Foreign firms seek smoother M&A procedures in Vietnam

The business community in Vietnam is calling for easier requirements to conduct merger and acquisition (M&A) deals that are set to thrive as the country's economy continues to open up.

KoCham

In a paper sent to the annual Vietnam Business Forum (VBF), the Korea Chamber of Business in Vietnam (KoCham) called for the elimination of unnecessary M&A approval procedures.

Provincial departments of planning and investment (DPIs) require M&A approval when there is an increase in foreign ownership or for reasons related to national security.

However, in cases of Korean investors, M&A approval is frequently demanded by DPIs even when there is no increase in foreign ownership. Additionally, in instances where two subsidiaries within the same Korean group in Vietnam are merging, the DPI enterprise section responsible for amending the Enterprise Registration Certificate requests M&A approval from the investment section within the same DPI.

Consequently, the investment department, upon receiving the M&A approval application, asserts that M&A approval is unnecessary as there are no reasons for such as an increase in foreign ownership.

Therefore, due to the lack of coordination between internal sections within the same provincial DPI, foreign-invested companies are spending unnecessary time and effort resolving this issue, it said.

EuroCham

The European Chamber of Commerce in Vietnam (EuroCham) said that despite the rapid development of the Vietnamese M&A market, local Environmental, Social, and Governance (ESG) regulations are still very sparse and scattered across different jurisdictions.

These are often vague and do not afford any clear instructions or distribution of liability. This uncertainty is likely to hamper investment decisions and necessitate additional resources and spending on the environmental due diligence side of M&A deals.

To stay competitive with its regional peers, who have started pushing the ESG agenda mainly through their lending and financing policies, Vietnam can profit from establishing clear-cut standards and accelerating legislation that supports its strong COP26 commitments to sustainability and net-zero carbon emissions.

EuroCham recommended consolidating ESG standards into specific laws and providing additional legislation to close current gaps and open clearer paths for foreign investors.

Additionally, awareness should be raised among stakeholders regarding ESG standards and M&A investments. Transparency, sustainability, and environmental protection are to be promoted throughout the public administration sector and for M&A investments towards Vietnam’s net zero carbon goals and investors’ understanding of their environmental implications.

Regarding economic concentration control, EuroCham commented that Vietnam has been working on improving its economic concentration control regime, which is already leading to an increase in inbound investments.

However, the country often faces challenges in cross-border M&As due to its existing regulations. To reach the next maturity level in the M&A market, it needs to define clear thresholds and comply with approval deadlines.

In addition, EuroCham said Vietnam should consider bolstering administrative resources for more efficient processing and communication.

As such, the government should consider an exemption of internal corporate group re-organizations from the economic concentration control regime; raising the threshold amounts under the relevant economic concentration control regulations which trigger notifiable transactions; and clarifying terms of the antitrust/competition law to provide clear and unequivocal thresholds for inbound investments.

Vietnam’s M&A market declined in 2023 following the global downward trend even though the national economy remained relatively stable, according to auditing firm KPMG.

KPMG data showed that, Vietnam saw 256 M&A deals during the first 10 months of 2023 with a total value of $4.4 billion, significantly lower than the record high of $10.8 billion in 2021.

Foreign investors returned to dominate all five leading positions in terms of transaction value in 10M2023. Japan, Singapore, and the U.S. continued to be the most active foreign investors, together making up over 70% of the total announced transaction value.

The biggest deal of the year was Japan's Sumitomo Mitsui Banking Corporation (SMBC) acquiring a minority stake in Vietnam’s private lender VPBank for $1.45 billion.

The country’s M&A market is poised for growth in 2024, supported by many economic advances and reforms aimed at attracting FDI, with deals increasing in real estate, renewable energy, technology, and healthcare, according to KPMG.