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Thai tycoons deals in Vietnam pose risks to domestic market

Date: 1/19/2018 9:51:08 AM

The lure of a rising middle class and consumer spending has resulted in a massive inflow of foreign investment from Thailand.

Thai tycoons have been seeking business opportunities in Vietnam’s beverage, retail and construction materials markets over the past five years in a bid to take advantage of the country’s 95 million population and expanding middle class, according to experts.

Local consumers consider the products more affordable than imports from Japan and South Korea, and better quality than cheaper items from China.

Among the leading investors from Thailand is the beer-to-property empire of Thai magnate Charoen Sirivadhanabhakd.

Most recently, the tycoon’s Thai Beverage bought a majority stake worth $4.84 billion in Vietnam’s top brewer, Sabeco SAB.HM.

Thai Bev’s local unit, Vietnam Beverage Co Ltd, won the 54 percent Sabeco stake on offer at an auction last month after global brewing giants stayed away.

The deal is a big step for Charoen, the son of a Bangkok street vendor, who is emerging as one of Asia’s biggest power players in brewing.

The Sabeco deal is expected to help Thai Bev tap into Vietnam’s beer market, worth about $6.48 billion last year, where a young population and booming economy counter the drawbacks of political resistance, a high minimum bid price and a cap on foreign ownership.

In Vietnam, Charoen already owns nearly 20 percent in the country’s biggest-listed firm Vinamilk VNM.HM through Fraser & Neave. He has also acquired the Metro supermarket chain as well as other consumer goods and convenience stores in the country.

Together with Charoen, many other tycoons from Thailand have bought stakes in Vietnamese businesses.

In April 2016, Central Group sealed a deal to acquire Big C Vietnam, one of the biggest supermarket chains in the country, which pulls in more than 50 million customers annually.

France’s Casino Group sold its entire stake in Big C to Central for 1 billion euros ($1.14 billion), according to the French retailer.

In 2015, Central Group also acquired a 49 percent stake in major Vietnamese electronics retailer Nguyen Kim, which has a network of 21 stores across the country and posted sales of $400 million in 2014.

The Thai conglomerate has also purchased online fashion marketplace Zalora’s operations in Vietnam in a move to combine e-commerce with its existing department stores, supermarket chains and shopping malls around the country.

This investment interest stems from the Vietnam’s economic expansion, rising middle class and market potential, experts said.

The so-called "middle and affluent class" earning $714 a month or more in Vietnam will double to 33 million people, about a third of the population, by 2020, the Nikkei Asian Review reported, citing Boston Consulting Group.

Economist Vu Vinh Phu said the local retail market holds a lot of potential for Thai investors. While Thailand’s modern retail system is saturated, accounting for 65 percent of the market, the proportion is just 20 percent in Vietnam, he said.

The deals have helped Thailand become one of the biggest foreign players in Vietnam’s mergers and acquisitions (M&A) market. Vietnam’s M&A market attracted a 10-year record in foreign investment by reaching $5.2 billion in 2015, and rose again to over $ 5.8 billion in 2016, according to the latest data from the Vietnam M&A Forum.

However, expanding Thai investment also poses risks to Vietnam’s economy, economists said.

Economist Le Dang Doanh said that Thai retailers obviously give priority to suppliers from their own country, and can overcharge commissions and fees to Vietnamese suppliers, pulling local products off the shelves.

“This is a risk to our economy, and we should be more cautious,” he said.

Echoing Doanh, economist Phu said Thai investors could push their own products by expanding their businesses in a closed system from production to distribution in Vietnam.

“Most families in Hanoi and Ho Chi Minh City use Thai products ranging from home appliances to electronic products,” he said. “It is a threat to Vietnam, as the domestic market may be lost to Thai retailers.”

(Source:VOV)

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