Real estate businesses are saving themselves through M&A deals

"Sell yourself" to survive

Many experts have warned about the acquisition of many businesses through mergers and acquisitions (M&A) during the difficult period of the real estate market in the third quarter of 2022. Vietnamese businesses used to dominate the market, hold large land funds and maintain their own market share. However, in difficult times, the loss of liquidity and cash flow has forced many businesses to "sell themselves" to survive.

It is worth mentioning that at that time, projects sold at low prices became opportunities for foreign investors with strong financial resources to take over the market, thereby eliminating the inherent advantages of Vietnamese real estate businesses.

One of the major M&A deals is the deal in which Keppel Group and Keppel Vietnam Fund (KVF), collectively known as Keppel Consortium, signed binding agreements to acquire 49% of the shares of two adjacent residential projects in Thu Duc City. It is expected that the acquisition of shares of these two projects with development costs of more than VND10,000 billion will be completed this year.

Real estate businesses are being rescued through acquisitions and mergers, figure 1. — Many projects are "sold" through capital contributions so that businesses can save themselves.

This is the second joint investment between Keppel and KVF following the acquisition of three land plots in Hanoi in 2022. Joseph Low, Chairman of Keppel in Vietnam, also said that the capital purchase in the two projects is consistent with Keppel's business model, allowing the company to exploit third-party land funds for growth. Keppel also wants to increase its investment in Vietnam in the context of businesses having a strategy to diversify their investments and not focus on China to minimize risks.

Previously, Frasers Property Vietnam, a company under the Frasers Property Group ecosystem - a multinational corporation with extensive experience in owning, operating and developing diverse products and services in the real estate sector, also announced its cooperation with a corporation in Vietnam to develop industrial parks in the North with a total investment equivalent to 250 million USD. In this deal, FPV contributed 49% of the charter capital.

In addition to the acquisition and capital contribution deals with foreign-invested companies, Vietnamese real estate enterprises also continuously have investment and acquisition deals with each other through the purchase and sale of shares. Thanks to that, struggling enterprises can continue to maintain and complete unfinished projects in the context of difficult access to capital.

In the report of Bao Viet Securities Company (BSC), it is also assessed that real estate M&A activities may heat up in the period of 2023 - 2024 because the period of cheap money has ended. Real estate businesses are experiencing a period of liquidity shortage when capital mobilization sources are more or less facing obstacles.

Explaining the above statement, BSC said that it was due to the difficulty in sales due to negative market sentiment, products not meeting real demand, both businesses and home buyers depend on loans. Secondly, during the period when credit in the real estate sector is still strictly controlled while other capital channels such as bonds and stocks are not favorable. Finally, interest rates are high and the bond maturity point is concentrated in 2023 - 2024. With many challenges surrounding, real estate businesses will have to choose the merger and acquisition channel to solve the difficulties.

In addition, many experts believe that the fact that businesses have to sell part of their projects also comes from spreading out investments, exceeding financial capacity. Some businesses only pursue profits, so they do not ensure harmony between the interests of businesses and customers.

Difficulties not only in real estate

However, looking at the end of 2022 to the first months of 2023, the economic problems have affected all sectors, not just real estate. This is demonstrated by the fact that M&A deals have also appeared in many other sectors, when many businesses have to sell assets at low prices to foreign investors due to difficulties in production and lack of capital.

Explaining to the National Assembly Standing Committee on socio-economic issues recently, Minister of Planning and Investment Nguyen Chi Dung also pointed out that many large enterprises had to sell assets at only 50% of their real value and the buyers were foreign enterprises, due to difficult production and business situations and limited capital absorption capacity.

According to a survey of nearly 10,000 enterprises by the Private Economic Development Research Board, many enterprises are experiencing a particularly difficult situation. Up to 82.3% of enterprises participating in the survey plan to reduce their scale, temporarily suspend or cease operations in the remaining months of 2023.

Real estate businesses are being rescued through acquisitions and mergers, figure 2. — In addition to real estate, many businesses are also having to sell many types of assets to survive.

Among the enterprises still operating in 2023, 71.2% expect to reduce their workforce by more than 5%, 22.2% expect to reduce by more than 50%. 80.7% of enterprises expect to reduce revenue by more than 5%, the rate of revenue reduction by more than 50% is 29.4%. In particular, business confidence in the macro economy and industry economy in this context is particularly low, with 81.4% of enterprises giving negative and very negative assessments.

The survey shows that the difficulties that businesses are facing are the order situation (59.2%); access to loans (51.1%); implementation of administrative procedures and legal regulations (45.3%) and the fear of criminalizing economic transactions (31.1%). It is worth noting that despite the difficulties, the support from local authorities has not yet met the requirements. Up to 84% of businesses rate the effectiveness of local authorities' management and support as ineffective.

According to the Foreign Investment Agency, in the first four months of this year, the country had 1,044 transactions of capital contribution to buy shares of domestic enterprises by foreign investors with a total capital contribution value of more than 3.1 billion USD, an increase of more than 70% compared to the same period last year. There were 77,001 enterprises withdrawing from the market, 25.1% more than the same period last year with an average of more than 600 enterprises leaving the market each day.

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