News

December 2, 2002

Vietnam Needs To Focus On M&A To Draw Foreign Investment

By Catherine McKinley
of DOW JONES NEWSWIRES

HANOI (Dow Jones) - As part of its ongoing efforts to attract foreign investment, Vietnam must find ways to facilitate mergers and acquisitions, or M&A, observers say.

Since the country first opened up to foreign investment in 1989, it has focused on attracting foreign companies to new ventures by setting up investment zones and offering tax and other incentives.

But a global production glut and Vietnam's proximity to China - the world's favorite production center - is making it increasingly difficult for Hanoi to find investors for greenfield ventures.

Vietnam will find it even harder to pull in cash for these ventures when it lowers trade barriers in line with its international commitments and thereby exposes protected sectors, like automobiles and cement, which now offer substantial incentives to foreign companies.

So if Hanoi wants to continue to attract foreign investment, the observers say, it will have to switch gears and focus on cross-border M&A. This would not only attract capital, they say, but also bring in technology and expertise. And if foreign investors are allowed to buy stakes in state-owned enterprises, then Vietnam could offload companies it wants to restructure and reform.

But the idea is a hard one for Hanoi to take on board.

Cross-border M&A, which involves the purchase of all or part of a local company by a foreign one, suffers from an image problem in much of Southeast Asia, largely because in the late 1990s it was the favored form of bargain-basement shopping for multinationals hoping to raise their profile in crisis-hit Asia.

"M&A is not big in Asia generally," said Nick Freeman, a Ho Chi Minh City-based senior advisor for Mekong Capital Ltd.

Many Western companies now shun the business strategy they so recently saw as the best route to growth, a change of heart that has unsettled the decision makers in Hanoi. Also, a belief that mergers and acquisitions don't immediately add capital to a venture or create new jobs has made them unpopular, according to Warrick Cleine, a Ho Chi Minh City-based partner in KPMG.

M&A Has Its Advantages

Mergers and acquisitions offer specific advantages for Vietnam.

By allowing foreign investors to buy large stakes in state-owned companies, Hanoi could both offload unwanted assets and inject managerial expertise into ailing enterprises, said an investment consultant in Ho Chi Minh City.

And if the foreign investors are given enough latitude to guide businesses as they see fit, he said, companies that now are tied down by state control could prosper, attracting fresh capital and creating new jobs.

The government is trying to reform its lumbering state sector. Under a World Bank-sponsored program, it has promised to significantly reduce the number of state-owned companies over the next couple of years. But entrenched interests are making the process difficult.

According to Martin Rama, the World Bank's chief economist for Vietnam, the state sector reform is "moving too slowly" and is an area of concern.

Opportunities for M&A also exist in Vietnam's private and foreign-invested sectors.

In real estate for example, a large number of unfinished projects begun before the Asian financial crisis could be resurrected by foreign buyouts, said Don Lam a partner at Pricewaterhouse Coopers in Ho Chi Minh City.

If foreign M&A proves successful, members of Vietnam's new domestic private sector could be encouraged to buy out - or buy stakes in - existing enterprises, others add.

More liberal M&A rules would help too. Currently, foreign investors can buy a maximum of 20% of a listed company, with each individual investor allowed only 7%.

The cap - lower than the 30% foreign ownership limit for unlisted companies - not only discourages foreign interest in Vietnam's exchange but also prevents some otherwise eligible companies from listing their stock because they are 30% owned by a foreign investor. Vietnam's stock exchange was set up in 2000 with two listed companies and currently lists a total of 19.

"They should change the foreign ownership rule (for listed companies) to 30%, to bring it in line with unlisted companies," said John Shrimpton, director of Dragon Capital, which manages the Vietnam Enterprise Investment Ltd. fund, the largest foreign investor in Vietnam's stock market.

Even the 30% limit should go, he said.

"You can't perform an acquisition if you're limited to a 30% stake," Shrimpton noted.

Change Unlikely For Now

Despite the arguments in favor of cross-border M&A, Hanoi isn't likely to accept the idea any time soon, although "it is the subject of a lot of debate right now," said Peter Ryder, managing director of investment bank Indochina Capital.

The Vietnamese say the foreign ownership limits are needed.

"We must keep the 30% rule" that limits foreign equity purchases in Vietnamese companies, said Tran Tien Cuong, head of research on enterprise management at the Ministry Of Planning & Investment's Central Institute for Economic Management in Hanoi.

Cuong said the rule is designed to ensure that Vietnamese buyers, particularly workers at restructuring state enterprises, have first pick when shares in an enterprise go on sale.

"That's the law. We can't change the law," he said.

However, foreign enterprises can find ways around the law.

"Foreigners can only buy 30% (of a Vietnamese company's shares) when they are first sold, but we can't stop them buying more" on the open market, Cuong said.

In some sectors, said Cleine at KPMG, a Vietnamese company can be reclassified as foreign-invested. While some restrictions still apply under the Foreign Investment law, he said, the law provides investors with incentives.

Relatively liberal rules on the hiring of foreigners by local companies also offer overseas companies with a minority stake in a local venture a way to ensure management control, he added.
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"Quiet American" gets official praise in Vietnam

HANOI (Reuters) - "The Quiet American", a movie that was almost not released in the United States, is warmly welcomed by communist Vietnam, which praises it as an accurate portrayal of early American involvement in Indochina.

The Southeast Asian country has not been as happy about other Hollywood flicks, condemning the portrayal of the Vietnam War in Mel Gibson's "We Were Soldiers" and particularly the role played by Vietnamese actor Don Duong, who has been branded a traitor.

But the Phillip Noyce adaptation of Graham Greene's 1955 book that was partly shot in Vietnam and stars Michael Caine and Brendan Fraser has been given the green light.

"Senior leaders of the Culture and Information Ministry have watched the film and agreed for it to be shown widely in Vietnam," Nguyen Van Tinh, deputy director of the International Relations Department of the culture and information ministry was quoted as saying in Monday's Thanh Nien (Young People) newspaper.

Noyce, whose credits include "The Bone Collector", "Patriot Games" and "The Saint", is set to arrive in Vietnam on December 16 for the local premier of the movie, the newspaper said.

The film is set in the early 1950s and depicts a country wracked by war as a collapsing French colonial rule gives way to increasing U.S. involvement on what was seen as a front line against communism.

The first film fudged the ending to make it acceptable to American audiences, while the remake is more faithful to the book.

Greene, who died in 1991, had been closely watched by the U.S. Federal Bureau of Investigation who tagged him as anti-American for his meetings with people such as Cuba's Fidel Castro.

OSCAR-WORTHY

Caine's performance as jaded British war correspondent Fowler is deemed Oscar-worthy, while Fraser plays idealistic CIA agent Alden Pyle. They form a doomed love triangle with a Vietnamese girl, Phuong, played by local newcomer Hai Yen.

An expatriate Hanoi-based film maker said he was not surprised with the government decision. "It's sympathetic to Vietnam. It shows the (foreign) subversion that was going on."

The movie, made by Miramax, was held back from release after the September 11 attacks on the United States. The studio was concerned that audiences would be turned off by the scenes of exploding cars and the message about American meddling abroad.

Caine embarked on a crusade to push the movie out. It was released in a few large U.S. cities last week, in time for the Oscar race.

The movie would be subtitled in Vietnamese, a first for a foreign film as most use voice-overs. It is also the first major Hollywood film to be shot in Vietnam.

In 1997, authorities withdrew permission to make segments of the James Bond film "Tomorrow Never Dies" in Vietnam, deeming it anti-communist.
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