4.4 Banks
4.5 Emerging Sectors for M&A: Health care, Education &
Utilities
Vietnam M&A 2019 Research Report| Issue 9 | August 2019 Source: FiinGroup
Figure 24: Total M&A Deal Value (US$mn) & Deal Number, Food & Beverage
Food & Beverage (F&B) has always been a
“magnet” for M&A thanks to the sector’s high and stable growth rate, driven by Vietnam’s population size of almost 100mn people, rapid urbanisation, emerging middle class, and resilient GDP growth.
From 2011 to H12019, 245 deals with the total value of US$12.5bn have been recorded, led by
“big men” in the industry such as Masan, Kido, and Pan Group.
Nevertheless, 2018 and 1H2019 witnessed the cool- off of M&A activities in the F&B sector, mostly due to the slump in Inbound M&A. 2018 recorded 21 M&A cases valued at US$798mn, equivalent to just 66% of deal volume and 13% of deal value noted in 2017. Deal making in F&B in 1H2019 maintained this stable and steady trend.
The main reason for the sudden drop in value is the absence of blockbuster deals like ThaiiBev and Sabeco in 2017 or Singha-Masan in 2016. During this period, there were only small and mid-sized deals.
The average values of M&A deals were US$16.5mn in 2018, and US$19.75mn in 1H2019. As a result, M&A value in this sector turned to the regular norm as the period before 2016, but overall, the outlook for F&B will still be vibrant thanks to uprising of domestic players and growing domestic demand.
Section 4: Sector Review | Food & Beverage
M&A in F&B went back to regular norm after the inbound fever
Inbound M&A had driven the market during the period. 2018 inbound M&A plummeted 90% y-o- y, in line with absence of megadeals like Sabeco. The downward trend remained in 1H2019. Meanwhile, domestic M&A value decreased but with a lower degree of 38% in 2018 and started recovering in 1H2019, achieved 64% of 2018’s value.
Explanations for this could be while
international investors hesitated to invest in the context of global market uncertainties, domestic players, being confident about
resilient growth of the sector and the economy, actively looked for expansion through M&A transactions. One of the noticeable domestic M&A deal was the Masan Group, through their subsidiary Masan Beverage, increased its ownership of Vinacafe Bien Hoa from 68.5% to 98.5% for US$18mn.
1,242
325 630 870 596 1,612
6,306
798 158 26
21 24 29
52
32 32 21
8 0 12 24 36 48 60
0 1,600 3,200 4,800 6,400 8,000
Deal Value (US$mn) Vol (RHS)
100
1,310
6,052 584
22
496 303 254 213 136
0 1500 3000 4500 6000 7500
2015 2016 2017 2018 1H2019
Domestic Inbound
Source: FiinGroup
Food & Beverage: Favorable demographic factors to boost growth
Noticeable F&B deals in 2018 – H12019
1H2019 recorded no megadeals but 2 noticeable transactions from GTNFOODS and HAGL Agrico.
GTNFOODS which owns 51% of Moc Chau Milk has its divesture to Vinamilk with 36% valuing at
US$51.5mn. Vinamilk’sbid offer of acquiring 49%
was first rejected by GTNFOODS, given GTNFOODS’
concern of Vinamilk’smonopolistic position in dairy market. This move of M&A from Vinamilk is a firm preparation against the dynamic capital flows in F&B from foreign investors, taking advantage of MocChau Milk’s 60-year tradition & biggest cow farms in the North
Another attention-gained deal is the 8% acquisition of HAGL Agrico from THACO valuing at
US$45.5mn. This transaction was conducted, while HAGL Agrico was put into the black list by HOSE.
THACO will be mainly in charge of restructuring HAGL Agrico’s liabilities & capitals to expand agricultural land bank to 30,000 ha.
An interesting case in domestic M&A in 2018 is the acquisition of Vinacafe Bien Hoa JSC (VCF) by Masan - the biggest deal with US$74.6mn for 30.4%
stake. Vinacafe sold itself not because of loss, but because Masan constantly bought shares from its major shareholders. Acquiring Vinacafe, Masan obviously becomes the top three key players in Coffee market.
Factors for Domestic F&B M&A growth
• Increasingly young population rate (45% of population are under 35 years old, according to GSO).
• Increasing monthly expenditure on F&B (35%, according to MOIT report).
• Increasing available source of raw agricultural materials, acting as an advantage for F&B companies to focus on diversifying more organic & healthy product lines.
Acquiror name Target company/ asset % Stake acquired Type Deal value (US$ mn)
2018 Masan Beverage Vincacafe Bien Hoa 98.9% Domestic 75
2018 Bien Hoa Sugar & Thanh Thanh Cong Tay Ninh Sugar
Công ty Cổphần Tậpđoàn
PAN 100% Domestic 58
2018 Sojitz Corporation Khanh Hoa Sugar 65% Inbound 10
2018 STIC Investment Inc Vocarimex 51% Domestic 42
2019 Công ty Cổphần Đầu tư Thành Thành Công
Công ty Cổ phần Đầu tư
Thành Thành Công 7% Domestic 27.81
Dominant trends in F&B
• Organic & Natural F&B. According to Nielsen, 86% of respondents said they have used organic food/drink at least once.
• New definition of convenience F&B. Due to the smaller family size & increasing single rate, F&B giants are concentrating on
providing “Ready meals” –not just processed meat or noodles, but fresh and nutritious foods.
• Technology-based F&B providers. As young population are more tech-savvy, F&B companies are taking advantage of online delivery platforms; or in other words, are bringing their products “online”.
Figure 25: Noticeable F&B deals in 2018 –H12019
Section 4: Sector Review
4.1 Real Estate
4.2 Industrial Goods & Services 4.3 Food and Beverages
4.4 Banks
4.5 Emerging Sectors for M&A: Health care, Education &
Utilities
Foreign strategic investors gradually exited due to minority share constraints and Foreign Ownership Limit
After the booming period, M&A in banking has been very quiet throughout 2H2018 to 1H2019. By 1H2019, there remains 45 commercial banks in total –4 SOCBs, 31 JSCBs, 1 JV and 9 foreign banks. The government has indicated the commitment to sector consolidation by ceasing granting licenses to new foreign banks in Vietnam, but instead to encourage strategic investors to take over 100% of zero-VND banks or to buy shares of existing banks. However, due to reasons regarding FOL and minority shares for strategic investors, plus the expected expenses in both resolving the existing bad assets and capital contribution, there have been less M&A activities since 2H2018 to 1H2019.
Despite high levels of foreign interest in the sector, some banks have hit the FOL limit and have limited levels of free-float shares.
• Out of the 17 banks that are listed, four banks have hit FOL limit at 30% and 10 banks have above- 20% foreign ownership. Even if foreign investors manage to seize 30% of the banks’ equity, it is not enough for them to make a strong impact on the market.
• Current shareholders are reluctant to set the high free float rate; the average is only 63%.
These factors are major obstacles to strategic investors, who are looking for sizable impact on banks’
operations and long-term successes, rather than private equity investors looking for financial gains.
• These elements were cited as reasons for the lack of M&A activities in 2018 as well as the exits of Société Générale, BNP Paribas, and HSBC from Vietnamese commercial banks SeABank, OCB, and TCB respectively.
• While the Prime Minister has mentioned a possible raising of FOL, no clear direction for banks have been issued as of the writing date.
Figure 27: Recent Divestments in the Banking Sector
M&A IN BANKING 2011 - 1H2019
US$5.32bn 56Deals
Target Seller Stake Seller’s nation Status Time
OCB BNP Paribas 19% France Completed Jan 2018
ACB Standard Chartered 15% UK Completed Jan 2018
SeABank Société Générale 20% France Completed Mar 2019
Figure 26: Total M&A Deal Value (US$mn) & Deal Number, Banking
Source: FiinGroup 1,562
1,135
246 119
834
18
482 928
0 10
8 9
3 8
1
11
6
0 0 3 6 9 12 15
0 400 800 1,200 1,600 2,000
2011 2012 2013 2014 2015 2016 2017 2018 1H2019
Deal Value (US$mn) Vol (RHS)
Vietnam M&A 2019 Research Report| Issue 9 | August 2019
Banking M&A is getting warmer amid the return of mega deals
Section 4: Sector Review | Banks
KEB Hanna Bank-BIDV closed the highest value M&A deal in the history of banking industry
• On July 22, BIDV announced the highest value M&A deal in the history of Vietnam's banking industry, selling to its strategic foreign partner KEB Hana Bank (Korea) a total of more than 603 million shares, equivalent to 15% of the charter for US$865bn.
• Following the deal, state ownership will reduce from 95.28% to 80.99%. The increase in charter capital is part of BIDV’s plan to comply with Basel II. Moreover, by doing this, the bank might improve its credit ratings and become more competitive in domestic and international markets.
Prospect from continuing state divestment from big banks Recent approved investments set mega-deals to come back soon
• SBV approved the principle agreement for HD Bank to acquire 100% of PGDBank. HDBank’scharter capital is expected to reach US$676mn. After this transaction, HDBank’scoverage across 63 cities and provinces will be effectively strengthened.
• The deal Vietcombank (VCB) selling 3% stake to GIC (Singapore) & Mizuho Bank (Japan) was approved by December 2018. With this deal, Vietcombank became the first state-owned
commercial bank to raise its capital last year. However, the actual capital was still low, compared to the necessary amount of capital under Basel II.
• After successfully selling 3% of capital to foreign investors last year, VCB proceeded the plan of selling 6.5% of shares from now until 2020. Mr. Vo Viet Hung , Head of VCB's Capital Raising Department said that the roadmap for selling 6.5% of shares had been approved by the bank and waiting for approvals of the SBV as well as related line ministries.
• According to industry experts, GIC - investment fund of the Singapore Government continue to show its interest in participating in the next fund-raising rounds of the most profitable bank in Vietnam.
Hope from sales of “Zero Dong” banks…
• During the recent meeting with Korean banks, Deputy Prime Minister Vuong Dinh Hue affirmed the Government was focusing on restructuring the financial and banking systems, so from now until the end of 2020, the Government would not grant licenses to establish foreign-owned banks. However, foreign investors might consider buying weak banks that are currently restructured such as OCEAN BANK, GPBank and Construction Bank.
• So far, many foreign investors have revealed their interest in buying these bad banks and participating in restructuring banks and credit institutions, for instance, J. Trust and Maruhan, Srisawad Corporation (Thailand), Clermont Group (Singapore).
• Going forward, pressure of raising capital to satisfy Basel II remains a driver for M&A. For small banks with low CARs, credit growth is limited, unless the levels of capital adequacy approache the minimum requirement, hence, M&A continue to be a solution for these banks to grow and revive profitability.
• Besides compliance, banks that are looking to expand their network coverage in line with retail banking strategies could consider M&A, such as the case of HDBank and PGBank in 1H2018.
• While there has been progress with bad assets resolution under Resolution No 42, there remains about 3% of the total loans outstanding still classified as bad debt and hidden bad debt, illiquid and seeking solution. This, in turn, has delayed and complicated the process of valuation for some banks, as well as required a higher capital contribution from interested buyers. On the other hand, the challenges would filter and attract only the most financially capable and experienced investors to Vietnam to sustain the development of the sector
Capital adequacy, bad assets settlement and banks’ valuation will be key drivers for M&A
4.1 Real Estate
4.2 Industrial Goods & Services 4.3 Food and Beverages
4.4 Banks