Experts warn that foreign investors' rising stake in the local stock market may lead to surprise takeovers at Vietnamese firms.
Last March, Nawaplastic Industries (Saraburi) a subsidiary of Thailand's leading plastic product manufacturer Nawaplastic "” announced that it had become a major shareholder at both of Vietnam's largest pipe producers.
According to data published by Vietnam's stock exchanges, Nawaplastic Industries held 22.66 percent of outstanding shares in Hanoi-based Tien Phong Plastic JSC (NTP) as of March 15.
One week earlier, the Thai company also announced that it owned a 16.7 percent share of Binh Minh Plastic Joint Stock Co (BMP). The company ultimately plans to increase its holdings in both companies to 49 percent, the largest allowable foreign stake in a domestic firm.
Nawaplastic Industries has not always been forthcoming about its investment strategy. The Ho Chi Minh Stock Exchange said the company bought 3,200 BMP shares between March 19 and March 22 but did not make any announcements prior to trading "” even though as a major shareholder, it was required to do so.
Vietnam's plastic pipe market is dominated by Tien Phong and Binh Minh.
Analysts said the increased stock holdings showed that Nawaplastic Industries, a supplier of materials for the two Vietnamese companies, wants to gain a foothold in the domestic market. Controlling the market through these two firms will be easier and cheaper than setting up its own business in Vietnam, they said.
Analysts said both NTP and BMP stocks were quite cheap at the beginning of the year, hovering around VND30,000. They have surged to around VND47,000.
Phan Dung Khanh, head of analysis at Kim Eng Securities, said many foreign companies began buying Vietnamese stocks silently in 2010, when prices fell to a low level. They only made these moves public after they had secured enough shares to join the management of the local company, he said.
Because the practice is legal, Khanh said local companies should take steps to protect themselves, noting that one way to do so is to seek a reliable partner as a major shareholder to avoid being infiltrated by unwanted investors or rivals.
In March, Vietnamese news outlets reported that Bien Hoa Confectionery Joint Stock Co, also known as Bibica, was likely to be taken over by South Korea's Lotte. After purchasing 4.6 million shares of Bibica, the Korean firm took two key positions in the management board, including that of the chairman, and became a strategic partner.
Truong Phu Chien, general director of Bibica, told VnExpress that Lotte has gone from being cooperative to forceful. They even insisted on changing the company name to Lotte-Bibica, though the plan was prevented by local shareholders, Chien said.
Professor Le Dat Chi of the Ho Chi Minh City Economics University said it would not be good for the economy in the long run if foreign investors try to use shareholdings to manipulate the market or exploit natural resources.
Companies that have shares spread among too many investors run the risk of being taken over by foreign firms, he said.
If the trend continues, many Vietnamese brands will disappear and the market will become a playground for foreign companies, Chi added.