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Key insights about M&A market in Vietnam

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Key insights about M&A market in Vietnam

1.     M&A Market in Vietnam: a robust growth facing more cautious investors

The Vietnam M&A Market has been receiving more attention from investors for its captivating environment over the years, especially since it joined the WTO in 2007. The country’s M&A market has rapidly expanded, experiencing a strong increase in the number of deals, and now a growth of deal value.

We can notice that the market suffered from the COVID-19 pandemic, with its overall M&A transaction value decreased by 13%, and by 2020, it was estimated to be only US$ 5,2B.

However, Vietnam is one of the least affected countries in ASEAN, benefiting from an ambitious economic framework, and reinforced by an increasing economic integration. In fact, the total value of deals in 2021 shows a return to a very strong activity, with a total of US$ 8.77B. This peak in activity following the pandemic seems to be losing momentum in 2022: due to various geopolitical concerns, investors are more cautious, which has caused a slowdown in M&A activity in Vietnam. According to KPMG (Vietnam M&A Forum 2022), the first ten months of 2022 recorded US$5.7 million, down 35.3% year-on-year. The number of transactions also decreased significantly from 694 in 2021 to 345 in the first ten months of 2022.

M&A transactionIndustrySellerBuyerTransaction value (million USD)
Capital PlaceReal eastateCapitalLand Investment LtdA big company in real estate industry523.4
200MW Solar Power Plant in VietnamRenewable and UtilitiesXuan Thien GroupEDP Renováveis S.A (EDPR)284
Phuc Long Heritage JSCConsumer discretionary Sherpa Co., Ltd260.6
Novaland Investment Group CorporationReal eastate Warburg Pincus LLC250
Golden Gate Trade Services JSCConsumer discretionaryProsperity Food Concepts Pte LtdSeletar Investments Pte Ltd, Seatown Capital Pte Ltd, and Periwinkle Pte Ltd234

Another important dynamic of the M&A market in Vietnam is the investors. If the historical investors were Singapore, Japan, Thailand, South Korea or Taiwan, the domestic investors have recently made a jump in the market. In 2020Vietnam was the largest investor in the M&A market, with a total value of US$ 2.2B, followed by the US (US$ 742m), South Korea (US$ 571m), Thailand (US$ 475m) and Japan (US$ 437m). Following the pandemic, the interest of local investors is explained in particular by the need to maintain a channel for mobilizing capital to recover quickly from the pandemic. In 2022, Vietnam still leads the country in M&A investment, but only for a total deal value of US$ 1.3B in the first ten months. Singapore was the leading country in cross-border transactions with about $1.2 billion, followed by the U.S. ($570 million) and South Korea ($370 million), according to KPMG data.

The main industries attracting investments included consumption ($1.2 billion), real estate (nearly $1 billion), and manufacturing ($800 million). In particular, the energy sector is becoming the hot spot in 2022 in terms of value growth, reaching almost $600 million, a six-fold increase compared to the entire 2021.

2.     The Rise of Energy – Utilities

Some major transactions:

  • Thai-based B.Grimm Power’s acquisition of a 80% stake in a 257 MW solar power project in Vietnam for $35.2 million in 2020.
  • South Korea’s SK E&S acquisition of a 30% stake in a 500 MW offshore wind farm in Vietnam for $126 million in 2021.
  • Singapore’s Sunseap Group’s acquisition of a 168 MW solar portfolio in Vietnam in 2021.
  • EDP Renováveis S.A (EDPR)’s acquisition of a 200 MW solar power from Xuan Thien Group in 2022.

3.     Construction of a legal framework to better support the operations

3.1 Regulation:

In Vietnam, there is no centralised legislation regulating M&A activities. However, there are a number of laws that can have a strong influence on this market.

A major one is The Law on Enterprises (Law No. 68-2014-QH13), in particular, the rights of organisations and individuals to form businesses, buy stock, and provide capital are described in the Article 18. State officials, children, and anyone facing criminal charges are among those who are not permitted to participate. In addition, the guidelines for a merger are set out in Article 195, which states that a legal representative of the company must resolve any potential conflicts with the Competition Law with the administrative body responsible for competition. After the merger, the newly created company is required to inform the national business registration database.

The Law on Investment (Law No. 67-2014-QH13) also has to be taken into account as its Article 25 establishes the rights of the foreign investor in terms of capital contribution and purchase of capital or shares, as well as the procedure to be followed in Article 26. The Planning and Investment Department must be notified of the application for registration in order for it to be approved.

M&As are also subject to the Law on Competition and the Securities Law. The Competition Law, which came into force in July 2019, broadens the range of circumstances in which a merger is necessary to include total assets, revenue, transaction value, or market share of the participating partyThe purchase of shares in a public business, including open tender offers, is governed by Security Law.

3.2 Restriction:

There are various restrictions for the M&A market in Vietnam, one of which is the complicated nature of Vietnam’s tax regimes. The primary impact taxes have during  M&As in Vietnam is capital gains tax, which may be either corporate income tax (CIT) or personal income tax (PIT). It is applicable to the purchase of shares of stock or capital contributions in Vietnamese enterprises. If a favourable tax treaty does not provide an exemption, capital gains for foreign sellers are subject to a 20% capital gains tax. The amount of the sales proceeds less the investment cost and transfer costs is used to calculate the taxable gain.

For foreign investors, there are generally no restrictions on the ownership of charter capital by them in Vietnamese businesses. However, there are some exceptions that apply to businesses in certain service sectors, such as banking, education, distribution, etc., where foreign ownership is prohibited, restricted, or subject to conditions under WTO commitments. It should be noted that Vietnamese licensing authorities frequently exercise discretion in deciding whether or not to give appropriate regulatory licences for M&A transactions in industry sectors that are not explicitly listed in the WTO Commitments or otherwise formally specified.

Vietnam does have some more restrictions about foreign investment depending on the type of project, such as the Antitrust regulations, the labour law regulations, the national security review for instance.

4.     Final thoughts

According to the Vietnam M&A Forum 2022, experts are confident about the M&A market opportunities in Vietnam in 2023 and the decrease observed in 2022 is temporary and growth will recover quickly. Moreover, it must be noted that macroeconomic instability, governance challenges, and a lack of market transparency are still the top concerns for investors. M&A transactions in Vietnam is predicted to be one of the most important and efficient entry points into this market. Even more since the Vietnamese government has committed to support it with a defined legal structure.

The country remains a safe environment for investing with political stability, free trade agreements, low-cost based destination, developing technology, affordable labour supply. Its attractiveness is demonstrated by the major investments from Japan, South Korea, and Singapore. Both Western and domestic investors in the country are showing increased interest: it is projected that investment from the US and the EU would increase and continue to play a crucial role in Vietnam in the future.

 Why Vietnam? 发展可再生能源的机会

1.     Energy Demand in Vietnam

Triển vọng tăng trưởng kinh tế Việt Nam 2023

There are many factors driving the rapid development of the renewable energy industry in Vietnam. The first is the high domestic electricity consumption. According to the International Energy Agency, Vietnam is the second largest electricity user in Southeast Asia. This opens up great opportunities for foreign corporations to invest in the energy industry in Vietnam in general or renewable energy in particular.

2.     Vietnam has great potential for developing renewable energy sources

Vietnam has many natural geographical potentials that are ideal for the development of the renewable energy industry, especially solar and wind power. According to international analysts, Vietnam is one of the countries with the highest number of sunshine hours in Asia (average 1,500 to 1,700 hours per year), especially in the southern region, where most of the areas are concentrated. Domestic production. The intensity of solar radiation also does not change significantly during the year.

In addition, thanks to its long and narrow terrain including 3,000 km of coastline and a diverse system of hills and mountains, Vietnam possesses considerable wind resources. According to the World Bank, 39% of the country has wind speeds of more than 6 meters per second at an altitude of 65 meters, equivalent to a capacity of 512 GW.

3.     Preferential policies to attract renewable energy development in Vietnam

Vietnam has implemented a number of incentive policies to encourage the development and use of renewable energy sources in the country. These policies include:

3.1 Feed-in tariffs:

The Vietnamese government has implemented feed-in tariffs (FiTs) for electricity generated from renewable energy sources such as wind, solar, and biomass. These FiTs offer guaranteed prices for electricity generated from these sources and are set higher than the prices for conventional fossil fuels.

Feed-in tariffs (FiTs) are one of the key incentive policies implemented by the Vietnamese government to promote the development of renewable energy sources in the country. Under FiTs, electricity generated from renewable energy sources such as wind, solar, and biomass is guaranteed a fixed price, which is usually higher than the price for conventional fossil fuels.

The FiT rates in Vietnam vary depending on the type of renewable energy source and the capacity of the project. The government regularly updates the FiT rates to reflect the changing costs of renewable energy technologies and market conditions.

For solar power, the FiT rates are based on the capacity and location of the project. For example, as of 2021, the FiT rate for solar power projects with a capacity of less than 1 MW is 7.09 US cents per kWh in the southern region and 7.69 US cents per kWh in the central and northern regions. The FiT rate for solar power projects with a capacity of more than 1 MW is 6.67 US cents per kWh in the southern region and 7.09 US cents per kWh in the central and northern regions.

For wind power, the FiT rates are based on the location of the project and the time of day. As of 2021, the FiT rate for onshore wind power projects is 8.5 US cents per kWh for the whole day, while the FiT rate for offshore wind power projects is 9.8 US cents per kWh for the whole day.

For biomass power, the FiT rates are based on the type of fuel and the capacity of the project. As of 2021, the FiT rate for power generated from solid waste is 10.05 US cents per kWh, while the FiT rate for power generated from biogas is 5.8 US cents per kWh.

The FiTs in Vietnam are guaranteed for a fixed period, typically ranging from 20 to 25 years, depending on the type of renewable energy source and the capacity of the project. These long-term contracts provide developers with a stable source of revenue and help to attract investment in renewable energy projects.

Overall, FiTs have been a successful policy instrument in Vietnam, with the country rapidly increasing its renewable energy capacity in recent years. As of 2020, renewable energy sources accounted for around 10% of Vietnam’s total electricity generation capacity, with the government targeting to increase this to 15-20% by 2030.

Attached summary

3.2  Tax incentives:

The Vietnamese government provides tax incentives to companies investing in renewable energy projects. These incentives include exemption or reduction of corporate income tax, import tax, and value-added tax (VAT) on imported equipment and machinery.

In addition to feed-in tariffs, the Vietnamese government offers tax incentives to companies investing in renewable energy projects. These incentives aim to reduce the financial burden of investing in renewable energy and help to promote the development of the industry.

Corporate Income Tax Exemption or Reduction: Companies investing in renewable energy projects are eligible for a corporate income tax exemption or reduction. This policy encourages companies to invest in renewable energy projects by reducing their tax burden. For example, solar power projects with a capacity of less than 2 MW are eligible for a corporate income tax exemption for the first four years and a 50% reduction for the next nine years. Wind power projects are eligible for a 50% reduction in corporate income tax for the first ten years.

Import Tax Exemption or Reduction: Renewable energy companies can also benefit from an import tax exemption or reduction on imported equipment and machinery needed for their projects. This policy aims to reduce the costs of renewable energy projects, making them more financially viable. For example, import tax exemption applies to solar panels, inverters, and wind turbines.

Value-added Tax (VAT) Exemption or Reduction: Companies investing in renewable energy projects can also benefit from VAT exemptions or reductions. This policy aims to reduce the costs of renewable energy projects by exempting or reducing the VAT on imported equipment and machinery. As of 2021, solar power projects with a capacity of less than 2 MW are eligible for a VAT exemption for imported equipment and materials.

These tax incentives, coupled with feed-in tariffs, have helped to create a favorable investment environment for renewable energy projects in Vietnam. As a result, the country has seen a surge in investment in renewable energy projects in recent years. In 2020, Vietnam attracted more than $9.3 billion in investment in renewable energy, making it one of the most attractive destinations for renewable energy investment in Southeast Asia.

3.3  Investment incentives:

Vietnam offers various investment incentives to encourage investment in renewable energy projects. These incentives include land-use rights, access to credit, and exemption or reduction of land rent fees.

In addition to feed-in tariffs and tax incentives, the Vietnamese government also offers investment incentives to encourage investment in renewable energy projects. These incentives aim to reduce the barriers to entry for investors and promote the development of the renewable energy industry in the country.

Land-use Rights: The Vietnamese government provides land-use rights to investors for renewable energy projects. This includes allocating land or leasing land at reduced rates for renewable energy projects. Investors can also lease land from local communities or individuals at negotiated prices for up to 50 years. This policy helps to reduce the land acquisition costs for renewable energy projects, making them more financially viable.

Access to Credit: The Vietnamese government encourages financial institutions to provide preferential loans to renewable energy projects. This includes reducing the interest rate, increasing the loan term, and providing loan guarantees. These policies aim to reduce the financing costs of renewable energy projects, making them more attractive to investors.

Exemption or Reduction of Land Rent Fees: Renewable energy projects are also eligible for exemption or reduction of land rent fees. This policy aims to reduce the costs of renewable energy projects by exempting or reducing the land rent fees for renewable energy projects. As of 2021, solar power projects with a capacity of less than 2 MW are eligible for a 50% reduction in land rent fees.

Overall, the investment incentives offered by the Vietnamese government help to create a favorable investment environment for renewable energy projects. These policies help to reduce the barriers to entry for investors, reduce the costs of renewable energy projects, and increase the profitability of renewable energy investments. As a result, Vietnam has seen a surge in investment in renewable energy projects in recent years.

Key issues in M&A in renewable project in VIETNAM

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