Why has the M&A landscape struggled to take off for renewables in Vietnam?

The Vietnamese renewables industry has been flourishing lately. Taking the example of the solar sector, the installed capacity increased from barely 134 MW in 2018 up to 6,000 MW in 2020.

Surprisingly, this dynamism contrasts with a more challenging environment when it comes to the number of merger & acquisition (M&A) deals – both greenfield and brownfield projects – that have been effectively finalized.

From our experience, we identified recurrent gaps that can explain this ignition delay:

Covid-19: Many transactions that were well advanced early 2020 are in the best cases still pending, or in the worst ones have been cancelled because of the pandemic.

Discrepancies in return expectation: Covid-19 also reinforced the mismatch between investors’ capacity to pay high premiums for brownfield projects on the one hand, and sellers’ expectations on the other.

Regulation uncertainty:  Uncertainty includes the fact that you only have visibility for a limited timeframe (i.e. feed-in-tariff programs not being renewed, C&I rooftop FIT after 2020, new circular models for the wind sector, etc.), and other PPA related risk (grid curtailment, etc).

Environment & social (E&S): A few projects, especially hydro ones, are lacking robust documentation and due diligence on E&S aspects.

Process: An underestimated reason is the absence of a clear and standard M&A process led by the sellers (teaser, Information Memorandum, related financial model, lack of readily accessible project documents in English).

Nevertheless, some of the above gaps, such as the E&S aspects and the process, are areas the parties can already start working on by reinforcing the due diligence upfront and working closely with professionals (technical, tax, financial advisors, etc.) to achieve a greater chance of success at closing.

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