The “big enterprises” of the water industry have a strong hand in M&A

Water supply pipes at a BWE factory. Photo: collected

Binh Duong Water - Environment Joint Stock Company (BWE) has just registered to buy more than 1.65 million shares of Long An Water Supply and Sewerage Joint Stock Company (LAW) in the form of an agreement. The expected implementation time is from May 18 to June 16.

Currently, BWE is holding nearly 2.99 million LAW shares, equivalent to 24.5% of charter capital. If the transaction is successful, BWE will increase its holding rate to more than 38%, equivalent to more than 4.6 million LAW shares.

It is known that BWE considers M&A as part of the company's business plan for 2023. Accordingly, recently, BWE has continuously expanded its purchasing list to enlarge its area. For example, in mid-February 2023, BWE's Board of Directors approved an investment policy to buy shares of 5 companies operating in the water sector.

Accordingly, in April, BWE officially became a major shareholder of Vinh Long Water Supply Joint Stock Company (VLW) after buying more than 7.12 million shares of this company, thereby increasing its ownership ratio from 0% to 24.65%. Previously, in March, BWE also acquired 25.4% shares (8.8 million shares) of DNP Long An Water Infrastructure Investment Joint Stock Company (DNP Long An Water), thereby completing the first steps in the acquisition of DNP Long An Water. BWE has invested VND 136 billion in DNP Long An Water, and secured the right to buy up to 15.8 million shares (about 50% of the shares, equivalent to VND 277 billion) with the seller being DNP Investment Joint Stock Company in the water industry.

DNP Long An Water owns Nhi Thanh water treatment plant (with a capacity of 60,000 m3/day) and has a land fund guaranteed to double its capacity to 120,000 m3/day (equivalent to about 15% of BWE's capacity).

Previously, BWE also acquired 2 water supply companies in Can Tho. Two acquisitions with 48.86% share of Can Tho Water Supply 2 by US$ 3 million and 24.64% of Can Tho Water Supply and Sewerage by US$ 6.2 million, allowing Biwase to expand its business in the largest city in the Mekong Delta.

Similar to BWE, Thu Dau Mot Water Joint Stock Company (TDM) is also maintaining a strategy of acquiring more water companies.

According to Vietcap Securities Company, in the past 5 years, BWE and TDM have spent about VND 1,000 billion and VND 1,300 billion respectively on M&A transactions. BWE and TDM strategies in companies in which BWE and TDM act as minority shareholders include working with management to reduce water loss rates by adopting new technology and investing in upgrades to plumbing/water meters; training staff to identify water leaks from groundwater pipelines; increasing shares if given the opportunity.

According to Vietcap, for companies in which BWE and TDM are controlling shareholders such as Gia Tan Water Supply Joint Stock Company (GIWACO), Long Thanh Water Highway project and DNP Long An Water in the future, BWE and TDM will quickly double capacity. BWE and TDM use equity and debt at low interest rates (around 7%) to finance M&A transactions. In addition, BWE and TDM are expanding their leadership teams to supervise actively the strategies and day-to-day operations of the acquired companies.

According to the Ministry of Construction, by 2022, Vietnam will have 750 clean water plants in urban and rural areas put into operation, with a total capacity of 11.2 million m3/day. The planning of water plants is regulated by the Ministry of Construction in Circular 01/2021/TT-BXD, in accordance with the planning of each locality in which private companies are allowed to participate. Meanwhile, the distribution system is managed by the provincial environmental and water supply companies.

In a recent analysis report on the water industry, SSI Research said that companies having water distribution systems managed by the People's Committee have exclusive distribution rights. The performance of water supply companies depends on the rate of water loss as well as the population density in the distribution area.

SSI Research forecasted that water demand in 2023 would continue to grow steadily by 5% compared to 2022, and the average retail price of clean water would increase by 3-5%. The operational efficiency of water distribution companies continued to improve and this trend would continue in the medium term when the average water loss rate was expected to decrease from 17.5% in 2022 to 16. 5% in 2023.