Omass Reforming Vietnams Economy - The Role of Strategic Partners 02201

VIETNAM’S ECONOMY IN 2015
Attempts to reform leading to remarkable

development?
OLIVER MASSMANN - Partner, General Director
DUANE MORRIS VIETNAM LLC
©2010 Duane Morris LLP. All Rights Reserved. Duane Morris is a registered service mark of Duane Morris LLP.
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AGENDA:
• VIETNAM 2014 ECONOMY AT A GLANCE
• M&A AND CAPITAL MARKET OUTLOOK
• OUTLOOK FOR VIETNAM’S ECONOMY: IMPACTS

OF THE NEW INVESTMENT LAW, ENTERPRISE LAW
AND INTERNATIONAL FTAS
• CONCLUSION
Vietnam 2014 Economy at a glance
• 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)
WTO ANALYSIS OF LIBERALIZATION
OF MARKET ACCESS
Vietnam ties in first place with Singapore
Country Limitation of Country Limitation of

market access* 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
M&A activities in Vietnam
• 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
M&A activities in Vietnam
• 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$1 billion, accounting for 25% of the total
M&A value in Vietnam while the retail and real property have always
been very robust in M&A with the big deal value
• The Trans-Pacific Partnership, and Free Trade Agreement between
EU and Vietnam currently under final negotiation process. When they
are concluded early this year, it may also drive more interest in M&A
activities in Vietnam.
Notable M&A deals in Vietnam in 2014
• Berli Jucker (BJC): BJC bought 19 Cash & Carry and their related
real property of Metro with a deal value of US$ 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)
Equitization plan for 2011 – 2015 period
• 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:
– 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.
M&A and Capital Market Outlook in 2014-
2018
• 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
More banking M&A transactions in 2014-2018
• 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
M&A and Capital Market Outlook
• 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!!!
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.
• 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
13 change of pocket www.duanemorris.com
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
TPP’s Impact on Vietnam’s Economy
• 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
Government Procurement in TPP
• 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.
EVFTA’s Impact on Vietnam’s Economy
• 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
Government Procurement in EVFTA
• 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.
Impact of the new Investment Law and Enterprise Law
on Vietnam’s economy
• More transparent investment environment, ventilation and
reduce business costs
• Fair competition between domestic and foreign investors
• More large-scale investment projects in Vietnam
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
CLEARER NOW?
• 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
• Foreign invested enterprise vs. Economic entity with

foreign owned capital (“FOC Entity”):
ANY Difference? => Just change the name
BUT the capital ratio of foreign investor in FOC Entity will decide the
licensing procedures
CLEARER NOW?
• When FOC Entity needs to follow the licensing
procedure for the foreign investor?
Defined by the capital ratio of 51%:
1.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’’)
2.FOC Entity has FOC Entity No. 1 who holds 51% or more charter
capital (“FOC Entity No. 2”)
3.FOC Entity has FOC Entity No. 1 and FOC Entity No. 2 who hold
51% or more charter capital (“FOC Entity No. 3”)
M&A PROCEDURES UNDER NEW IL
• M&A Procedure: Appears to be simple!!! Implementing 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
• Subjects:
 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
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.
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
DUANE MORRIS VIETNAM LLC
Thank you very much!
HANOI OFFICE HO CHI MINH CITY OFFICE
Pacific Place, Unit V1307/08, 13th Floor, Suite 1503/04, Saigon Tower
83B Ly Thuong Kiet, Hoan Kiem District 29 Le Duan Street, District 1
Hanoi, Vietnam Ho Chi Minh City, Vietnam
Tel.: +84 4 39462200 Tel.: +84 8 3824 0240
Fax: +84 4 3946 1311 Fax: +84 8 3824 0241
Contact email:
omassmann@duanemorris.com

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VIETNAM’S ECONOMY IN 2015

Attempts to reform leading to remarkable

• M&A AND CAPITAL MARKET OUTLOOK

• OUTLOOK FOR VIETNAM’S ECONOMY: IMPACTS

Country Limitation of Country Limitation of

Foreign investor is any foreign individual or

Economic entity with foreign owned capital: Entity has any

• Foreign invested enterprise vs. Economic entity with

Defined by the capital ratio of 51%:

Thank you very much!

HANOI OFFICE HO CHI MINH CITY OFFICE

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