Transcript Slide 1

VIETNAM’S ECONOMY IN 2015
Attempts to reform leading to remarkable development?
OLIVER MASSMANN - Partner, General Director
DUANE MORRIS VIETNAM LLC
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AGENDA:
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VIETNAM 2014 ECONOMY AT A GLANCE
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M&A AND CAPITAL MARKET OUTLOOK
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OUTLOOK FOR VIETNAM’S ECONOMY: IMPACTS
OF THE NEW INVESTMENT LAW, ENTERPRISE
LAW AND INTERNATIONAL FTAS
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CONCLUSION
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Vietnam 2014 Economy at a glance
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GDP: US$187.5 billion
GDP per capita: US$2,028
GDP Growth: 5.98 %
Inflation: 4.09%
Population: About 90.73
million
Labor force aged 15 and above:
54.48 million
Total export and import
turnover: : US$ $298 billion
Minimum wage: VND 2.7
million (US$ 147) per month
(Jan 2015)
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WTO ANALYSIS OF LIBERALIZATION
OF MARKET ACCESS
Vietnam ties in first place with Singapore
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Country
Limitation of
market access*
Country
Limitation of
market access*
Malaysia
medium
Myanmar
high
Indonesia
medium
Cambodia
medium
Philippines
medium
Laos
medium
Singapore
low
India
high
Thailand
medium
China
medium
Brunei
high
Vietnam
low
*Typical restrictions: number of opened sectors, JV
requirement, limits on foreign-owned shares, permission
requirement
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M&A activities in Vietnam
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M&A activities in Vietnam have seen steady growth after Vietnam officially
became member of the WTO in 2007
Especially Vietnam has risen 5 times the deal value from US$1.08 billion
since 2009 to a record breaking US$5.1 billion in 2012
M&A activity is expected to remain buoyant in the coming years, with a
projected growth rate of 25-30% per year over the next five years
First M&A wave in Vietnam from 2008-2013 when the Japanese investors
kept coming to Vietnam with total M&A value of US$1.2 billion in 2012.
Japan leads the nations that bring M&A deals to Vietnam in terms of both
quantity and value
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M&A activities in Vietnam
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There has been an emerging wave of ASEAN investors taking over
Vietnamese firms
FMCGs is considered the most attractive, with the total M&A
transaction value up to US$1 billion, accounting for 25% of the total
M&A value in Vietnam while the retail and real property have always
been very robust in M&A with the big deal value
The Trans-Pacific Partnership, and Free Trade Agreement between EU
and Vietnam currently under final negotiation process. When they are
concluded early this year, it may also drive more interest in M&A
activities in Vietnam.
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Notable M&A deals in Vietnam in 2014
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Berli Jucker (BJC): BJC bought 19 Cash & Carry and their related
real property of Metro with a deal value of US$ 879 million
Vingroup: Vingroup bought 70% of Ocean Retail Company’s
capital on 03 October 2014
Modelez International bought 80% of Kinh Do JSC’s capital in
sweets manufacturing section at US$370 million
Standard Chartered Private Equity acquired a significant minority
stake in An Giang Plant Protection JSC at US$90 million
Creed Group bought enterprise bonds of NBB at US$30 million
to invest in City Gate Towers ( a real estate project)
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Equitization plan for 2011 – 2015 period
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Target: 899 equitized SOEs
Results: 99 in 2011-2013; 432 in 2014
 368 SOEs to be equitized in 2015! Great challenges ahead
Certain kinds of equitization:
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issue of shares in order to capitalize state-owned enterprises
partial sale of state-owned capital; and complete sale of state-owned capital
for the purpose of transformation into joint stock companies
Foreign equity limitation: 30% in general, except certain sectors
(Securities: 49%; Banking and finance: 20%)
• The State of Vietnam remains main control over certain equitized
enterprises by holding special controlling shares in these
enterprises.
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M&A and Capital Market Outlook in 2014-2018
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M&A activities in Vietnam expected to maintain an annual growth
rate of 25-30 percent over the next 5 years
The firms from Japan and ASEAN using M&A to enter Vietnam’s
market will continue to be robust for M&A in the next few years
since the banking system is still being stepped up for restructuring
process while the real estate market is frozen and many property
investors are facing financial difficulties
The M&A activities in consumer goods will also be active as the
F&B industry in Vietnam is one of the most attractive investment
industry in the eye of the equity fund and foreign firms
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More banking M&A transactions in 2014-2018
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M&A activities will continue to be buzzing as the number of commercial
banks will be reduced to 13-15 in 2017 (on-going M&A deals: Southern
Bank merged with Sacombank, MDB merged with Maritime Bank,
PGBank merged with Vietinbank)
GP Bank acquired 100% by the UOB of Singapore may open the M&A
wave in 2015
Pressure for divestment from banking area of SOE’s in 2014-2015 will
lead to more M&A activities: EVN still holds 16.02% stake in ABBank,
PVN owns 20% of stake in Ocean Bank
The bank will be more active in finding new foreign strategic partners
when the pressures from competition and capital requirements may push
smaller banks to look for new foreign investors to achieve expansion
To resolve the problems, the weak banks will be merged with the other big
banks
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M&A and Capital Market Outlook
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Vietnam’s economy still remains upbeat as the Government is on
the right track to keep the inflation stay low, stabilize the macro
economy
The government may loosen the foreign ownership caps to give
investors more room to boost holdings
The prospects of a TPP and EVFTA with the increase of trade deals
will be great outlook for Vietnam to attract more foreign capital
The reform of SOE by equitization and IPO: targeted to equitize
368 companies in 2015 which definitely provides a good number of
companies for the stock market
New Investment Law and Enterprise Law!!!
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M&A and Capital Market Outlook
HOWEVER: There remain certain risks of non-performing loans
(NPLs)…
• The ratio of NPLs is not under control (15% of the total assets of
banks, ~3 times higher than the official ratio announced by the
SBV of 4.7%)  hinders the capital flow
• Capital remains inadequate to absorb the extent of potential losses
stemming from pervasive weaknesses in asset quality (Moody’s
Vice President)
• Lack of strong legal framework dealing with NPLs resolution.
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M&A and Capital Market Outlook
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Establishment of Vietnam Asset Management Company
(“VAMC”) as a solution to NPLs:
– Buying bad debts from credit institutions
– Recovering, collecting, handling and selling debts and other
guaranteed assets
– Debts restructuring
– Using and renting the bought-back guaranteed assets
– Etc.
Up to October 2014, VAMC has dealt with 54.3% of the total bad
debts from September 2012; recovered VND95,000 billion and
sold VND4,000 billion of bad debts with profits.
BUT: VAMC is not a solution – Bad debts are still there, just
change of pocket
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Outlook for Vietnam’s economy
• Impact of EVFTA and TPP on Vietnam
• Impact of the new Investment Law and Enterprise
Law
• Outlook for Vietnam’s economy in 2015
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TPP’s Impact on Vietnam’s Economy
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Vietnam will enjoy strong economic and trade expansion and is expected
an additional 1% economic growth from this agreement
Vietnam is expected to gain significantly from the TPP’s considerable
plans for tariff and duty reduction
Vietnam’s export will enjoy the agreement’s great benefits when the US
and Japan are one of the biggest partners of Vietnam, especially the
garment and textiles sector
Export to the US would increase by 13-20% a year until 2017, fetching
total export of US$25-30 billions
The foreign businesses are planning to enter Vietnam in preparation for
a post-TPP business climate
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Government Procurement in TPP
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3 out of 11 TPP negotiating countries are parties to the WTO
Government Procurement Agreement (Singapore, Japan and the
United States)
• Allows all firm operating in any signatory country to be provided equal
access as domestic firms to the domestic procurement contracts
(National Treatment principle).
• The United States is the biggest trading partner of Vietnam
 Vietnam enterprises operating in the United States have significant
access and equal treatment as the U.S. firms in the government
procurement process.
• TPP is a stepping stone for Vietnam to become party to the WTO
GPA  increase competition, enhance the efficiency and transparency
of the government procurement system  VN to attract more foreign
investment and avoid corruption.
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EVFTA’s Impact on Vietnam’s Economy
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Vietnam’s annual economic expansions rate may grow an additional 15% every
year (said Tomaso Andreatta, representative of the European Business
Association in Vietnam (EuroCham), at the Vietnam Business Forum 2014)
Tariffs for most of Vietnamese export product to the EU will gradually reduce to
0% and Vietnam’s export to EU is expected to grow about 35% for next few
years
The real wages of skilled laborers may increase by up to 12% while real salary of
common workers may rise by 13%
The EVFTA is the legal framework for a more stable relationship in bilateral
trade for Vietnam when competing in the international market
The EVFTA will generate greater effects, e.g. increased quality of investment
flows from EU, acceleration of the process of sharing expertise and transfer of
green technology and the creation of more employment activities
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Government Procurement in EVFTA
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All European Free Trade Association (EFTA) states are
signatories to the WTO GPA, except for Vietnam.
Vietnam will have better access to Europe’s relatively open
public procurement market.
Transparency in state-owned enterprises, which used to enjoy
privileges over access to land, credit and government
contracts, will be improved.
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Impact of the new Investment Law and Enterprise Law
on Vietnam’s economy
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More transparent investment environment, ventilation and reduce
business costs
Fair competition between domestic and foreign investors
More large-scale investment projects in Vietnam
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DEFINITION OF FOREIGN INVESTOR –
CLEARER NOW?
• New Investment Law: Very simple definition!
Foreign investor is any foreign individual or
organization incorporated under foreign law doing
business investment activities in Vietnam
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DEFINITION OF FOREIGN INVESTOR –
CLEARER NOW?
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New Investment Law removes the Foreign invested
enterprise concept in favor of a new definition:
Economic entity with foreign owned capital: Entity has any
member or shareholder who is a foreign investor
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Foreign invested enterprise vs. Economic entity with
foreign owned capital (“FOC Entity”):
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ANY Difference? => Just change the name
BUT the capital ratio of foreign investor in FOC Entity will decide
the licensing procedures
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DEFINITION OF FOREIGN INVESTOR –
CLEARER NOW?
• When FOC Entity needs to follow the licensing
procedure for the foreign investor?
Defined by the capital ratio of 51%:
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FOC Entity has any foreign investor who holds 51% or more
charter capital or has foreign individuals as the majority of
partnership members (‘‘FOC Entity No. 1’’)
FOC Entity has FOC Entity No. 1 who holds 51% or more charter
capital (“FOC Entity No. 2”)
FOC Entity has FOC Entity No. 1 and FOC Entity No. 2 who
hold 51% or more charter capital (“FOC Entity No. 3”)
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M&A PROCEDURES UNDER NEW IL
M&A Procedure: Appears to be simple!!! Implementing
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regulations only in the upcoming months
 Satisfying the requirements for investment
 Submitting application dossier
 Assessment by the licensing authority and decision
making after 15 days
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Subjects:
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foreign investors making investment in conditional business activities
applicable for foreign investors;
FOC Entity No. 1 , FOC Entity No. 2 or FOC Entity No. 3 holding
51% or more of the targeted economic enterprise as a result of the
M&A
Exclusion: FOC Entity other than FOC Entity No. 1 , FOC Entity No.
2 and FOC Entity No. 3: same procedures for domestic investors
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Recommendations for M&A in Vietnam
• Make clearer rules on foreign ownership in Vietnamese
companies;
• Clarify the basis for calculating the market share of a
potential target company in relation to an economic
concentration;
• Harmonise the interpretation of transfer price;
• Clarify and improve the regulatory framework on tax
liabilities arisen from M&A transaction;
• Ensure that decisions taken by the Vietnam Competition
Administration Department (VCAD) are made quicker.
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Outlook for Vietnam’s economy in 2015
 In 2015, Vietnam is expected with a brighter economic
situation:
 Macro economy and monetary policy will remain stable
 The inflation will be under control, estimated rate of 4%
 2015’s GDP is estimated to rise from 6.2%
 Exports, especially FDI manufacturing companies, will push
the growth of Vietnam’s economy in 2015
 Continued stronger reform of institutional and administrative
procedures to improve investment environment
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DUANE MORRIS VIETNAM LLC
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