Mergers and Acquisitions to Help Enhance Effects of Investment Capital

The Vietnam Chamber of Commerce and Industry (VCCI) has joined hands with several concerned ministries and other state bodies to open a meeting on "Enterprise Mergers and Acquisitions" on December 10, 2004, aiming to bring useful information about enterprise mergers and acquisitions, to define interests and expenditures for merger and acquisition activities, and to assist enterprises to outline long-term orientations and strategies for their future stable development and successful use of their investment capital.

Enterprise merges and acquisitions are quite new to a lot of enterprises in Vietnam. Local firms lack information about these activities and they have not been listed on the stock exchange market.

According to statistics released by the government's General Statistics Office, the Incremental Capital-Output Ratio (ICOR) index was 3.3 in 1995, 4.9 in 2000 and 5.0 in 2003. This means that an increase of one per cent in gross domestic production (GDP) in 2003 needs an amount of investment capital equal to five per cent of GDP. Mr. Doan Duy Khuong, Vice Chairman of VCCI, affirmed that the improved efficiency of capital use via renovation, restructure or merger and acquisition is crucial in Vietnam at the moment.

Mr. Tran Tien Cuong, Head of the Enterprise Reform and Development Research Committee of the Central Economic Management and Research Institute under the Ministry of Planning and Investment, said prevailing regulations on mergers and acquisitions are limited. In the coming time, the Ministry of Planning and Investment will probably propose the government amends the regulation stipulating that firms with registered capital of more than VND5 billion (US$318,400) are not merged or acquired.

Vietnam now has 25 companies listed on the local stock exchange. The State Securities Commission, the country’s stock market regulator, recently licensed two more enterprises to list their shares on the bourse this year.

According to the survey compiled by the State Securities Commission (SSC), the phenomenon of acquisitions and mergers for domination are not present in Vietnam. As answering a Vietnam Technological and Commercial Joint Stock Bank (Techcombank) representative's question about how foreign investors can acquire no more than 30 per cent of equities of a listed firm, Mr. Nguyen Son from the Market Development Department under the SSC said Vietnam’s government has not allowed establishment of foreign firms in the holding form. The regulation that foreign investors are not allowed to acquire any more than 30 per cent of enterprise’s equities is an indirect way of defining what kinds of enterprises foreign investors are allowed to take part in.

However, the SSC is proposing that the Government raises the cap. According to Mr. Son, firms operating in fields related to national defence and security should be wholly kept by the State while those in sensitive fields such as banking, publication, etc should be partially controlled by the State. Other fields related to production and service like construction and tourism should be not limited at the 30 per cent level. In fact, apart from the 30 per cent limit, the Government also has other preventive tools such as taxes and foreign exchange management.

The current opening legal framework has facilitated corporate transferring, acquiring, selling and merging activities. These propitious conditions to develop the merger and acquisition market include expansion of the local stock market; and rights to purchase, sell and transfer enterprises under the Governmental Decree 103. Further, the rights of enterprises have also been widened. "With more business freedom, this market will develop well in the future," Mr. Cuong commented.

• Nguyen Thoa