Utilities
Source: FiinGroup
• Notwithstanding interests from multiple foreign investors, Real Estate sector is highly concentrated. Particularly, top four bidders accounted for 76%of total real estate inbound value during 2011-1H2019:
Singapore (US$2.3bn), Hong Kong
(US$2.1bn), South Korea (US$934mn) and Japan (US$827mn), with diverse appetites and investment scales. Specifically, Singaporean investors eyed the residential segment with the intense penetration of Keppel Land and CapitaLand, altogether adding nearly 30 large-scale projects over a five-year span. Meanwhile, South Korean investors, led by Lotte Group, aimed at commercial properties to provide office and retail spaces for South Korean firms, along with housing for expatriates. Notable transactions was the acquisition of Landmark 72 Tower by Mirae in 2016.
• With the imminent arrival of manufacturers relocating from China due to the trade war, industrial real estate is expected to heat up in 2H2019 and attracted more foreign interest.
• Real Estate sector has always been the main contributor for inbound M&A in Vietnam, driven by high demand for all real estate segments. From 2011 to 2018, the sector attracted over
US$8.29bn from inbound deals, registering an outstanding 37% CAGRand accounting for
22%of the total inbound value. Nonetheless, as the sector started to attract rising interests from the domestic market, foreign investments into real estate plunged in terms of both deal volume and value. In 2018, the sector only recorded USS$1.4bn from 8 deals, lowest volume since 2012. Apart from the US$1.3bn megadeal of GIC Private to acquire Vinhomes, the market did not witness any other large-scale transactions that exceeded US$50mn. The market remained inactive in 1H2019 as no inbound transactions occurred.
• Despite a slowdown in 2018 and 1H2019, Real Estate sector still posted huge opportunities with solid growth trajectory, driven by the following factors: (i) rapid urbanization rate; (ii) growing middle-class with rising disposable income; and (iii) increased demands for industrial real estate amid US-China trade war.
Figure 21: Inbound M&A Activities (US$mn) in Real Estate, 2011 –1H2019
Inbound Real Estate transactions posted strong growth during 2011-2018 but decelerated in 1H2019
INBOUND M&A IN REAL ESTATE 2011 - 1H2019 US$8.29bn
94 Deals
151 103
598 763
1,636
823
2,817
1,394
1 2 0
11
18 18
12 24
8
0 0 6 12 18 24 30
0 700 1,400 2,100 2,800 3,500
2011 2012 2013 2014 2015 2016 2017 2018 1H2019
Deal Value (US$mn) Vol (RHS)
Vietnam M&A 2019 Research Report| Issue 9 | August 2019
Singaporean investors dominated major inbound real estate deals
Date
4/2018
Size (US$ mn)
1,300
Acquired stake
5.7%
Acquirer
• GIC Private Limited, a Singapore sovereign wealth fund, purchased ordinary shares and extended debt instrument for Vinhomes at
combined value of US$1.3bn, including US$850 million for 5.74% stake.
The deal expanded GIC’s portfolio in Vietnam, which already owned stakes of large companies such as Vinamilk, Vietcombank and Masan.
Target
Date
5/2018
Acquirer
• Singapore-based Frasers Property acquired 75% of the issued share capital of Phu An Khang Real Estate JSC, a wholly-owned subsidiary of Tran Thai Group. The US$18mn acquisition allowed Frasers Property to participate in residential-cum-commercial projects in HCMC.
Target
Size (US$ mn)
18
Acquired stake
75%
Acquirer
• In early April 2018, VinaCapital Vietnam Opportunity Fund (VOF) made a US$21mn private equity investment to purchase 12% stake in
Cenland, one of Vietnam’s leading real estate brokerages. The deal helped VOF jump in a growing market with unexploited potentials.
Target
Date
4/2018
Size (US$ mn)
10
Acquired stake
12%
Acquirer
• In March 2018, Keppel Land acquired the remaining 10% stake in Saigon Sport City project for US$11.4mn. After the acquisition, Keppel Land has consolidated full ownership of the prime township, solidifying its presence in Vietnam.
Target
Date
3/2018
Size (US$ mn)
11.4
Acquired stake
10%
Section 4: Sector Review | Real Estate
Source: FiinGroup
• However, 2018 witnessed a strong rebound with 32 deals valued at US$1.45bn,
recording an impressive 187%y-o-y
growth. Amid the upcoming tightening policies relating to granting land use rights and lending for real estate projects, large real estate developers intensively acquired smaller companies, who already owned approved real estate projects with favourable locations and can be put into immediate use. This strategy would allow acquirers to shorten the idle time and reduce capital expenditures, thus
enhancing market advantage with lowered product costs. The most active acquirers were Vingroup and Novaland, who
respectively spent US$922mn and US$365mn to capture majority stakes of real estate developers and projects, notably including Berjaya Financial Centre and International University Town. These acquisitions provided Vingroup and Novaland with solid foundation prior to a strict real estate market in 2019.
• Compared to inbound transactions, domestic M&A deals within the Real Estate sector occurred at much higher volume with total 192deals. In
terms of value, domestic M&A mainly comprised of small-scale transactions, yielding only
US$7.34bn during 2011-1H2019. Despite that, Real Estate sector remained the key driver for domestic M&A, accounting for 36% of total domestic value during 2011-1H2019.
• The market stayed stable during 2013-2015, then abruptly skyrocketed in 2016 to surpass US$2.9bn.
The sudden rise could be explained by the
conclusion of 30,000bn VND credit package, which prompted real estate developers to rapidly expand and accelerate their investments. The ending of disbursement package significantly reduced the demand for residential housings in 2017, causing developers to reduce their investment scale to the lowest level since 2012.
Figure 22: Domestic M&A Activities (US$mn) in Real Estate, 2011–1H2019
Domestic Real Estate transactions occurred at high volumes but lower deal value
DOMESTIC M&A IN REAL ESTATE 2012 - 1H2019
US$7.5bn
192 Deals
0 2
798 826 783
2,970
681
1,450
4
0 1
21 40
32 43
18
32
5 0 12 24 36 48 60
0 600 1,200 1,800 2,400 3,000
2011 2012 2013 2014 2015 2016 2017 2018 1H2019
Deal Value (US$mn) Vol (RHS)
Vietnam M&A 2019 Research Report| Issue 9 | August 2019
Vingroup and Novaland actively increased their land banks via M&A
Date
12/2018
Size (US$ mn)
69
Acquired stake
100%
Acquirer
• Novaland completed the acquisition of 100% of Thinh Vuong Real Estate JSC with a consideration of US$69mn. The purchase allowed Novaland to control other real estate subsidiaries of Thinh Vuong, increasing its land banks and projects.
Target
Date
8/2018
Acquirer
• Along with the acquisition of Thinh Vuong, Novaland also purchased Dinh Phat Real Estate JSC with a consideration of US$152mn, which strengthened its portfolio prior to a tightened real estate market in 2019.
Target
Size (US$ mn)
152
Acquired stake
100%
Acquirer
• In August 2018, Vingroup completed the USS$506mn purchase of 98%
stake in Berjaya Vietnam International University Township. The acquisition aimed to accelerate the long-delayed project in HCMC.
Target
Date
8/2018
Size (US$ mn)
506
Acquired stake
67.5%
Acquirer
• Prior to the acquisition of Vietnam International University Township, Vingroup contributed approximately US$86mn to own 67.5% stake in Berjaya Vietnam Financial Center limited. Through this deal, Vingroup will develop a project comprised of an office building, a five-star hotel, serviced residences, and a shopping mall on a 6.6ha land plot in HCMC.
Target
Date
3/2018
Size (US$ mn)
86
Acquired stake
67.5%
Dinh Phat Real Estate Joint Stock Company Thinh Vuong Real Estate Joint Stock Company
Section 4: Sector Review | Real Estate
Outlook for Real Estate sector in 2H2019
• 1H2019 turned out to be a quiet period with only 5 small-scale deals for both domestic and inbound markets. In particular, the domestic real estate market were less vibrant due to the issuance of new lending policies by SBV and tightened grant of land use rights.
• In order to reduce non-performing loans and limit lending for high-risk sectors, including real estate, Circular 19/2017/TT-NHNN lowered the maximum ratio of short-term funds for long-term loans from 45% to 40%. In addition, Circular 19 also raised the risk coefficient of real estate loans from 150% to 200%, discouraging capital inflows into real estate sector.
• Circular 37/2018/TT-BTC imposed tightened regulations on the management and disposition of public real estate.
• Directive 11/CT-TTg, which provided solutions to foster a stable real estate market, required competent authorities to issue regulations for condotel market.
Implication
• In 2H2019, the pipeline supply is expected to decrease in light of restrictions in downtown area, slow licensing process from HCMC and strict scrutiny for divestment of SOE’s real estate.
• Nonetheless, long-term outlook remains optimistic with strong fundamental, fueled by high urbanization rate of nearly 40% and steady population growth of 2% per annum. Further, given the improved infrastructure with newly built highways, residential projects expanded further away to suburban areas, posing huge opportunities for real estate M&A activities outside of HCMC and Hanoi.
Residential sector
• On the other hand, commercial sector is expecting a boost in 2H2019. In particular, aligned with the upcoming investment inflows into Vietnam thanks to FTAs and relocation of manufacturers from China. Thus, industrial real estate including warehouses, factories and industrial parks will attract high interest from foreign players, who provide alternative capital sources amid tightened credit policies.
• In addition, the office sector emerges as a potential driver for M&A activities.
The appearance of flexible workspace, which registered 109% y-o-y growth in terms of leasing area, provided a new wave of supply for the sector. Looking forward, office supply volume during 2019-2021 is expected to escalate, driven by solid expansions of IT/Tech sectors and persistent growth of flexible
workspace.
Commercial sector
Vietnam M&A 2019 Research Report| Issue 9 | August 2019
Section 4: Sector Review
4.1 Real Estate