The impact of the novel coronavirus (COVID-19) pandemic poses a risk of foreign investors looking to take advantage of the economic downturn to acquire vulnerable local enterprises.

Downturn caused by COVID-19 could lead to local firms being taken over 

Recent years has seen a trend emerge of foreign investors preferring to acquire stakes in local firms as opposed to spending time implementing procedures to establish success through newly-registered FDI capital. 

The first four months of the year has seen mergers and acquisitions (M&A) deals in the form of capital contribution and the purchase of shares tending to increase sharply, especially in the context of local enterprises being short on cash flow, and therefore in a weakened position due to the pandemic. 

According to the Ministry of Planning and Investment, the number of freshly-established FDI projects has decreased by approximately 10% against the same period from last year, while foreign financiers increased the pace of their acquisition of shares and capital contributions. 

As of April 20, foreign enterprises have conducted 3,210 deals relating to capital contribution and the purchase of shares, an annual rise of 33% and a 3.3-fold increase compared to the number of newly registered FDI capital. 

At present, Japan tops the list in terms of acquiring stakes, whilst simultaneously contributing capital of US$743 million, followed by the Republic of Korea with US$356 million, Singapore with US$333 million, and China with US$230 million. Most notably, local businesses based in Ho Chi Minh City have been the source of over half of M&A deals.  

Currently, the processing and manufacturing sector has proved enticing for foreign investors, with 822 deals being done with a value of over US$1 billion. Elsewhere, more than 1,000 deals have taken place in terms of wholesale and retail, along with automobile and motorbike repairs with a value of over US$500 million. 

Minister of Planning and Investment Nguyen Chi Dung stated that disruptions caused in supply chains will continue to exert a great impact on local businesses, noting that M&A deals will become a more regular occurrence in the short term, thus posing a threat of local companies being acquired at cheap prices. 

In an effort to deal with the situation, Chairman of the Vietnam Chamber of Industry and Commerce Vu Tien Loc has proposed that the Prime Minister move to enforce a temporary suspension on M&A deals during the pandemic as a means of protecting domestic businesses.

Director of Foreign Investment Agency under the Ministry of Planning and Investment Do Nhat Hoang stated that the agency first warned about the situation two months previously, and in doing so it proposed solutions for protecting local businesses. 

Hoang outlined that the acquisition of key businesses should be limited while the purchase of stakes and capital contribution in local firms should take place naturally.

A similar situation is occurring globally with many countries also concerned that foreign investors are poised to take advantage of opportunities in terms of plunging stock prices and unstable markets presenting an opportunity to acquire major businesses at low prices.