M&A opportunities for foreign investors in an emerging Vietnam Presented by Mr. Le Song Lai Deputy General Director Rome, 21st January 2013 Contents 1. Vietnam M&A overview 2. Challenges 3. Where opportunities exist - Private equity - Infrastructure - SOEs 4. SCIC and M&A opportunities 1. Vietnam M&A overview M&A activity in Vietnam has risen sharply in recent years despite the macro economic concerns. 2011 M&A activity reached USD4.4 billion • Foreign inflow made up USD2.6 billion (65%) in the value of deals 2012 The total transaction value of published M&A transactions were estimated at USD4,17 billion in which the first quarter activity was strong at USD1.99 billion • Sectors of greatest activity: • Foreign participation continued to expand • Consumer goods • Sectors of great activity: • Banking • Consumer goods • Real estate • Banking • Japan was the largest contributor towards M&A activity Vietnam M&A overview Total value and number of closed M&A deals increasing with time Recent M&A activity Transaction numbers by key sectors Most prominent M&A deals in 2012 Most prominent M&A deals in 2012 Top M&A deals in 2011 9 out of the top 10 deals involved foreign buyers 2. Challenges Cost of capital Inflation • Relative to other countries, Vietnam’s cost of capital remains extremely high • If inflation does not continue on its path or easing, the risk of prolonged high levels of cost of capital will remain. In fact, due to drastic measures taken by the Vietnamese Government, inflation was reduced significantly from 18.58% in 2011 to 6.81% in 2012 and is expected to be 9% in 2013 by Fitch rating estimate). • VND denominated debt is greatly restricting domestic M&A activity Outcome • Targeted businesses for acquisition will see their value negatively impacted by increased discount rates • Almost all M&A activity will come from foreign investors, who’s cost of capital is much lower relative to the Vietnamese market • Foreigners will favor purchasing existing companies rather than spend time and money developing its own business organically • Only cash-rich domestic businesses will have the capability to execute successful M&A transactions 3. Opportunities Private Equity Stable macroeconomic situation, inflation under control, monetary tightening policy continued etc. Vietnam’s stock exchange is forecast by Bloomberg to be the world best exchange in 2013 3. Opportunities Private Equity Private equity is an attractive area for M&A investment in Vietnam • Fragmented markets • • Larger quantity of appropriate sized SMEs • • A substantial increase in the quantity of SMEs which could handle a meaningful investment of USD5-10 million SMEs are increasingly aware of and understand private equity structures • • 300,000 small and medium-sized enterprises in Vietnam. Minority protections can now be negotiated More significant M&A transactions recently include: • Diageo acquired 45% stake of Halico • Unicharm bought 95% stake of Diana • C.P Pokpland acquired 70.8% of CP Vietnam • Fortis Healthcare acquired 65% stake of Hoan My Medical Corporation. Infrastructure Infrastructure is emerging as an alternative asset class with stable and consistent returns Shortages occur in every infrastructure sector in Vietnam Port congestion is particularly acute • About USD4.5 billion to be invested in ports in the next five years Traffic congestion is just as bad • Approximately 13 expressways are planned for construction by 2015, with total cost of around USD6.5 billion Government is encouraging investment in the power sector, An expected USD14 billion in to flow into this area over the next several years Over the past decade infrastructure investments have not kept pace with GDP growth of 7-8% Vietnam needs to invest approximately USD140 billion between now and 2020. Government with limited capacity and decreasing access to Official Development Assistance (ODA). Attractive opportunities for private sector to strategically invest in this asset class. SOE equitisation and capital markets SOE IPOs 2012-2015 Sector Vinatex Garment 1.7 Vietnam Airlines Transportation 2.2 The equitisation of state-owned enterprises is an important aspect of Vietnam’s emerging capital markets Vietnam Paper Corp Industrial 0.3 Vinafood 1 Consumer foods 1.0 Vinachem Chemicals 1.9 The government is entering the final phase of equitisations Vincem Materials 1.3 Song Da Group Construction 1.3 Agribank Banking Mobifone Telecommunications 2.1 Satra Retail 1.5 Equitisation of state-owned enterprises Many opportunities remain within Vietnam’s listed assets • YTD 2012, VN Index up 36% with increasing liquidity • • 2011 Revenue (USDbn) Increased liquidity could foster more M&A activity Potential for SOE IPOs opportunities over the next 3 years • MobiFone: total revenue of USD2.1bn and EBIT of USD286mn • Satra: strong financial performance since it operates in defensive sector such as food retailing. N/A SCIC as a key player in the M&A market in Vietnam SCIC ROLE IN M&A MARKET A brief introduction of SCIC SCIC role in the M&A market in Vietnam SCIC as a key player in the M&A market in Vietnam (cont.) A brief introduction of SCIC: Est. since 2005 and started operations in 2006 along the line of Temasek of Singapore and Khazanah of Malaysia Seen as a purely profit oriented entity and a financial investor Main missions includes: Managing state capital in post-equitised companies Investing in both green field and brown field projects inside and outside Vietnam, with a special focus on infrastructure Providing financial advisory services SCIC as a key player in the M&A market in Vietnam (cont.) A snapshot of SCIC performance (as of 31 December 2012) Total assets: USD 3 b Charter capital: USD 900 m Before tax profit; USD 250 m ROE: 15.5% Number of portfolio companies: over 900 units Largest investor in the stock exchanges in Vietnam with significant shareholding in over 70 listed companies Having a strong presence in a number of sectors including: pharmaceuticals, plastics, foods and beverages , construction and trading etc. SCIC as a key player in the M&A market in Vietnam (cont.) SCIC role in the M&A Acting as the largest seller in the OTC market with over 200 businesses available for divestment each year Active buyer with focus on energy and infrastructure sectors Helpful facilitator/advisor for M&A deals thanks to its roles in the public sector SCIC as a key player in the M&A market in Vietnam (cont.) Major closed M&A deals involving SCIC Daiichi Life (Japan) purchase of an entire life assurance JV from SCIC and its Australian partner for USD 25 m in 12/2006 Qantas acquisition of a 30% stake in Pacific Airlines for USD 50 m (4/2007) Swiss Re acquisition of a 25% stake in Vietnam National Reinsuarnce Corporation for USD 80 m (1/2008) AXA acquisition of a 16.65% stake in Bao Minh Insurance Corporation for €54 m (9/2007) Etc. M&A and investment prospects in Vietnam THANK YOU!