Strong desire for M&A deals in real estate

15:00 | 01/08/2019
Foreign investment flows into Vietnam’s property sector through merger and acquisition transactions have been reported to be on a strong momentum, with outstanding deals made in 2018 and the first half of 2019. Bich Ngoc reports.
strong desire for ma deals in real estate

The latest M&A deal was made by Keppel Land from Singapore, which entered into a conditional share purchase agreement with domestic developer Phu Long Real Estate Corporation to acquire 60 per cent interest in three land parcels, spanning 6.2 hectares in Nha Be district of Ho Chi Minh City for a total of VND1.304 billion ($56.7 million).

According to Keppel Land, partners plan to develop a total of 2,400 premium apartments with ancillary shophouses which will offer more than 14,600 square metres of commercial space to the market. Linson Lim, president of Keppel Land in Vietnam, said that this ­acquisition will add a remarkable number of houses to Keppel Land’s pipeline of about 20,000 homes and quality commercial portfolio in ­Vietnam.

Meanwhile, CapitaLand, another giant real estate developer from ­Singapore, has also just announced completion of a mammoth transaction with Temasek Holdings and acquired the issued shares of Ascendas-Singbridge, making it one of Asia’s largest diversified real estate groups with over S$123 billion ($90.8 billion) of assets under management.

With the completion of the ­transaction with Ascendas-Singbridge, CapitaLand adds ­OneHub Saigon to its portfolio in Vietnam, which includes a 12-hectare business park development located at the entrance of Saigon Hi-Tech Park, fronting Hanoi Highway and lying opposite to Metro Station 12.

According to Lee Chee Koon, CEO of CapitaLand, as an enlarged group, the company possesses fully integrated capabilities in four core markets – Singapore, China, India, and Vietnam – while building on a greater scale in developed markets.

“With more asset classes in these markets, we will go further to achieve transformational growth. Diversifying our portfolio to new economic sectors such as business parks, logistics, and industrial properties will give us an added competitive edge via a bigger global network of touchpoints. With greater access to the best talents, capital partners, markets, and asset classes, we are confident of building CapitaLand into a winning global company,” Koon said.

South Korean investors also made a big deal in the first half of this year, with SK Group spending nearly $1 billion on a 6.15 per cent stake in Vingroup, Vietnam’s biggest private conglomerate. With this deal, SK Group has become a major shareholder under Vietnamese law, a status conferred on a shareholder who directly or indirectly owns at least 5 per cent of the voting shares.

According to the agreement, SK Group purchased 154.3 million newly issued shares and 5.14 ­million VIC shares owned by VinCommerce, Vingroup’s retail arm. Through this transaction, Vingroup has almost completed its plan to raise at least VND25 trillion ($1.1 billion) through private placements to foreign investors, a move approved by shareholders in March this year.

EXPANDING TO INDUSTRIAL PROPERTY

In November 2018, Mapletree Logistics Trust announced their acquisition of a Unilever warehouse in Vietnam-Singapore Industrial Park I for approximately $31 million. The warehouse will be leased back to Unilever for 10 years.

In December 2019, Amata Corporation, a Thai-based industrial developer, commenced construction of Song Khoai Industrial Park (IP), part of the Amata City Halong mega project in the southeastern province of Quang Ninh. This is a strategic step for Amata to expand to the north of Vietnam, following Amata City Bien Hoa IP and Amata City Long Thanh IP, both located in the south. Covering an area of 5,789ha, the new project is planned as an integrated industrial city leading towards the construction of a smart city, with a total estimated investment capital of over $1.6 billion.

In construction material, South Korea’s Hyundai Elevator acquired 25 million shares from Hoa Binh Construction Group. The $25 million proceedings from the issuance will be used to supplement working capital for construction activities, procure machinery and equipment for business activities, or expand business activities in foreign markets.

According to Peter Ryder, CEO of Indochina Capital, Vietnam’s geographical proximity to international developers has aroused the interest of financiers in Singapore, Hong Kong, China, Indonesia, Malaysia, and especially Japan. “At the same time, I have seen increasing interest from the Middle East in investing in the Vietnamese real estate market,” Ryder said.

“Sector-wise, the hospitality, commercial, and residential sectors are now dominated by local developers. They have the advantage of freeholding as well as having easier access to the land bank, while foreign businesses can only secure a 50-year tenure,” Ryder added.

GLOBAL APPEAL

According to Matthew Powell, head of the Hanoi and Danang offices at Savills Vietnam, apart from hospitality and housing, industrial real estate is shaping up as one of the most active sectors for M&A activity in 2019, fuelled by growing amounts of foreign direct investment (FDI) poured into manufacturing, improved infrastructure, and a competitive outlook compared to other countries in the region.

“There is massive interest from foreign investors, mainly from the region – Japan, South Korea, China, Hong Kong, and Singapore – but US, European, and global funds are also investigating heavily. All commercial and residential sectors are being targeted,” said Powell.

Most of the investor interest, according to Powell, comes from funds that were not looking to develop, but rather to acquire operating cash-generating assets – office properties, retail malls, four- and five-star hotels.

“Buyer demand remains high, yet there have been only a few investment transactions in 2018 and 2019 due to the shortage of available properties for sale,” Powell said.

However, Powell also commented that limited supply is not the only obstacle for property investment in Vietnam: the market poses a number of challenges for investors, both foreign and local. “Land is scarce, especially in prime urban locations, which makes property development difficult. The processes and procedures from land clearance and compensation to licensing and bidding can be lengthy and complicated, especially for foreign investors. In fact, there are many foreign developers eager to enter the market, however, they are unable to secure land in attractive locations,” he said.

Looking to the future, Powell expects more deals in 2019 on the asset, portfolio, and corporate investment levels.

“The large number of initial public offering (IPO) valuation projects on which Savills Vietnam is working demonstrates investors’ interest in the property market. With the promising prospects of many real estate sectors in Vietnam, it is expected that investment flows will be directed to a wider variety of sectors, including opportunity assets like industrial and logistics properties,” he forecast.

Foreign investors registered to pour $1.73 billion into Vietnam this June, bringing the total amount of FDI committed to the country in the first six months to $18.47 billion, down 9.2 per cent on-year. On a more positive note, overseas players spent $8.12 billion acquiring shares in Vietnamese companies in the first half of the year, a yearly increase of 98.1 per cent and accounting for 44 per cent of all registered capital.

In the first half of this year, among the 19 fields and sectors receiving capital from foreign investors, manufacturing and processing led with $13.15 billion, accounting for 71 per cent of the nation’s total FDI. Real estate came next at $1.32 billion (7.2 per cent), followed by retail and wholesale at $1.05 billion (6 per cent).

Based on MasterCMS Ultimate Edition Ver 2.8 2018