Vietnam banking: Mizuho moves in

by lexie Fri Sep 30, 2011 12:42 pm

September 30, 2011

Vietnam banking: Mizuho moves in

With soaring inflation, a weak currency and rising bad debts, Vietnam’s banking sector is in a precarious position.

But that’s not deterred Japan’s Mizuho Financial Group (8411:TYO) from snapping up a 15 per cent stake in Vietcombank, one of the country’s biggest state-owned banks, for $567m in what is possibly Vietnam’s largest ever inbound acquisition.

The deal, unveiled on Friday in Hanoi, provides a much-needed vote of confidence in Vietnam at a time when many investors are worried about macro-economic instability. It also highlights the strong interest from Japanese companies in Vietnam, at a time when the yen is very strong and domestic growth is stagnating.

From Panasonic (electronics) to Mazda (cars) and Shiseido (cosmetics) to Sapporo (beer), a wide range of Japanese companies have announced plans this year to switch production to Vietnam or increase investments in this fast-growing country of nearly 90m people.

Yasuhiro Sato, chief executive of Mizuho, said in a press release that the acquisition “is more than simply an alliance between our two banks, and I am certain that it will make a significant contribution to the further development of the relationship between our countries.”

Under the terms of the deal, Mizuho will put one director on Vietcombank’s board and the two banks are expected to work together on corporate, trade and project finance and investment banking.

The sale of a strategic stake in Vietcombank has been a long time in the making. Credit Suisse was first engaged to work on the deal in early 2007 but foreign investors were initially put off by the government’s high valuation, at a time when the Vietnamese stock market was surging.

The subsequent stock market collapse has forced the government to accept more down-to-earth valuations if it wants to bring in foreign investors.

Given the uncertainty surrounding bad debts in the banking sector, there was a surprisingly high level of interest in Vietcombank, according to people familiar with the situation, with France’s BNP Paribas among those that were looking at it initially.

The completion of the sale is a boon for Credit Suisse, which has worked hard to win government business in Vietnam but suffered a setback last year when Vinashin, a heavily indebted state-owned shipbuilder, defaulted on a $600m syndicated loan that had been arranged by the Swiss bank.

Once the Mizuho acquisition is completed by the first quarter of next year, the government will still retain a stake of around 75 percent in Vietcombank, with nearly 10 percent held by other investors.

That supports the view that the government continues to employ a “belt and braces” approach to the economy, controlling regulation while also retaining large majority stakes in all the key companies.

Analysts say that foreign strategic investors can up the game at state-owned enterprises, many of which suffer from a lack of focus and wasteful spending policies, but the influence of minority shareholders is clearly limited.

If the government is serious about making the economy more competitive, and tackling the root cause of macro-economic instability, it will need to move further and faster on the sell-off of state assets.

But, as the Vietcombank deal shows, Vietnam’s Communist leaders do not like to be rushed. (Financial Times)

http://www.vietfinancenews.com/2011/09/vietnam-banking-mizuho-moves-in.html#more