average deal size of approx US$90 mn per deal

• Hong Kong, Japan and U.S remained the top active country for in-bound real estate M&A deals

• Creed Group – the most active player from Japan continued to strengthen its position in Vietnam real estate market For the year 2015, the Company successfully acquired 20% of An Gia

Investment with the announced deal size of US$200mn

• Another Japanese real estate group, Hankyu Realty & Nishi Nippon Railroad, wrapped up a deal to buy 50% of Anh Dao Flora project at US$11.9mn The project is developed by Nguyen Phuc

company, a joint venture between Nam Long and Hankyu Realty & Nishi Nippon

Figure 15: Inbound Real Estate M&A by country, 2014 -2015

Israel 41%

Hong Kong 28%

Japan 21%

US 4% Singapore

4%

Others 2%

1.90 636.30

726.79

1,636.96 1

13

21

19

0 5 10 15 20 25

0 200 400 600 800 1000 1200 1400 1600 1800

Japan 16%

US 6%

South Korea 5%

Malaysia 4% Singapore1%

Caymand Islands 1%

Section 1: Vietnam M&A Activities Review

19 Vietnam M&A Research Report 2016 | Issue 6 | 8 January 2016

Inbound M&A: Real estate spotlight (cont’d)

The average size of inbound

real estate M&A valued at

US$88.16 mn, much bigger

than the figure in the previous

• With the upward trend of Vietnam real estate market, Hong Kong is not the only that are eyeing Vietnam Creed Group closed the transaction of 20% stake in An Gia Investment with US$200mn In addition, Warburg Pincus – a US private equity continued to its commitment from 2013 by purchasing 10% more stake in Vincom Retail Co., Ltd The deal value stayed at US$100mn

Upcoming deals:

According to our forecast, real estate would continue to be favorite sectors of M&A in 2015 in the context of strong GDP growth and warming real estate market

• Jen Capital is looking for a potential M&A target in Vietnam real estate market

• Many real estate developers including Hong Quan and Nam Long are building development plan to raising fund from foreign investors as the market is getting out of frozen period with some promising signs from domestic housing demand

Inbound M&A: Industrial Goods & Services

Industrial Goods & Service

caught the eye of foreign

investors in 2015 with total

deal value of US$178.18mn.

Figure 17: Inbound Industrial Goods & Services M&A, 2012 - 2015

Source: StoxPlus

• In 2015, Industrial Goods & Services sector appeared to be an attractive investment destination with a remarkable increase in deal value The figure tripled in the year 2015 to stay at US$178.18mn with 17 deals, comparing to US$56.94mn and 16 deals for the whole year This could be the sign of change in the investment preference from customer-oriented in 2014 to industrial sectors to take advantages of many FTAs which would come into effect in the next few years

• Top 3 deals belonged to Containers & Packaging segment – the potential industry in Vietnam with digit growth Particularly, in the reviewed period, according to public announcement, Siam Cement Group (“SCG”) through its subsidiary TC Flexible Packaging Company Limited successfully acquired an 80% stake in Tin Thanh Packing Jsc (Batico) with deal value of US$44.4mn The market also recorded the take over of Dongwon System Corp – a Korean flexible packaging manufacture in Tan Tien Plastic Packaging Jsc (Tapack – 47%) and Dong Nam Viet Packaging Jsc (100%)

2-• Batico is among Vietnam’s five largest flexible packaging producers Given the industry

potential, the investment is anticipated to strengthen SCG’s position as a leading packaging solutions provider in the ASEAN, with two flexible packaging factories in Thailand and two in Vietnam

• Out of 7 countries with inbound M&A deals in Vietnam for the year 2015, South Korea is most active one with 2 deals in Packaging sector with value of US$59.00mn, followed by Thailand (US$56.81mn) and Singapore (US$31.41mn)

54.66 24.41 56.94

178.18 5

9

0 2 4 6 8 10 12 14 16 18

0 50 100 150 200

21 Vietnam M&A Research Report 2016 | Issue 6 | 8 January 2016

10.93

2.71 3.56

11.88

0 2 4 6 8 10 12 14

Inbound M&A: Industrial Goods & Services (cont’d)

The average size of inbound

Industrial Goods & Services

M&A valued at US$11.88mn,

with many majority take over

South Korea is eyeing at

Vietnam Industrial Goods &

Services.

Figure 19: Inbound Industrial Goods & Services M&A by country, 2015

South Korea33%

Thailand32%

Singapore18%

Finland7%

Japan7%

Luxembourg3%

UK0%

Source: StoxPlus

• In the year 2015, the most significant trend was the surge of investors’ interest from Thailand As mentioned above, Siam Cement from Thailand has done three acquisitions and boosted the total inward capital of Thailand from Vietnam With 5 new projects, totaling US52.09 million

correspondingly

• Following Thailand, Singapore, Finland and Japan also expressed their interest in Vietnam Although there was a single deal from Singapore in delivery service but the acquired 100 percent has showed the continuous trend of Singapore investment into Vietnam On the other hand, the move of some investors from Europe, particularly from Finland, United Kingdom and Luxembourg are made Vietnam

a high potential for growth and an attractive destination in industrial goods and services sector

Inbound M&A: Spotlight in Packaging Sector

Figure 20: Major Inbound M&A deal in Vietnam Packaging Sector

Source: StoxPlus

(*) Deal value is based on public announcement of the companies.

• Foreign flexible packaging manufacturers, especially those from Asia, have been strengthening their investment in Vietnam in recent years According to StoxPlus’ database, there were 7 recorded M&A deals in the period 2013 - 2015 Big names eyeing Vietnam potential packaging sector included SCG (Thailand), Dongwon System (Korea), MeiwaPax, Oji Holding and Sagasiki (Japan) This sector is

expected to be more buoyant in the next few years

Overview about Vietnam Flexible Packaging Market

Figure 21: Plastic Packaging Production Volume

• Vietnam plastic packaging market is estimated to sit around US$4.13 bn in 2014, of which flexible

packaging segment accounted for approx US$650mn

• Plastic packaging is fragmented with over 700 independent companies focus at the South of

Vietnam This could be explained by the fact that the industry started in the South Besides, many packaging end-users located their manufacturing factories in this region, resulting in high demand

on flexible packaging Many beverage companies owns in-house packaging plants such as Tan Hiep Phat, SABECO, HABECO

• The segment is dominated with some key players, particularly Tan Tien Plastic Packaging Jsc

(Tapack), Liksin, Saigon Plastic Packaging Jsc (Saplastic), and Rang Dong

• The flexible packaging market is projected to grow with a rate range from 15 – 20% y-o-y,

attracting foreign investors’ interests and engagement in Vietnam with some signification M&A deals in plastic packaging, namely MeiwaPax Group, Siam Packaging in 2014

23.81 35.50 37.51

45.41 50.90 52.19

72.12

0 10 20 30 40 50 60 70 80

No Acquiror Target company Deal value (*) US$mn Settlement year

Name Nation

1 SCG Thailand Tin Thanh Packing (Batico) 44.4 2015

2 Dongwon Systems Corp Korea Minh Viet Packaging 21.86 2015

3 Dongwon Systems Corp Korea Tan Tien Packaging (Tapack 38.81 2015

4 MeiwaPax Group Japan Saigon Trading and Packaging (Sapaco) 15.38 2014

5 Oji Holding Corp Japan United Packaging 4.00 - 7.00 2013

6 Sagasiki Vietnam Japan Goldsun Packaging and Printing n.a n.a

7 TPN FlexPak Co., Ltd Thailand n.a n.a n.a

Section 1: Vietnam M&A Activities Review

23 Vietnam M&A Research Report 2016 | Issue 6 | 8 January 2016

Inbound M&A: Construction & Materials

Construction & Material M&A

is on the upward trend in 2015

in terms of deal value with

active participation of foreign

funds.

Figure 23: Inbound Construction & Materials M&A, 2011 - 2015

Source: StoxPlus

• The Vietnamese construction industry recorded a compound annual growth rate (CAGR) of 17.62%

during the period 2005 - 2014 However, industry growth slowed from 28.8% in 2011 to 9.8% in 2014, due to a slump in the property market, a banking system characterized by non-performing loans

(NPLs) and a sluggish real estate sector Nevertheless, industry outlook is favorable, due to the

government’s focus on industrial and residential construction The industry’s output is therefore

expected to record a nominal CAGR of 11.43% over the forecast period 2014−2018

• Vietnam’s population exceeds 90 million and 80% of the total population in working age Vietnam population is projected to reach 100 million by 2030 The big population will require a high

supply for accommodation

• Regarding the warming up of Vietnam economics and Real Estate market, Construction & Material M&A is on the upward trend since 2013 with a slight increasing in total deal value year on year

• Inbound M&A deal value in the Construction & Materials sector in 2015 reached US$109.10mn, doubling that number in 2014 (US$53.42mn) and higher than the total deal value of two year 2013 and 2014 That is not too surprising given the number of US$5mn+ deals that closed in this time, compared to most of US$1mn- deals in the previous year

• Two biggest deals for the year 2015 are (i) Metro Pacific Tollways Corporation, a subsidiary of Metro Pacific Investment Corp (“MPIC”) acquiring 41% total shares of CII Bridges & Roads

Investment JSC (“LGC”) with deal value of US$32.67mn; and (ii) a Kazakhstan investor taking

majority stake in Song Gianh Cosevco Cement Company for US$30.33mn

• This sector also recorded active participation of foreign funds with 7 out of total 9 M&A deals, which could be explained by the warming up real estate and infrastructure development program

of the Government

Figure 24: Inbound Construction & Materials M&A deal value by country, 2015

Philippines 29%

Kazakhstan 27%

Oman 15%

Thailand 8%

UK 7%

Caymand Islands 6%

Finland 5%

Japan 3%

0 100 200 300 400 500 600 700

Section 1: Vietnam M&A Activity Review

1.1 Vietnam M&A Activities Review1.2 Inbound M&A

1.4 Outbound M&A

25 Vietnam M&A Research Report 2016 | Issue 6 | 8 January 2016

Domestic M&A: Overall

Travel & Leisure

Oil & Gas Health Care

Retail Technology

Banks Utilities Personal & Household goods

Financial Services

Industrial Goods & Services

Construction & Materials

Chemicals Food & Beverage

Real Estate

Minority Majority

• The most favored sectors in Vietnam for domestic M&A by country investors in 2015 are: (i) Banks,

(ii) Real Estate with 29 deals totaling US$776.7mn, and (iii) Food & Beverage with 37 deals valued at US$449.0mn

• By deal value, Banks was the top and dominating sector for domestic investors in 2015 Banks

domestic deal value in 2015 totaled US$834.2 for 8 deals Such deals increased drastically from 02

deals in 2014 However in our view, this acceleration were mostly supported or instructed by the

State Bank of Vietnam (“SBV”) as a political mission in order to achieve restructuring objectives set

out in Decision No 254/QĐ-TTG under the restructuring plan

• For deal volume, Construction & Materials and Industrial Goods & Services were still the busiest

sectors with 48 deals and 38 deals respectively, accounted for 35.39% of total domestic M&A deal

volume in 2015 There has been an ascending trend in the two sectors in M&A market after the

Local SOE 36%

-100 100 300 500 700 900 Technology

Oil & Gas Personal & Household goods

Basic Resources Chemicals Utilities Health Care Travel & Leisure Industrial Goods & Services

Media Retail Financial Services Construction & Materials Food & Beverage Real Estate Banks

Minority Majority

Domestic M&A: Banking spotlight

M&A deals in banking

increased drastically during

2015 by acquisition of weak,

illiquid and insolvent banks.

Figure 29: Domestic M&A Deal Value in Banks, 2012 – 2015

Source: StoxPlus

• After a period of easy lending to the market (especially SOEs), Vietnamese banks suffered from liquidity crunch and high NPLs since early 2009 Many small and medium banks severely suffered from high default risk In such context, consolidation to create bigger and stronger banks became the ultimate solution for banking sector In 2011, the regulators concluded consolidation as one of the main measures for its restructuring plan of banks

• During 2015, Banking M&A deals increased drastically with 8 deals However in our view, this

acceleration was mostly supported or instructed by the State Bank of Vietnam (“SBV”) as a political mission to achieve restructuring objectives set out in Decision No 254/QĐ-TTG rather than incentives

• With this “nationalization” concept, insolvent banks will be refinanced by SBV to revitalize their operation instead of going bankrupt

579.41

392.38

215.55 42.24

834.24 4

2

8

0 1 2 3 4 5 6 7 8 9

0 100 200 300 400 500 600 700 800 900

(US$mn)

State Capital Investment Corporation Military Bank 10% Closed 106.67

State Bank of Vietnam Vietnam Construction Bank (VNCB) 100% Closed 0.00

State Bank of Vietnam Global Petroleum Commercial JS Bank 100% Closed 0.00

Figure 30: Domestic M&A deals in Bank sector in 2015

Source: StoxPlus

(*) Deal value is based on our estimation.

Section 1: Vietnam M&A Activities Review

27 Vietnam M&A Research Report 2016 | Issue 6 | 8 January 2016

Domestic M&A: Consumer Finance Company

M&As between banks and

finance companies became

the prominent trend as

booming consumer finance

market in Vietnam.

Figure 31: M&A of finance companies, 2013 – 2015

Source: StoxPlus

• In 2015, acquisition of financial companies by local banks continues as the prominent trend

• In early 2015, Maritime Bank officially acquired Vietnam Textile & Garment Finance Company, after the merger with Mekong Development Bank – an active CF player providing finance for Southern farmers Another acquisition is from Techcombank who acquired Vietnam Chemical Finance Company (“VCFC”)

• In January 2015, Techcombank acquired VCFC with 99.87% stake Previously the bank hold 10 % stake in VCFC, thus this M&A deal also allowed Techcombank to compline with Circular 36, which only allow banks to own less than 5% stake at another credit institution

• Besides, many banks have planned to acquire or establish finance companies within 2015

• For instant, BIDV proposed to establish BIDV finance company in its AGM 2015 The finance company could either be acquired from an SOE non-core businesses or established as a

separated section of BIDV

• After acquisition in April 2015, Vietinbank also decided to transform one section of PG Bank into

PG Finance Company

• Similarly, ACB and Vietcombank also had discussion in AGMs regarding the acquisition of

financial companies during this year

• Looking forward, more M&A deals are expected for finance companies, while acquisition of financial leasing companies is still very limited There are 9 finance companies under SEGs and SCs to be divested Many foreign players and local banks would be interested in these companies for

penetration into consumer finance market

2015 Maritime Bank Vietnam Textile and Garment Finance Jsc Done

2015 Saigon - Hanoi Bank (SHB) Vinaconex - Viettel Finance Jsc Done

2014 VP Bank Vietnam National Coal and Mineral Finance Co,.Ltd Done

• Consumer finance (“CF”) continues growing as a very attractive segment More banks are switching to a retail and consumer-oriented strategy to increase growth Interest of banks in finance companies is further fueled by the recent requirement of the SBV

to separate consumer finance business from retail banking

Domestic M&A: Real Estate Spotlight

Figure 32: Domestic M&A Deal Value in Real Estate, 2012 – 2015

Source: StoxPlus

• Vietnam M&A real estate market showed its attractiveness to investors both for domestic investors and foreign investors According to StoxPlus’ database, there are 19 domestic real estate deals with total deal value up to US$453.59 mn

• The main reason for the attractiveness of this sector came from the on-going recovery of Vietnam real estate market Also, M&A is seen as an effective strategy for smaller real estate firms to

leverage the branding of big developers for better marketing and commercialization of projects

In comparison with foreign players, domestic real estate M&A market posted a slowdown after a busy year 2014 with only 19 deal recorded in the year of 2015 The average deal size is

particularly medium at around US$27 mn/deal.

Real estate M&A in the South

• Domestic real estate deal in the 2015 were mainly majority stake type with 16 out of 29 deals

• One active player in the market was Nam Long Group – an developer in affordable housing with its own rand Ehome Vietnamese property developer Nam Long Investment Corporation and two

Japanese companies, Hankyu Realty and Nishi Nippon Railroad, have reached a deal to jointly

develop the Ho Chi Minh City based Flora Anh Dao Apartment project According to public

announcement, Nam Long will sell 50 per cent in the project to the foreign partners

Real estate M&A in the North

• Real estate market in the North was still dominated by Vingroup After major real estate projects such as Royal City, Times City, Vinhomes Long Bien, Vingroup continued to expand its properties in the South by acquiring Anh Sao Real Estate Corporation on April 15

Warming up real estate market

boosted M&A activity of

0100200300400500600700800900

29 Vietnam M&A Research Report 2016 | Issue 6 | 8 January 2016

Domestic M&A: Food & Beverage

Figure 33: Domestic Food & Beverage domestic M&A , 2011- 2015

Source: StoxPlus

• With total 37 deals completed and value of US$449.04mn in 2015, Food & Beverage sector became the 3rdmost active sector on M&A market According to StoxPlus’s database, total number and value of deals in 2015 increased 285% and 271%, respectively compared to the previous year The explosion of M&A deals in Food & Beverage is majorly caused by increasing consumption demand of average-income population and potential of consumer goods market driving companies toward agriculture businesses

• Particularly, 2015 marked the dominance of domestic M&A deals in animal feed, confectionary and food production sector Meanwhile, inbound M&A deal number plunged as many foreign investors are waiting for effective of important policies on foreign investment (including new investment law, new enterprise law and foreign ownership cap)

• Masan Group is one of the most active players in Food & Beverage Within many M&A deal

executed in 2015, the Company is following its strategy of growth through M&A while growing its existing businesses to become the market leader

• In 2015, Masan Group successfully acquired a 53% stake in Vinacafe Bien Hoa with

US$126.59mn and a 99.97% stake of Sam Kim (US$90.01mn)

• Currently, Sam Kim owns 52% stake at Proconco and 70% at Anco Proconco and Anco, as a combined business, is the number one external pig feed and second overall animal feed player in Vietnam, supplying farmers with over 1.7 million metric tons of animal feed

products in 2014 and is well on track to deliver revenue of $1 billion in 2015

• The PAN Group - parent company of PAN Food is an investment firm in agriculture, fisheries and

food sectors through merger and acquisition (M&A) transactions

• Through PAN Food, it is expected to continue to consolidate its presence in Bibica and leverage domestic interests The PAN Group’s vision is to leverage Viet Nam nation’s

competitive advantage of a long-history agriculture, to become a leading regional

agriculture and food group with a number of M&A deal including acquiring 42% stake in Bibica (US$17.91mn), 63% stake in (US$18.04mn), increasing its share to 63% in Vinaseed

Remarkable increase in both

deal number and value in

Food & Beverage sector was

record for the year 2015.

12 13 13

37

0 5 10 15 20 25 30 35 40

0 50 100 150 200 250 300 350 400 450 500

Section 1: Vietnam M&A Activity Review

1.1 Vietnam M&A Activities Review1.2 Inbound M&A

1.3 Domestic M&A

31 Vietnam M&A Research Report 2016 | Issue 6 | 8 January 2016

Outbound M&A: Continue reorganizing to pursue growth

Figure 34: Outbound M&A Deal Value, 2012 – 2015

Source: StoxPlus

Swapping share has appeared as a new method to Vietnamese enterprises entering the

international market and taking over foreign companies

• Vietnamese enterprises is on a roll and it has seen a sharp increase in solicited bid this years On May 2015, Duc Long Gia Lai has been approved to swap its share in order to take over Mass Noble Investment Limited in United State It was a risky move to lead the charge, particularly with cross-border deals Due to the different in regulation framework, Mass Noble’s share, at the beginning had the initial stock price starting at US$1, however, law in Vietnam stated that initial stock price starts at VND10.000 As such, Mass Noble needed to take a additional move as diluted its share in order to suit investor in Vietnam

• Duc Long Gia Lai established as an commercial wood processing After 20 years, its operation has expanded into real estate, hydro power, hospitality, etc With the further step buying Mass Noble –

a electronic part production company, Duc Long Gia Lai expected to improve the production

industry in Vietnam, increase skills and scales of Vietnamese market and entering into one of the biggest market in the world, US

Sloping capital for expanding – Vietnamese enterprises are looking for new markets

• Started with Petro Vietnam, the significant trend has emerged as one of the strongest and state group and large scale enterprises of Vietnam are leading this surge fuelled by strong earnings

Taking FPT for example, after the acquisition of RWE IT Slovakia last year, it has promised to

enter the Europe market this year while pushing the presence at Japan, Singapore and expecting

to reach US$1 billion in 2020 from foreign market

• The announcement of return from Viettel, Hoang Anh Gia Lai Group, FPT and Vinamilk have

proven the significant of this trend According to the Foreign Investment Agency (Ministry of

Planning and Investment), there were about 150 projects registered with the totaling capital

reached to US$1.5 – 2 billion

There was only 01 outbound

M&A deal recorded for the

0 50 100 150 200 250 300

Section 2: Opportunities from FTAs

2.2 Analysis: Capital inflows from Japan, South Korea and Thailand and Impacts of FTAs

33 Vietnam M&A Research Report 2016 | Issue 6 | 8 January 2016

2015 is the year of free trade agreements (“FTAs”)

• One of the major achievements of Vietnam in 2015 is the signing of many free trade agreements

(“FTAs”) Viet Nam concluded negotiations for four free trade agreements (FTAs), including

those with the Eurasian Economic Union, the European Union, South Korea and the Trans-Pacific

Partnership, during 2015 This brought the total number FTAs that Viet Nam takes part in to 14

The ASEAN Economic Community was established on December 31, likely to create more

opportunities for the country to integrate into regional and global economies Figure 35 details

the integration milestones of Vietnam since 1995 till present

• FTAs are likely to boost capital flows into Vietnam in the coming time In the following section,

we will analyze the impacts of FTAs to the capital flow of top 3 countries into Vietnam, namely

South Korea, Japan, and Thailand These countries have toped the list of FDI sources into

Vietnam in many years, and they are also the ones to be able to take advantage of the new FTAs,

namely:

• Vietnam Korea Free Trade Agreement (“VKFTA”);

• Trans Pacific Partnership (“TPP”);

• ASEAN Trade in Goods Agreement (“ATIGA”) and ASEAN Economic Community (“AEC”)

Figure 35: Vietnam Integration Timeline

Source: StoxPlus

1995 1998

2000 2002

2006 2007

TPP – the giant free trade agreement of 21 st century

TPP is a free trade agreement (FTA) creating a playground between 12 economies that

contribute 40% of global GDP and account for 1/3 of world trade TPP goes beyond trade agreement since there have been many free trade in goods and the benefits that come from it, for decades TPP focus on enhancing trade and investment, supporting jobs, economic growth and development among 12 members Since the first official negotiation in March 2010, TPP members has undergone 19 official rounds of negotiations, 5 ministerial meetings and many bilateral talks.

 Key features:

• TPP agreement consists of 29 chapters, of which 5 sectors are related to free trade negotiation in goods, the rest are code of ethics, law and non-trade issues including union, labor & SOEs

• Market Access for Goods: The TPP countries have agreed to establish principles and obligations related to trade in goods for all TPP countries that ensure that the market access that they provide to each other is ambitious, balanced, and transparent In other words, TPP requires to cut most of the tariff lines to 0%

• Financial Services: The text related to investment in financial institutions and border trade in financial services will improve transparency, non-discrimination, fair treatment of new financial services, and investment protections and an effective dispute settlement remedy for those protections

cross-• Government Procurement: TPP partners are seeking comparable coverage of

procurement by all the countries, while recognizing the need to facilitate the opening

of the procurement markets of developing countries through the use of transitional measures

 Implication for M&A:

• Principally, the TPP have a very broad scope of adjustment with the high level of liberalization

• The TPP Agreement with the building of a clear, transparent and stable policy

environment facilitating investment and business activities will help Vietnam further boost the economic restructuring process and growth model transformation that will deliver plenty of benefits to the Vietnamese people As a result, foreign capital flow shall into Vietnam shall increase, particularly in sectors which Vietnam has competitive.Section 2: Opportunities from FTAs

35 Vietnam M&A Research Report 2016 | Issue 6 | 8 January 2016

VKFTA – the most comprehensive legal document for economic cooperation between Vietnam and South Korea

VKFTA is an Agreement consists of 17 Chapters, 208 Articles, 15 Annexes and 1 Agreement of

enforcement for all commitments on economic cooperation By the framework of VKFTA, Vietnam and Korea has agreed important aspects, especially import/export tariffs relating to Trade in Goods, Trade in Services, Investment and Intellectual Property, Measures for food safety and animal and plant quarantine, Rules of Origin, Customs Facilitation, Trade Remedies, Technical Barriers to

Trade, E-commerce, Competition, Economic cooperation, Institution and Legal .

 Key features:

• Trade in Goods: Many tariffs of imported/exported categories shall be eliminated while

participating in each other's market Specifically, South Korea will expand the market for 502 items of goods, including the key export products of Vietnam such as garlic, seafood,

garments and textiles Meanwhile, Vietnam commits to cut down on the tariff for 200 goods categories imported from South Korea such as textile raw materials, leather shoes; electronic components, trucks and passenger automobile parts

• Trade in Services: Korea have agreed to open the market for Vietnam in terms of legal

service, delivery service, maintenance and repairing service of railways, supporting rail

transportation services, and natural scientific research and development services In

contrast, Vietnam will open for Korea in sectors related to urban projects and urban

landscape architecture services, and rental service of machinery and other equipment

without operators

• Investment: The two countries have both agreed the provisions on National Treatment, Most Favored Nation treatment, Senior Manager Business Development, ownership expropriation, compensation for damages, transferring of money, subrogation, and denial of benefits

 Implication for M&A:

• South Korea is the country with the largest FDI capital investment in Vietnam for the past few years In the first half of 2015, total FDI disbursement valued US$1,523.4mn, accounting for 24.17% of total FDI disbursed amount With the signing of VKFTA, Vietnamese enterprises are expected to gain significant competitive advantages over other peers when trading with

South Korea, boosting import-export activities between two countries

• Thanks to the elimination in tariffs and favorable conditions in investment, the market would witness the surge in M&A in from Korean enterprise

ATIGA – the stage of deep deduction and elimination of tariffs since 2015

ATIGA is a free trade agreement among South East Asia countries (Brunei, Cambodia,

Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, Vietnam) By the FTA, ASEAN members aim to achieve free flow of goods in the ASEAN leading to less trade

barriers and deeper economic linkages among Member States, lower business costs, and a larger market and economics scale for businesses.

 Implication for M&A:

• By eliminating import – export tariffs, ATIGA creates free playground covering 10 countries, which would benefit Vietnam enterprises from lower raw materials costs, more choice for suppliers and higher competitive advantages in exporting

Meanwhile, domestic firms have to face with fiercer competition with foreign-owned companies In order to ensure the success/ sustainability, local players are required

to apply international standards as well as improve its competitiveness with high technology and production cost cutting

• Since the effective date of ATIGA with specific roadmap for tariff deduction among members, M&A market has become increasingly buoyant with an gradual increase in both inbound deal number and deal value from Thailand and Malaysia In case of Thailand, many Thai giants in retail sector such as Central Group, Power Buy,…

invested in Vietnam via M&A, preparing for its present in Vietnam by 2018 Besides, with the total deal value in the first-six month reached over US$478mn, Malaysia is forecasted to be a potential player in Vietnam M&A market in following years

Section 2: Opportunities from FTAs

37 Vietnam M&A Research Report 2016 | Issue 6 | 8 January 2016

2.2 Analysis: Capital inflows from Japan, South Korea and Thailand

and Impacts of FTAs

South Korea and Vietnam will double total trade by 2017 due

to VKFTA

Figure 37: Top 5 export sectors from

Vietnam to South Korea by value (US$mn) Figure 38: Top 5 import sectors to Vietnam from South Korea by value

(US$mn) Figure 36: Vietnam – South Korea trade balance (2009 – 11M2015)

Phones and accessories

1,718 1,844 1,205

4,470 3,464 2,140 1,237

775

0 1,000 2,000 3,000 4,000 5,000 6,000

Computers, electronic products

& parts Machinery & parts Phones and accessories Textile products Plastic materials

8M2015 2014

Source: StoxPlus from General Customs

4.90 5.10 7.14 8.19 13.70 15.70

21.76 25.46

-20 -15 -10 -5 0 5 10 15 20 25 30

2012 2013 2014 11M2015

Export Import Trade balance

Source: StoxPlus from General Customs Source: StoxPlus from General Customs

Vietnam has long run a trade

deficit in the bilateral trade with

South Korea, and it keeps

increasing over the years

• Product structure of South Korea and Vietnam have largely complementary to each other rather than direct competition This can be seen easily by looking at top 5 export sectors and import sectors of Vietnam and South Korea

• With the VKFTA signed and taking effect, bilateral trade of the two countries is expected to double in

2017 to US$70mn

• For example, Vietnam will remove 31 import taxes related to textile and shoes materials for Korea Textile products is already in the top 4 import sectors from South Korea to Vietnam With the tariffs remove, the import volume will likely increase from the current US$1.84bn in

2015 Another sector is plastic materials, for which Vietnam will remove 8 import taxes for South Korea Vietnamese plastic firms will thus have more incentives to import materials

from South Korea companies after VKFTA takes effect

Section 2: Opportunities from FTAs

39 Vietnam M&A Research Report 2016 | Issue 6 | 8 January 2016

FDI from South Korea will increase due to VKFTA

• VKFTA is also expected to have a significant impact on South Korean capital flow into Vietnam Due to VKFTA, Japanese companies can take advantage of preferential taxes and tariffs as well

as country of origin if moving or expanding their production sites in Vietnam

Direct Investment

• For years, South Korea has always been the largest investor in Vietnam In 2014, Korean

investment in Vietnam continues to lead with 505 new projects with total registered capital of US47.32 billion, accounting for 36.2% of the total investment in Vietnam

• Processing and manufacturing sector still attracts the most FDI funding from South Korea, with mega projects of LG, Samsung, Posco (in computers & machineries) as well as Hyosung, Poong

in Vina (in garment and textile)

• As VKFTA takes effect, Vietnam will remove 16 import taxes for machineries, 31 import taxes for electronic products, 15 import taxes from home appliances from South Korea Companies such as LG, Samsung, and Posco will enjoy lower material costs, and have more incentives to expand their production sites in Vietnam as a result

Figure 39: Top sectors attracted FDI capital from South Korea, 11M2015