M&A deals bail out property developers with cash flow troubles

Merger and acquisition (M&A) deals, mostly with overseas buyers, have emerged as a solution for cash flow bottlenecks faced by Vietnamese real estate developers.

A Singaporean firm has completed acquisition of major Ho Chi Minh City-based real estate developer Novaland’s F&B business (Nova F&B), a source told The Investor last month. The person, who requested anonymity, also said the buyer’s name and transaction value could not be revealed under the contract, which was brokered by VinaCapital, a leading investment management firm in Vietnam.

The source provided the information a day after VinaCapital’s chief investment officer Andy Ho had told Vietnamese media that Singapore-headquartered IN Holdings, which is not the buyer, was the new operator of Nova F&B.

The Nova F&B chain has been renamed IN Dining. Vietnamese businesswoman Nguyen Thanh Ha Ngoc has been appointed legal representative and general director of IN Dining. She is also CEO of HCMC-based IN Hospitality JSC, which operates large convention and event centers including the GEM Center and White Palace in the southern economic hub.

Novaland’s divestment aimed at an intensified focus on its core business - real estate development. In February, Dallas Vietnam Gamma Ltd., one of Novaland's bondholders, agreed to exchange the bonds for a stake in two Novaland subsidiaries - Thanh Nhon Real Estate and Mui Ne General Investment. The transaction was worth VND1 trillion ($43.4 million). Dallas Vietnam Gamma is not a domestic company.

This May, Singapore conglomerate Keppel Corporation acquired a 49% stake in two adjacent residential projects in Ho Chi Minh City from Vietnamese property developer Khang Dien for VND3.18 trillion ($135.42 million).

Khang Dien, listed on the Ho Chi Minh Stock Exchange (HoSE) as KDH, holds the remaining 51% interest and will develop the two projects in Thu Duc city with the Keppel Corporation and Keppel Vietnam Fund, jointly known as the Keppel Consortium.

The consortium and Khang Dien will cooperate with each other in developing more than 200 houses and over 600 high-rise apartments on the two sites, which have a total area of 11.8 hectares. The projects are estimated to cost VND10.2 trillion ($434.4 million), said Keppel Corp.

This marked the second joint investment by the Keppel Consortium following one involving three residential sites in Hanoi last year.

HCMC-based Saigon Real Estate Corp. (Saigonres) signed a deal early April under which it would transfer An Phu Riverview Apartments and An Phu Residences in Thu Duc to Saigon Riverside Investment Co. Ltd.

The two projects are estimated to cost more than VND900 billion ($38.2 million). If the transaction goes through, Saigonres would get around VND600-650 billion ($25.44 million to $27.6 million) for the two projects.

According to a recent report by the Vietnam Association of Realtors (VARS), very few Vietnamese real estate developers are able to arrange capital flows to become buyers in the M&A market. Therefore, foreign buyers are expected to lead major deals.

Prominent among them are investors from Singapore, South Korea, Taiwan, Japan, Malaysia and some other markets, but most of the new deals are under negotiation, according to VARS.

The talks would take time because buyers and sellers are bargaining over the prices, VARS said. It noted that some domestic developers were expecting too much but others were willing to accept lower prices despite suffering losses in order to improve their cash flows.

VARS predicted that the market will see several major M&A deals in the time to come.

It has suggested that Vietnamese regulators allow developers with cash flow troubles to make transfers when site clearance is completed because this would help project implementation proceed without major delays or postponements.

The ailing property market also needed an effective investment channel set up with operations dedicated to the sector, VARS has said, adding that this would help bring in foreign investors and enable better networking between sellers and buyers in M&A deals.