SK Group is building a beachhead in the fast-growing Vietnamese market by forging alliances and paying high multiples for minority stakes.
This follows swiftly on from its purchase last year of 9.5% of Masan Group, the second-largest privately owned company in Vietnam after Vingroup, for about $470 million (about W530 billion).
Vietnam is Korea’s third-largest trading partner after China and the US. Other big Korean corporate investors in Vietnam include Lotte, Samsung and Hyundai. However, Japan has overtaken Korea in the last two years as the biggest foreign investor in Vietnam. Quite simply, competition for assets is growing as investors bet on supply chains being rerouted through Southeast Asia and away from China.
“Growth could actually benefit from a reset of trade relations between China and the US as firms move production out of China,” Sudhir Roc-Sennett, a senior portfolio adviser at Vontobel Asset Management, said.
Vingroup looks well placed to become a useful partner for SK Group, given its heft in the Vietnamese economy. The company accounts for almost a quarter of the Vietnamese stock market’s value.
According to one person involved in the deal negotiations, “the investment is an entry ticket” for SK Group to Vingroup’s business empire, which includes an electric vehicle startup.
SK Group has been placing a greater emphasis on electric vehicles in the wake of a slowdown in its chipmaking unit SK Hynix. By 2022, SK Innovation plans to spend W4.51 trillion boosting its EV battery capacity.
AREAS OF COLLABORATION
A delegation from SK Group will travel to Vietnam in June to discuss further areas of investment and collaboration with Vingroup, the person involved in the deal talks said. Going forward, SK Group will likely be able to invest alongside Vingroup in a range of projects, taking advantage of its new ally’s local connections and know-how across the country.
The deal has been long in the making as both sides thrash out terms and potential areas of collaboration.
Vingroup said in March last year that it planned to raise Vnd25 trillion ($1 billion) in a private placement of shares for not lower than Vnd100,000 a share. It said at the time that the capital would be used to restructure debt and invest in its car unit VinFast, VinTech and Vinsmart.
Battery packs are likely to be an early area of investment. Vingroup has already signed a supply deals with another Korean group LG Chem as well as with Germany’s Siemens to provide batteries for its electric scooters, buses and, in the future, electric cars.
In that respect, SK Group is playing catch-up globally with its rivals.
SK Group formally met Pham Nhat Vuong, Vingroup’s chairman and founder, in May to discuss taking up the entire offering.
Negotiations were delicate, given both sides are powerful forces in their own markets. One hurdle for SK Group is that such minority investments represent a change of tactics from its usual preference of direct investments in plants and majority control.
But it helped that Vingroup is among the most transparent of Vietnam’s corporations, with an active investor relations team, and that SK Group will take a board seat as the second-largest shareholder after the Pham family.
SK Group is paying Vnd113,000 per Vingroup share, for a mixture of treasury stock and new shares.
Vingroup stock was trading on Friday at Vnd117,500, at a multiple of 72 times 2019 earnings, off a recent low of Vnd95,300 on December 28 – so not exactly a fat discount for such a large block of shares.
However, the price struck by the new allies is roughly in line with Hanwha Asset Management's purchase of 84 million convertible dividend preference shares in Vingroup at Vnd110,976 each.
Credit Suisse and Latham & Watkins advised Vingroup; Baker McKenzie advised SK Group.