What Vietinbank seeks when selling stakes to Japanese bank?

Jan 16th at 13:19

16-01-2013 13:19:14+07:00

Commenting about the deal of Vietinbank, one of the Vietnamese biggest commercial bank, sells stakes to The Bank of Tokyo - Mitsubishi UFJ (BTMU), the Vietnamese bank has obtained big gains.

The benefits for the bank

The Vietnamese partner proves to be reticent about the huge deal, though its President--Pham Huy Hung, admitted that the presence of BTMU in Vietinbank would help the bank strengthen its financial capability. More importantly, with the multi-sided technical and business cooperation, Vietinbank would be able to take full advantage of the important resources to improve its corporate governance skill.

Banking experts say the deal would bring some benefits to Vietinbank.

Firstly, Vietinbank can sell its stakes at good price which is tens of percent higher than the current market price of the shares. Of course, this proves to be a commonly seen thing in the bank merger and acquisition deals, where the prices were set at 50-100 percent higher than the market prices. This has been explained by the provisions of the deals which the two signs don’t make public due to the confidential principle.

It’s obvious that Vietinbank not only wants to seek a strategic partner, but it also wants a partner who accepts to pay “reasonable price.” Vietinbank is the bank in which the state holds the controlling stakes. Besides, there are also other well known shareholders, including IFC. The State and other shareholders would not let the bank to be sold cheaply.

Analysts have commented that a big sum of $750 million to be collected by Vietinbank from the deal is really a success, especially in the current circumstances, when the foreign investment capital flow into Vietnam has been slowing down.

Vietinbank once intended to sell stakes to Nova Scotia from Canada, but the deal was canceled in 2011. The reason was that the foreign partner wanted all the capital surplus and dividends of 2011, which was then not accepted by Vietinbank.

The decision of Vietinbank of “saying goodbye” to Nova Scotia was praised as a wise move. Vietinbank wants to look for a partner who can give support in many fields from corporate governance skill to banking technology, rather than a partner who is just a financial partner and only cares about profit.

Though the articles of the contract have been kept confidential, experts believe that Vietinbank has found a partner who can help it not only make more money, but also improve its stature.

Right after the deal was made public, Standard & Poors, an international credit rating firm, raised Vietinbank’s long term credit rating from B+ to BB- with “stable” prospect. S&P believes that the stand-alone credit profile SACP of Vietinbank would see considerable improvement with the support of BTMU.

The benefits for Vietnam

According to Dr. Le Tham Duong from the HCM City Banking University, once a foreign investor decides to contribute capital to a Vietnamese bank, this means that it believes the bank as the business unit and Vietnam as the investment environment.

“$750 million for a capital contribution deal. This means that Vietnam remains an attractive destination for foreign capital in South East Asia,” Duong commented.

The admission of BTMU to Vietinbank will create a powerful force of shareholders, which includes the State Bank, IFC and BTMU. Besides, it will also give Vietinbank the advantage in developing brand and the opportunity to expand its network in the region and in the world.