EVFTA to fan flames of European investor interest
EVFTA to fan flames of European investor interest
European investors are expected to stir mergers and acquisitions activities in the coming time as the landmark free trade agreement between the European Union and Vietnam nears ratification.
EVFTA to fan flames of European investor interest, illustration photo
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Chau Huy Quang, managing partner of Rajah & Tann LCT Lawyers, told VIR that there has recently been a drastic wave of European investor interest in various industries including manufacturing, consumer goods, renewable energy, and technology. With ongoing developments, especially the recent ratification of the EU-Vietnam Free Trade Agreement (EVFTA), it is expected that the investment and mergers and acquisitions (M&A) from European investors shall be significantly expanded. This trend reflects that European investors are on the lookout for M&A deals to scale up presence in Vietnam ahead of the historic deal moving into effect. Poland’s pharmaceutical maker Adamed Group has acquired the controlling portion of shares in Dat Vi Phu Pharmaceutical, Vietnam’s fastest-growing pharma-maker, marking it the largest direct Polish investment in Vietnam to date.
Similarly, Norwegian telecommunications company Telenor Group acquired the Cho Tot platform to tap into the growth potential of Vietnam’s digital services as mobile data coverage and affordable data connectivity spreads quickly through the country.
Stefano Pellegrino, board member of EuroCham’s Legal Sector Committee, said European investors are traditionally considered financially capable, socially and environmentally responsible, and with deep technological know-how. These are their strengths in the Vietnamese M&A market. “Notable sectors of interest range wide, from renewable energy, pharma, and logistics to oil and gas, food and beverage, and consumer goods, most of which will be positively affected by the EVFTA,” he added.
Data by the Foreign Investment Agency under the Ministry of Planning and Investment indicated a growing number of capital contribution and share purchases by European backers in the first four months of 2020. Specifically, investors from France have implemented 78 transactions worth $27 million, up 37 deals against last year. Meanwhile, financiers from the United Kingdom, the Netherlands, and Germany conducted 32, 15, and 27 transactions, worth some $38.5 million, $46 million, and $4.7 million, respectively.
According to Linda Liu, economist at Maybank Kim Eng, the EVFTA will open up opportunities for Vietnam to become a trading gateway for European businesses in the ASEAN. It will also help diversify Vietnam’s trade partners and bring in greater foreign investments for Vietnam.
To date, Vietnam and Singapore are the only two ASEAN countries to have FTAs with their two major trading partners outside the region – the EU and China – thereby securing preferential market access to three main export markets of the EU, China, and the ASEAN. This puts Vietnam in a favourable position in attracting foreign investment compared to regional peers.
The EVFTA will also support the liberalisation of the Vietnamese market through greater market access in the services sector, easing investment restrictions, and increased investment and intellectual property protection for European companies. “This market access and loosening of investment restrictions are a catalyst for M&A interest in Vietnam by European investors,” Liu stressed.
Quang of Rajah & Tann LCT Lawyers pointed out that the EVFTA is a significant milestone for promoting and protecting European investments in Vietnam. While Vietnam’s commitments under the World Trade Organization remain the primary framework governing the market opening for foreign investment in the service sector, the EVFTA will focus on providing even broader and deeper commitment. For instance, interest will grow with the gradual abolishment of economic needs tests for retail services. Moreover, raising the foreign ownership cap to 70 per cent in shipping transport services would attract new European logistics service providers while existing players may look to further explore investment opportunities.
According to Quang, there are also express provisions for the clean energy field which would generate greater interest from investors. Furthermore, the EVFTA would not only benefit European investors with business interests in Vietnam, but also have a positive effect on policymaking, benefiting all in the long run.
