Analysts dismiss Vietnam firms' fears of takeover by foreign partners

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Customers ponder cookies products of Bien Hoa Confectionery Joint Stock Co, known as Bibica, in a supermarket in Ho Chi Minh City. After acquiring 35.6 percent in Bibica, South Korea's Lotte took two key management positions, including that of chairman, and became a strategic partner.

Vietnamese firms are worried about the rising trend of takeovers by foreign partners, but economists shrug it off as inevitable, even welcoming it since foreign investors bring with them strong financial and technological capabilities.

Tran Hoang Ngan, vice rector of the Economic University of Ho Chi Minh City, said the takeover trend has recently strengthened because foreign investors could buy stakes at low prices due to the economic slowdown.

Sectors like food, construction materials, and home appliances face the prospect of being dominated by foreign firms.

Bien Hoa Confectionery Joint Stock Co., known as Bibica, is likely to be taken over by South Korea's Lotte. After acquiring 35.6 percent in Bibica, the Korean firm took two key management positions, including that of chairman, and became a strategic partner.

Truong Phu Chien, general director of Bibica, said Lotte has gone from being cooperative to forceful, even demanding a change in the company name to Lotte-Bibica, though it was shot down by local shareholders.

Late last year Indonesian cement firm Semen Gresik acquired a 70 percent stake in Thang Long Cement Company for US$157 million.

Thailand's Siam Cement Group paid $240 million to buy 85 percent of Prime Group, a Vietnamese tile manufacturer.
Under Vietnamese law, a foreign partner can hold no more than 49 percent in a joint venture. Any more and the firm loses its status as a joint venture and becomes foreign-owned.

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Pham Dinh Doan, vice chairman of the Vietnam Retailers Association, said takeovers are a common occurrence around the world.

Vietnamese firms, with their limited financial capacity, technology, and experience, could in fact do with more investment from foreign firms for their development, he said.

Without foreign investors' experience and funds, retailers would find it hard to expand their business, he said.

For instance, after opening a chain of convenience stores a retailer would suffer losses of VND400-500 billion ($19-23.8 million) over the first five years, something few Vietnamese firms with their small resources could afford, he said.

"We (Local retailers) should think that now is a good time to tie up with foreign firms.

"It will be more difficult... after 2015 since foreign investors will then be allowed to open wholly-foreign firms in Vietnam [under the country's WTO commitments].

"We cannot fight the integration trend. We should seek ways to adapt. Local retailers cannot strongly develop if they refuse to [embrace it]."

Echoing Doan, vice chairman of the Vietnam Construction Materials Association, Nguyen Quang Cung, said: "Amid the international economic integration, it is common for an investor buy or sell a firm. We cannot ban foreign firms from doing it."

The fact is that many Vietnamese firms have also bought over their foreign partners' stakes. Electronics firm Hanel bought a 70 percent stake in the five-star Daewoo Hotel in Hanoi from South Korea's Daewoo E&C last March.

Assessing the trend's impacts on Vietnam's economy, Kenneth M. Atkinson, managing partner at auditing and business consultancy firm Grant Thornton Vietnam, said: "The initial impact on the economy is a transfer of capital to Vietnam which does not reflect in the FDI figures but does impact the balance of payments in a favorable way.

"The second is that it often introduces foreign management and systems and new overseas markets for the investee company, leading to faster growth and profitability, all of which have a positive effect on the economy."

Welcomed

Atkinson said until the late 90's it had been very difficult to establish 100-percent foreign owned entity in Vietnam, and
many companies were guided into joint ventures though their preference would have been to be wholly foreign.

"In order to get approval for establishment and also to satisfy the local joint venture partner, feasibility studies were often very aggressive and showed early profits and returns for investors, which often did not materialize, or market conditions were misjudged, also leading to losses," he said.

This often led to disputes between partners and often partners had different objectives and aspirations for the projects or companies which resulted in the same result - a separation of interests, often with the foreign partner being the one with the financial means to buy out the local partner.

In today's environment foreign investors, often looking at entry into the domestic market and sometimes the export market, see buying shares in an existing Vietnamese entity as an easier market entry strategy than starting from scratch, which is a result of the development of the private sector since 2000, he said.

"Very often the medium-term objective is to acquire majority or full control over time. This reduces the upfront cost to the investor as they are acquiring a client base and often established marketing and distribution systems."

Many local firms welcome foreign investment.

Assessing the Siam deal, a Prime executive said it was a success. It had been a good business opportunity for Prime and the firm exploited it, he claimed.

Doan said Vietnamese firms, instead of closing the doors to foreign investors for fear of being taken over, should look to improving their competitiveness.

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