Real estate M&A is bustling, but investors are not in a hurry to close the deal

The real estate market is in a difficult situation when credit is tight, corporate bonds are in trouble, while the pressure of debt repayment is high, which is a condition to promote mergers and acquisitions (M&A) projects.

Therefore, from the end of 2022, it has been assumed that the wave of M&A will be busier this year, when the capital needs of businesses become urgent. In fact, in the first months of 2023, there were quietly successful and announced deals.

Some M&A deals

The deal Nam Long Investment Joint Stock Company has completed the procedure of transferring 25% of charter capital of Paragon Dai Phuoc Co., Ltd – the enterprise developing Nam Long Dai Phuoc urban area with a scale of more than 45ha in Dong Nai.

After completing the transfer, Nam Long accounted for 75% of Paragon Dai Phuoc’s capital, Thai Binh Investment Joint Stock Company accounted for 21.6% and Tan Hiep Investment Company Limited accounted for 3.4%.

In the last days of February, Phat Dat Real Estate Development Joint Stock Company approved the decision to buy another 29.7 million Bac Cuong Investment Joint Stock Company, with a total estimated value of about 297 billion VND. This is the owner of project 223-225 Tran Phu, Phuoc Ninh ward, Hai Chau district, Da Nang city. After completing the deal, Phat Dat owns 49.5 million shares, accounting for 99% of the charter capital of Bac Cuong Investment Joint Stock Company.

Not only domestic enterprises, foreign enterprises have also been participating in the market.

For example, recently, Reuters revealed that Singapore real estate group CapitaLand Group is negotiating a deal worth about $1.5 billion with Vinhomes. CapitaLand Group is said to be considering buying a part of Vinhomes’ Ocean Park 3 project in Hanoi or another project north of Hai Phong.

Currently, the two groups have not confirmed the information and have no further information about the deal. However, if successful, this will be the largest real estate M&A deal in Southeast Asia in recent years.

M&A tends to increase

According to Mr. Nguyen Anh Tuan, Deputy Director of the Foreign Investment Department (Ministry of Planning and Investment), foreign investors are still interested in investing in Vietnam, including real estate investment. Vietnam has many advantages such as rapid urbanization rate, growing middle class and upper class. Accordingly, the real estate market, especially new types such as smart real estate and resort real estate, still has room for development.

According to Mr. Tuan, mergers and acquisitions in the real estate sector still tend to increase. Before the Covid-19 epidemic, the proportion of M&A was only 25-30% of FDI in real estate, now this proportion accounts for 30-40%.

According to Mr. Tuan, although the proportion of M&A increased, the value of each transaction has not been recovered. Specifically, before, on average, each M&A transaction was about 70-80 million USD per deal, now the value of each transaction is only 40-50 million USD.

“From here you can see two problems. The positive side is that foreign investors are still interested in the real estate market. However, the proportion of M&A tends to increase, reflecting an effective combination between FDI enterprises and domestic enterprises, or is it a sign that the real estate market is at risk of being dominated by investors. foreign private?” Mr. Tuan asked the question.

Ms. Dung Duong, Managing Director of CBRE Vietnam, said that in the first three months of 2023, CBRE welcomed more foreign investors to explore the Vietnamese market than in previous years, and even compared with the years before the epidemic took place. Up to 50% of investors come are completely new names in the market. Previously, there were investors from Hong Kong, Singapore, now there are also South Africa, Dubai, Arabia, …

However, the world economic situation is unstable. Despite going through a difficult period, there are still advantages compared to other markets. However, of the total capital that we have attracted, only 10% comes from foreign enterprises, and 73% comes from bank capital.

“While the interest of foreign investors is great but still cannot raise capital, why?”, Ms. Dung asked and said that investors really want to enter the market, but not businesses. Every Vietnamese is interested and ready to welcome this investment.

Barriers

One of the reasons why foreign investors and domestic investors have not been able to meet each other is due to barriers in mobilized capital or borrowed capital.

Most foreign investors want to step in, but the interest rates they offer are very high, from 18-20%, Vietnamese businesses will certainly not accept this interest rate. There are businesses that accept, only the highest level they offer is only 13-15%.

The second reason, according to Ms. Dung, is that now businesses are facing many difficulties and want to raise capital, but those projects have been taken away as collateral, foreign investors do not accept this. In addition, there are many other reasons such as domestic enterprises are not ready to be transparent about cash flow, about how to repay loans to convince foreign investors.

In addition to the $ 1.5 billion deal, which is currently rumored, the market currently has no outstanding deals. There are a few deals going on but those are very small deals.

Dr. Nguyen Cong Ai, Deputy General Director of KPMG Vietnam, said that many businesses went to the Vietnamese market to look for opportunities, but the transaction could not be closed.

Many Vietnamese businesses have spent a lot of money to make projects or buy projects at very high prices, so they don’t want to sell their projects at cheap prices. Meanwhile, foreign businesses have many options, so they offer very low prices.

“We have closed a few orders in Hanoi and Ho Chi Minh City, but they are very small,” said Mr. Ai.

According to Mr. Ai, in the remaining months of the year, the real estate merger and acquisition market still has many problems. We can only hope that in the fourth quarter or in 2024, the M&A deals can be closed.

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