PR firms remain attractive for foreign buyers

Monday, Mar 23, 2015 08:00

Following the deal, the HCM City-based Emerald will become a company within Dentsu Aegis Network's global digital marketing agency Isobar, and be known as "Emerald-Linked by Isobar". — Photo congluan

Earlier this month Japanese multinational media and digital marketing communications firm Dentsu Aegis Network signed an agreement to acquire a stake in Emerald Co. Ltd, a leading full service digital marketing agency in Viet Nam.

Following the deal, the HCM City-based Emerald will become a company within Dentsu Aegis Network's global digital marketing agency Isobar, and be known as "Emerald-Linked by Isobar".

The M&A deal was not the first in the Viet Nam PR sector, only the first of the year.

The sector has seen many huge M&A deals by foreign companies, but they were not spoken as widely as the deals cases in other sectors.

For instance, in 2009 WPP - one of the world's largest communications services groups — announced that Ogilvy& Mather, one of its members, had acquired a majority stake in T&A Communications, a leading public relations and event management company in Viet Nam.

The deal was part of VPP's strategy to develop its networks in fast-growing markets and sectors. Viet Nam was a logical choice since it was one of the fastest growing markets in the world.

In 2008 WPP's subsidiary GroupM had bought a 30 percent stake in the Dat Viet Group VAC. WPP is also the largest partner of Smart Media JSC, a company founded by CNPT, Vietnam Television, Mobifone, VNPost and Goldsun.

According to VietNam Briefing Website, also in 2008 the Omnicom Group of the US had taken over three of the top 10 Vietnamese companies.

It bought BCI Brandcare, followed by the purchase of Biz Solutions by Omnicom subsidiary TBWA Group to establish the Biz Tequila joint venture.

TBWA also bought XPR Campaigns and established Campaign Solutions, which has emerged as one of the top international agencies in Viet Nam.

In 2012 the world's largest PR firm Edelman bought AVC Communication and created AVC Edelman.

Richard Edelman, the president and CEO of Edelman, was quoted in the media as saying that multinational corporations operating in Viet Nam had sought their services and a merger with a local firm had proved to be the quickest way to enter the market.

Now — and this trend is sure to continue — foreign PR groups continue to eye with interest Vietnamese companies with internet- and digital-based operations.

The PR industry has around 200 wholly Vietnamese-owned companies, all of which are struggling in the face of foreign competition.

According to analysts, foreign PR companies want to buy Vietnamese companies not because they want to do business here like they used to do in the past since foreigners are now allowed to set up wholly-foreign-owned companies.

But instead, they want to acquire Vietnamese companies to access the latter's experience and relationships.

Vietnamese PR companies want to join hands with foreign partners since they realise that many Vietnamese firms want to extend their business to overseas markets and would need their PR services there.

Golden question

According to Reuters' Gold Fields Mineral Services (GFMS), Viet Nam is one of the world's 14 largest gold consumers.

World Gold Council data shows Viet Nam, despite a steep fall last year, consumed 69.1 tonnes of the precious metal worth US$2.82 billion.

Jewellery accounted for 12.7 tonnes worth $519 million, up 4 per cent in volume but the volume of bullion and coins was down 33 per cent to 56.4 tonnes.

The question is where does the gold come from to meet the global demand?

Experts say that supply mainly comes from mining and recycling. According to GFMS, recycled gold often accounts for 25-30 per cent.

But in Viet Nam, most comes from imports.

Before May 2012, when the Government's Decree No 24 was issued allowing only the State Bank of Viet Nam to import gold bullion, the bank had provided annual quotas for certain banks and companies for importing gold.

But the imports were way below demand.

Since 2014 the central bank has both stopped importing itself and providing others with quotas to import gold to make jewels and other products.

Supply from mining and recycling remains modest.

This means that the gold in the market comes from dubious sources.

At a meeting with National Assembly members in 2012 the central bank governor had said 20-30 tonnes of gold had been smuggled into Viet Nam every year until Decree 24 was issued.

Analysts have been sceptical about the governor's statement since consumption has remained very high, and believe that a part of the gold sold in the market is smuggled.

They point to the big difference between global and domestic gold prices, saying this surely encourages smuggling.

The price of bullion is VND4-5 million ($190-238) per tael (of 38g) higher than the international rate while for jewellery the difference is VND1-2 million ($47-94).

But in any case the ban on the import of gold bullion needs a rethink since local prices are so high because of the low supply.

Rush to sell bad debts

Eximbank chief Pham Huu Phu reveals that the lender is preparing to sell non-performing loans (NPLs, also called bad debts) worth VND1.5-2 trillion ($70.6-94.1 million) to the Viet Nam Asset Management Company (VAMC) in the first two quarters of this year to clean up its balance sheet.

Many other banks too are trying to speed up sales of their bad debts.

Last year Sacombank sold VND1 trillion ($47.07 million) worth and plans to sell a few hundred billion dong worth this year.

OCB sold NPLs worth VND1 trillion to the VAMC, reducing its bad debt ratio to 2.85 per cent as of the end of last year, and DongA Bank, double that amount.

The former plans to sell hundreds of billions of dong worth loans this year while the latter will match last year's amount.

The banks have outlined their debt selling plans following a request from the central bank.

After the VAMC was allowed by the Government to issue special bonds worth VND80 trillion (US$3.76 billion) this year the central bank urged credit institutions including banks to actively sell their bad debts to it.

In a recent instruction it directed the lenders to sell at least 75 per cent of the bad debts they had registered to sell by June 30.

The deadline for selling bad debts this year is September 30.

Selling to the VAMC was not mandatory in the past.

According to the credit institutions, the move is aimed at implementing an SBV directive issued earlier this year on resolving their NPLs.

The directive provides the lenders and the VAMC a strict schedule for resolving their bad debts as the SBV seeks to ensure the banking sector can meet its target of bringing NPLs to below 3 per cent by the end of 2015, down from 4.7 per cent at the end of the third quarter of last year.

With the June 30 deadline approaching, the credit institutions have to quickly sell their NPLs if they are to meet the deadline.

However, besides speeding up their bad debt sales, they are also required to apply several other measures to thoroughly settle the bad debts problem.

They have been ordered to liquidate assets backing loans, convert debt into equity, accept assets to replace debt obligations, and make bad debt provisions against risks.

Of the above methods, risk provisioning is considered to be the most effective and safest method, but it has significantly eroded banks' profit.

For instance, last year DongA Bank had to set aside VND500 billion in provisions and VIB, nearly VND1.2 trillion.

Asked about the central bank's debt selling plan, the lenders said the deadlines were rather tight.

The majority of them said that the proportion (75 to 100 per cent) of bad debts they had to sell to the VAMC was too high and should not be more than 50 per cent.

They do not want to sell many their debts to the VAMC because the more they sell the more provisioning they have to make for bad debts – since the VAMC does not take on the risk and only offers to do the donkey work involved in recovering the debts — and their profits take a hit.

But the central bank seems determined that they should sell off their bad debts.

Analysts said the goal of reducing the bad debt ratio to under 3 per cent by year-end could be realised if the central bank pushed the mergers of small and weak banks and persuaded banks to sell their bad debts to the VAMC.

But they also stressed the need for actively recovering debts, make risk provision and, more importantly, create a market for trading debts. — VNS

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