In order to increase attraction as well as speed up selling capital to foreign investors, Can Van Luc proposed, the government should drastically solve some key barriers such as urgently completing institutions, especially regulations on selling prices.
Financial and banking markets have just received good news: Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV) will issue over 603.3 million private shares to KEB Hana Bank partners, equivalent to 15 percent of BIDV’s chartered capital after investing. The total value of the transaction will be 20.295 trillion dong, meaning BIDV and KEB Hana Bank fix the selling price at 33,640 dong per share. Closing the trading session on July 22, the market price of BIDV’s shares was 35.75 trillion dong, higher than the selling price above. After this deal is completed, KEB Hana Bank will own 15 percent of BIDV’s charter capital.
Regarding capital use plan, BIDV expects to focus on restructuring credit portfolio, lending to businesses with healthy financial situation, operating effectively and safely; promote retail credit growth, small and medium sized enterprises (SMEs), Foreign Direct Invesment (FDI) enterprises who have growth potential and competitive advantages. Along with that, it will continue to invest in the interbank market, investing and trading valuable papers, investing in facilities and infrastructure, information technology and business networks.
Thus, after nine years of equitisation (Initial public offeringIPO in 2011) and after nearly two years of negotiation, BIDV has successfully closed the M&A deal with a record value in the banking industry. The success of the deal in this period according to the evaluation of experts will remove many bottlenecks for BIDV’s operation in particular, the banking system in general. Firstly, it will eliminate the situation of no credit growth due to touching the capital adequacy ratio (CAR).
According to the bank’s experts, after successfully selling shares to KEB Hana Bank, BIDV’s equity will increase sharply, which will help CAR to improve significantly, can increase to over 13 percent and complete Early Basel II standard compared with the set plan. This means BIDV will be able to loosen credit room, provide more capital for the economy, help it quickly regain its growth momentum and erase bad debts by 2020 as set out.
Selling capital to KEB Hana Bank not only eased the pressure to increase capital for commercial banks with state capital, according to the assessment of Viet Dragon Securities (VDSC) also helped improve the effective management capacity of BIDV. KEB Hana Bank is the leading retail bank in Korea and has a strong Fintech system to provide mobile financial services in line with BIDV’s development strategy in the retail segment. Moreover, the trend of FDI from South Korea flowing into Vietnam is plentiful as well as the number of Korean enterprises in Vietnam will increase as potential for income expansion of BIDV.
Not only the record value, but the interest of a leading major bank of Korea wanting to participate in Vietnamese banks have caught the attention of investors since the information was revealed. With spending of 20.295 trillion dong to buy 15 percent of BIDV shares, partner KEB Hana accepted to pay 33,640 dong per share, equivalent to the average price of BID shares in the market in the last six months.
According to Can Van Luca banking expert, this is a good price for both parties and demonstrates the determination and perseverance of negotiation, the two sides finally finalised the price. “This deal has created a buzz and a boost to M&A activities in the financial and banking sectors”, Luc stressed.
The record deal in the banking industry also marks BIDV’s restructuring process to be completed. This is also the second M&A deal that BIDV has done in the last four years. Previously, in 2015, BIDV became the first bank to open the second phase of restructuring with a rapid M&A deal when merging with Housing Bank Of Mekong Delta (MHB) within 55 days.
Another big bank is also revealing plans to sell more capital to foreign partners, Vo Viet HungHead of capital raise of Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank), said that the roadmap for selling 6.5 percent of shares had been approved by the bank and awaiting approval of the State Bank of Vietnam (SBV) as well as related ministries and branches. After the approval, it would help this bank to have good cash inflow, especially when Vietcombank’s stock price has been on a rapid rise recently.
Although it is not possible for an immediate release, according to a member of the National Monetary and Financial Policy Advisory Council, the successful deal between BIDV and KEB Hana Bank will be a catalyst for M&A activities. In the financial sector, banks are expected to have more prosperity. The four reasons he provides include:
Firstly, the business efficiency of domestic banks has improved significantly.
Secondly, banks themselves need to attract foreign investment to increase capital to meet Basel II standards which will be applied from 2020.
Thirdly, Vietnam’s economy and banking system are highly appreciated by foreign investors, which is proved by the continuous promotion of credit.
Last but not least, the government has announced that it will not issue licenses to establish new foreign-owned banks until the end of 2020 to focus on resolving weak domestic banks and actively connecting with the leading foreign investors.
“Accordingly, the M&A channel will be considered feasible in the medium term. Barriers and obstacles on institutional regulations and procedures in the near future will be gradually removed in the direction that the State will gradually reduce the ownership ratio in credit institutions, creating more room for houses. Foreign investment, processes and procedures for equitisation and divestment of state-owned enterprises have become increasingly perfect”, he said
However, to increase attraction as well as speed up selling capital to foreign investors, Can Van Luc proposed, the government should drastically solve some key barriers such as urgently completing institutions, especially regulations on selling prices. Next step is to accelerate the reform of synchronous and substantive administrative procedures at the levels of state, ministries, branches and localities; increase room for foreign investors in accordance with the roadmap of Decision 898 dated 8/8/2018 on the banking sector development strategy until 2025 and vision to 2030.
