South Korean investors solidify foothold in Vietnam through M&A

South Korean conglomerate SK Group has recently released plans to acquire a US$1 billion stake in Vietnam’s largest private conglomerate Vingroup as early as next month.

The investment decision was made after Vingroup’s shareholders approved a plan to raise at least VND25 trillion (US$1.08 billion) through a private placement to foreign investors. Vingroup plans to use VND10 trillion (US$432.34 million) of the proceeds to restructure its debts, VND6 trillion ($259.41 million) to invest in its auto subsidiary VinFast, technology firm VinTech and smartphone maker Vinsmart.

The expected deal follows SK Group’s acquisition of a 9.5 percent stake in Vietnam’s diversified business Masan Group for US$470 million last September.

According to SK Group, it is keen on growing its footprint in the Southeast Asian region and sees Vietnam, the region’s fastest-growing economy, as a strategic base.

“Vietnam is an important foundation for our Southeast Asian strategy. We believe the partnership model is crucial to succeed in this region,” Woncheol Park, representative director of SK Southeast Asia Investment said.

Another South Korean giant, Hanwha Asset Management, also acquired 84 million preferential shares in Vingroup for US$400 million last August. The sale came after Hanwha’s unsuccessful attempt to join the public debut of Vinhomes, the property arm of Vingroup, last May.

Lotte Group has also planned to expand investment in Vietnam through M&A to increase its shopping centers in Vietnam to 60 by 2020.

 

Third investment wave

Jiun Park, deputy director of the Global M&A Centre at the Korea Trade – Investment Promotion Agency (KOTRA), said that South Korean investors are becoming more active in Vietnam’s M&A market. There are immense opportunities for partnerships between South Korean and Vietnamese firms, especially as the former are seeking opportunities to expand in the region.

Park said many South Korean SMEs have enquired about the process of doing M&As in Vietnam, calling this ‘the third wave of investments from South Korea’, following the first wave conducted by conglomerates in labor-intensive industries and the second one by consumer goods companies.

A characteristic of the third wave is the strategic alliances between South Korean and Vietnamese companies, Park said, adding that the South Korean partner can provide modern technology, while the Vietnamese side can help with brand presence, market share, and product distribution in Vietnam.

Meanwhile, Kim Hyeong Soo, managing director of the Korea Venture Capital Association, said Vietnam’s M&A market is becoming increasingly more mature in light of the government’s efforts and the blooming market. Thus, Vietnam has caught the eyes of South Korean investors over the past few years, which has resulted in a significant rise in the number and value of M&A deals by South Korean buyers.

Echoing Soo, Jacob Won, founding partner at South Korea’s Locus Capital said that most large-scale South Korean companies continued showing strong interest in Vietnam because of the country’s overall economic growth potential and geographic proximity to South Korea. Vietnamese consumers also show certain favoritism to this nation and its products.

However, to realize the Korean investment inflow, Kim Han Yong, chairman of the Korea Chamber of Business in Vietnam, said the Vietnamese government should apply more business-friendly policies for foreign investors. He expected administrative procedures for investment projects in IT infrastructure to be further simplified while the law enforcement should be also improved to reduce headwinds for businesses.