SMiC Consultantcy

One merger announced recently was that of the Gia Dinh Bank, which is now called the Ban Viet Bank (Viet Capital Bank) after a group of investors acquired a 30 per cent stake in it. Nguyen Thanh Phuong, chairwoman of Viet Capital Asset Management was voted the bank's chairperson and To Hai, CEO of Viet Capital Securities Company, an executive member of the bank. The former Gia Dinh Bank is among the smallest ones in the industry, which had just increased its charter capital to VND3 trillion (US$140 million) from VND2 trillion ($93.9 million).

In another case, Sacombank (STB) recently registered to buy back 100 million shares, or almost 10 per cent of Sacombank, worth around VND1.3 trillion ($61 million). It is the biggest transaction of this kind to date in the country. Earlier, the bank had increased its charter capital by 17 per cent, collecting VND1.377 trillion ($64.6 million) from the new share issue. It is surmised that the latest purchase is perhaps from a foreign bank, which holds 10 per cent and wants to divest. STB is said making the purchase to avoid the stake falling into the hands of an unfriendly investor. The bank had required, upon selling the stake to the foreign partner, that it would be given priority in acquiring the stake should the buyer choose to divest. Sacombank has not yet officially announced the price at which will buy back the stake. However, the buying duration of one month (November 15 – December 15) that the company has announced is impractical on the trading floor, where the average liquidity of this share has been less then one million units per trading day.

Similarly, the Corporation for Financing and promoting Technology, listed on the HCM Stock Exchange as FPT, plans to buy back corporate bonds worth VND1 trillion in face value. FPT, which is also exercising its buy back option, is doing so to prevent Orchid Fund of Singapore from increasing its stake to become the largest shareholder, thus having a position on the executive board, including the chairmanship.

Last year, 345 deals worth around $1.7 billion were done in the country, up from 295 and $1.1 billion in 2009. By this June, deals worth $1.57 billion were completed.

The Ministry of Planning and Investment plans to propose to the Government and the National Assembly amendments to the Enterprise Law next year that are expected to ring in major changes in the M&A sector.

This will be a right step because M&A deals are dealt with under the Enterprise Law which does not have detailed provisions regarding this business activity.

Mixed signs

October was a month of mixed signs.

Continuing with a trend that began in August, the Consumer Price Index (CPI) slowed on a month on month basis to 0.36 per cent, down 0.93 and 0.82 per cent from August and September, respectively. Of the 11 items contained in the basket that make up the CPI, education had the largest increase (3.2 per cent month-on-month); an expected outcome considering September is back-to-school season. Earlier in the month, the government announced that the target inflation rate for 2012 is expected to be under 10 per cent, a rather ambitious one given the expected 18 per cent rate for 2011.

Meanwhile, October's trade deficit came in at US$800 million, a substantial improvement over September's $1.5 billion, including $700 million in gold imports. The improvement in October's deficit is in part due to increased oil and coal exports and decreased automobile and equipment imports. Year to date, the trade deficit stands at $8.39 billion, 15.9 per cent lower than the same period in 2010. On a related note, overseas remittances for the year are expected to reach $8.5 billion, up 6.3 per cent on 2010.

The General Statistics Office reported that while inventory levels increased 21 per cent year-on-year, and retail sales saw no growth, industrial production rose by 5.2 per cent y-o-y in October.

Closing at 420.8, the stock exchange in HCM City showed a negative return of 1.61 per cent for October, according to a monthly report by Viet Nam Asset Management (VAM). Contributing to the negative return was some profit taking at the end of the month after an impressive run in the third week. Not isolated from global macroeconomic concerns, the market saw gains when the Greece rescue plan looked imminent and fell hard as it faltered. In general, market sentiment has not improved much as price swings in gold and weaknesses in the dong evoke caution despite falling inter-bank rates (the 12-month inter-bank rates saw the greatest decrease of 5.5 per cent to 13.51 per cent) and continually improving inflation figures.

Moving into the last months of 2011, the economic picture of Viet Nam is mixed, according to VAM. While the situation has improved regarding inflation and the trade deficit, banks and real estate sectors seem to have gotten into trouble, with a number of credit defaults and the central bank laying ground rules for banks' consolidations.

In addition, rising level of "black credit" (a.k.a Ponzi scheme borrowing), shortage of liquidity in the banking system and falling real estate prices have become key concerns for investors.

Third quarter corporate earnings were generally poor as a result of rising operating costs. Amidst weaker real consumer spending and large-scale budget tightening by the public, most listed firms in sectors such as steel, shipping, cement and real estate released disappointing results and even losses compared to the same period last year. However, there have also been a few bright spots. Despite macro stresses, sales growth of companies in consumer staples and health care industry still remained robust thanks to strong demand.

Real estate

To create cash flows and avoid fines on overdue bank loans, several developers have announced sharp discounts on unsold apartments in Ha Noi and HCM City.

With fierce competition and ample supply in the mid – to high-end apartments, discounts have been as steep as 30 per cent. This could force other developers to reconsider their pricing strategies.

The Sai Gon Mekong Company recently put 500 units of its An Tien Project in HCM City's Disttrict 7 at an average price of VND14.4 million ($670) per square meter excluding 10 per cent VAT; around 20 to 30 per cent cheaper than similar projects. This meant prices lower than apartments with fewer advantages (of location, facilities etc). On the very first selling day, customers signed contracts for almost 150 apartments.

At a new property trading floor opened by the CT Group last week in HCM City, most of the 13 developers having their apartment projects on display offer promotion policies. The group itself offers an eight per cent discount on its luxurious Leman CT Plaza in HCM City's District 3. Phat Hung Co has fixed its prices in dong and has not pushed them up even after the currency weakened against the US dollar. Previously, developers used to set prices in dollars and change them into dong. So the prices rose when the dollar gained. Payment period has been extended, and the company guarantees to buy back the property at 15 per cent higher than the purchase price after 24 months.

However, lower prices and better payment terms still do not mean apartments would find buyers easily, because the latter have a tendency to wait for cheaper prices. Developers facing critical financial problems are having to look for project buyers. An investment fund recently sold its apartment project in District 2 for a loss of $8 million.

Practices

M&A need clear, detailed regulations