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More regulation needed for mergers market   2008-11-03 - Viet Nam News

The merger and acquisitions (M&A) market recently saw the Switzerland-Viet Nam cement joint venture company Holcim Vietnam finalise a contract to buy a cement factory belonging to COTEC Group, a domestic construction and building materials firm.

COTEC Group general director Dao Duc Nghia announced Holcim would pay almost US$50 million for its affiliate COTEC Cement.

Earlier this year, Swiss Reinsurance Co. bought a 25 per cent stake in Vietnam National Reinsurance Co (VinaRe) for US$81.9 million, while Morgan Stanley acquired a 48.33 percent stake in Huong Viet Securities for an undisclosed sum, Franklin Templeton Investments acquired a 49 per cent stake in Vietcombank Fund Management Co, and confectioner Lotte announced its 30 percent stake in Bien Hoa Confectionery Company (Bibica).

It is estimated that in the first six months of the year, 48 deals worth a total of US$347 million were completed, perhaps a reflection of the global economic crisis. In comparison, last year, 113 deals worth US$1.8 billion were struck.

Still, experts in the M&A sector are calling for appropriate regulations.

Starting next year, foreign companies will be eligible to both export their products to Viet Nam and distribute them via their own outlets. They, however, will only be allowed to open one distribution facility. So what happens in the case when a foreign firm acquires a domestic one that has a multi-outlet network? Bibica now has a 20,000 retail shop system nationwide.

Under corporate laws in Viet Nam, companies with a marketshare of 30 to 50 per cent are required to report to the Vietnam Competition Administration Department (VCAD) before the merger. Dang Duong Anh from the law firm Vilaf Hong Duc noted it would cost a company a fortune to assess its market shares to see whether it would be compulsory to report to VCAD or not. Moreover, such an assessment would be difficult due to the unavailability of an effective database of information on local businesses.

The Vietnamese legal system has yet to clearly define whether a merger and acquisition by an overseas company is a direct or indirect investment. Currently such activities involving listed companies are managed by the State Securities Commission. If, however, they involve foreign direct investment, then the Ministry of Planning and Investment takes over.

Listing plans

Despite the falling indices at both the HCM Stock Exchange (HOSE) and the Ha Noi Securities Trading Center, many companies are still moving ahead with their listing plans. Local media have even noted a wave of listing when authorities disclosed 50 companies planned on listing by year’s end. A number of them have already gotten the OK from authorities. Others yet are applying to climb on board the stock exchange, or are preparing procedures to do so. The Saigon Paper Joint Stock Company and the machine installation Lilama 3 are among them.

The Saigon Paper Joint Stock Company could not delay its plans in light of recent market troubles as it had to realise its listing commitments to shareholders, said chairman Cao Tien Vi.

Today HOSE is scheduled to receive the PetroVietnam Finance Corporation (PVFC). With a chartered capital of VND5 trillion, it is set to be the leader of HOSE’s bourse. PVFC general director Tong Quoc Truong also could not delay its debut, adding that listing is a must to provide liquidity. Last Friday HOSE alone saw two firms join its bourse, the steel pipe manufacturer Huu Lien A Chau and OPC pharmaceuticals firm.

Though the latter part of last week saw the VN Index increase, the current state of the market, especially the demand-supply wider gap perspective, is a cause for concern among many investors.

Truong, however, assured that only 12 per cent of PVFC’s 500 million shares would be eligible for trading. Holders of the remaining 88 per cent, PetroVietnam at 78 per cent and Morgan Stanley at 10 per cent, have committed to keep the shares in their pockets for three years. As Viet Nam’s stock market is still considered small, with only 300 companies listed at the exchanges in Ha Noi and HCM City, new listings will provide greater choices for investors, and improve liquidity.

Apartment management

Residential property has become a big issue recently, especially management fees charged by developers on apartment owners across the country. Affected buildings include The Manor in Ha Noi and Screc, My Vinh and The Botanic Towers in HCM City. When My Vinh’s developers doubled their monthly fee to US$40, owners refused to pay. Residents at The Botanic Towers were not happy when management fees increased to US$2 per square meter, up to VND500,000 (US$30) per unit, last September.

In comparison, the monthly fee of a mid-range apartment in Beijing is only US$0.50-0.90 per square metre, and US$1.30-2 for a high-end one. The figures go up to US$3.45-4.15 and US$4.84-6.23 respectively in Hong Kong. For luxury flats in Ha Noi, the fees are US$0.75-0.80 and US$0.50-0.80, respectively, according to property services company CBRE.

CBRE held a seminar in HCM City last Friday on residential property management to introduce models from Thailand, Singapore, New Zealand and the US. According to CBRE general director Marc Townsend, developers might offer inaccurate fee levels to apartment buyers before project completion, and increase fees once residents move in. Meanwhile, realistic factors also contribute to the fee increases. Townsend cited common practices elsewhere that separate the functions of property development and management. Many developers in Viet Nam retain their management position after buildings are complete. "After finishing a project developers overseas will continue with their new ones, leaving the management to a professional third party," he said.

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