Military-run telecom giant Viettel said it plans to acquire EVN Telecom, a subsidiary of state utility Electricity of Vietnam, in what will be Vietnam's first M&A deal in the local mobile sector.
The acquisition, if approved, will be completed in November, news website VnExpress reported Tuesday, citing Viettel officials. The company will first have to review all the debts that EVN Telecom currently owes to its partners.
"This is a complicated deal so we want to take careful steps," said an unidentified official.
According to VnExpress, Electricity of Vietnam announced plans to sell its stake in EVN Telecom at the beginning of the year, when the offshoot faced growing debts and losses.
FPT Corp., Vietnam's biggest publicly traded telecom and software company, planned to buy a 49 percent stake in the troubled phone operator, but then withdrew the investment plan in April.
Prime Minister Nguyen Tan Dung has recently called on the Ministry of Industry and Trade and the Ministry of Finance to look into the investments of the state power company outside its main business cope, including the investment in EVN Telecom.
The government has also announced a list of five telecom firms that it will continue to hold a dominant stake in. EVN Telecom did not make the cut.
Hanoi Telecom, which has partnered with EVN Telecom to develop facilities using high-speed 3G technology, also expressed interest in acquiring the struggling company.
"We have learnt that EVN Telecom will have to be sold to or merged with another company. If this happens, we would like to be allowed to purchase its 3G network infrastructure," the company said in a statement sent to the government.
Viettel officials told VnExpress that they objected to the proposition. "Hanoi Telecom wants to buy the 3G network, which is the best part [of the company], saying they are already in a partnership. Other parts, including debts and human resources, will be passed over to other companies. Viettel will not accept this," an official said.
Analysts from Business Monitor International said in a report on Tuesday they believe Viettel is the front-runner given that it has the financial capacity to undertake the deal thanks to its significant market share in Vietnam's telecom industry.
"The firm also has an expanding presence in emerging and frontier markets such as Mozambique and Haiti, which could offset the strong competition in the Vietnamese market, thereby supporting long-term growth," the report said.
But the report also warned that allowing Viettel to merge with EVN Telecom could dent foreign investor confidence as the former, together with MobiFone and VinaPhone, already accounted for 94 percent of the local mobile market share at the end of 2010.
"Consequently, Hanoi Telecom could still be a strong contender"¦ given that a joint venture between Hanoi Telecom and EVN Telecom has a 3G license in Vietnam, which makes a merger between the two a natural move," they said. "This development would also meet the government's goal of consolidation in the telecoms industry."
Hanoi Telecom and Hong Kong-based Hutchison Telecom are operating Vietnamobile, the fourth largest mobile network in Vietnam with 3.5 million subscribers last year, according to Business Monitor International.
Securing EVN Telecom's assets and a subscriber base of 1.6 million would help Vietnamobile consolidate its position, the company said.