Section 3 – Some other transaction options for M&A of real estate projects
In part 1 and part 2, we have discussed 03 main and basic transaction options for real estate M&A transactions and real estate projects. However, because M&A in fact is a diverse and complex activity, the transaction and implementation options for an M&A deal can be extremely diverse for the parties involved in the transaction, with variations and various flexible adaptions. Therefore, in this part, we will present some more specific transaction options commonly applied in real estate M&A transactions and real estate projects.
Notes: The options mentioned in this part may involve legal issues related to the options mentioned in the previous parts in combination with some specific implementation steps by participants in real estate transactions.
1. Debt restructuring of the real estate business to conduct M&A
(This option is quite popular as credit institutions handle debts of real estate businesses).
Debt restructuring is actually a transaction involving debt trading activities between the debt seller, the debt purchaser and the real estate business with the debt to be paid.
The current regulations on debt repurchase activities are governed by many different sets of laws for each group of entities involved in key specific debt trading activities, including:
- Asset Management Companies (AMC) affiliated to commercial banks, these entities were established and operated under Decision No. 150/2001/QD-TTg and Decision No. 1390/2001/QD-NHNN dated November 7, 2001 of the State Bank on promulgating a model charter on the organization and operation of an asset management company affiliated to a commercial bank. AMC means a company established by credit institutions to carry out activities with the function of buying, selling, and handling the credit institutions’ own debts;
- Vietnam Debt and Asset Trading Corporation (DATC), was established under Decision No. 109/2003/QD-TTg dated June 5, 2003 by the Prime Minister on the establishment of a company to buy and sell debts and outstanding assets of State-owned enterprises (SOEs). DATC is 100%wholly owned by the State and was established for the purpose of handling outstanding debts and assets related to SOEs according to the law provisions;
- Vietnam Asset Management Company (VAMC) was established under Decree No. 53/2013/ND-CP on the establishment, organization and operation of the Vietnam Asset Management Company, which is 100% wholly owned by the State, to conduct business in debt purchase and sale services for the purpose of dealing with bad debts and promoting reasonable credit growth for the economy. VAMC will buy bad debts from credit institutions according to the law provisions;
- As for other organizations/individuals involved in debt trading, according to current regulations, debt trading is no longer a conditional business under the amended Investment Law (Previous provisions on debt trading by organizations/individuals under Decree 69/2016/ND-CP have expired). Therefore, other individuals/organizations participating in debt trading activities will mainly comply with the provisions of the Enterprise Law as well as the Civil Code and Commercial Law.
According to them, debt trading in general and debt trading transactions to carry out real estate M&A transactions, in particular, will usually be carried out following the standardized steps as follows:
Step 1: The debt purchaser appraises the debt, the target company, and the target asset;
Step 2: The parties sign a debt purchase and sale contract as prescribed by the law provisions, which may be adjusted depending on the group of debt sellers mentioned above;
Step 3: Take the next steps to complete an M&A transaction, such as: (1) Completing the deb for equity/share swap of the real estate owner through which to “indirectly” own the property; (2) taking steps to dispose of the collateral of the debts as a new creditor to obtain the ownership of the property.
2. Real estate M&A through convertible loan or investment in convertible bonds of the real estate business
This transaction option is quite popular in recent real estate project M&A activities. The purchaser in the transaction will sign convertible loan contracts or invest in convertible bonds of the real estate business to become the creditor of the real estate business. After that, according to the conditions specified in the convertible loan contracts or convertible bonds, it is possible to acquire and own shares/contributions of the real estate business.
Accordingly, this transaction option is implemented following the standardized steps as follows:
Step 1: The purchaser signs the convertible loan contract/invests in convertible bonds to finance the real estate business. The purchaser will become the creditor of the real estate business.
Step 2: Pursuant to the provisions of the convertible loan contract or the conditions of the convertible bonds, the purchaser shall exercise the conversion right to contribute more capital or purchase additional shares of the real estate business.
Step 3: The purchaser and the seller perform the offset between the debt and the purchase of additional shares/capital contributions.
Notes: For this type of transaction, the parties involved in the transaction should pay special attention to the regulations on procedures for issuance of bonds, additional shares or contribution of more capital, the contents of the convertible loan contract, the regulations of convertible bonds related to interest, payment of principal and interest, time limit and conditions to be converted into shares and contributed capital.
So far in the parts, we have generalized my experience when participating in real estate project M&A transactions. Our hope is that the above contents are useful. The above contents are prepared for your reference only and should not be considered as our official advice in a specific request. Therefore, if you need advice on a specific transaction, please contact us for more details.
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