Vietnam’s Prime Minister Nguyen Xuan Phuc recently said he is confident the country will achieve its GDP growth goal of 6.7 per cent this year. Concerns continue to subside after a weak first quarter that saw GDP growth slow down to 5.1 per cent.
Investors, however, gave Vietnam a huge thumbs-up in a recent report by Grant Thornton. The country was rated the second most preferred destination for private investment in the ASEAN region, behind Myanmar and ahead of Indonesia.
“The macro investment climate has been positive for all 22 years I have been in Vietnam with the exception of 2006 and 2007 when Vietnam was in a bubble and valuations were often too high. Other than that, it has always been a good time to invest in Vietnam and it still is now,” said Chris Freund, CEO and partner at Vietnam-focused Mekong Capital.
A survey conducted by Grant Thornton showed a significant majority of investors believe economic prospects for Vietnam this year will be positive. In addition, 87 per cent of fund managers and investment houses said they expect to see an increase in investment activity in the country this year.
Growth credentials
In the year so far, Vietnam has seen a year-on-year industrial production growth of nearly 6 per cent, while retail sales have increased 10.2 per cent.
Disbursed foreign direct investment also increased 6 per cent in the same period, while foreign investment through equity purchasing reached $1.8 billion, according to the General Statistics Office.
Since investors value market growth as they seek deals in this region, PE and M&A activities have seen a surge recently. The latest of these is the $250 million cash injection into Masan Group by global PE firm KKR in April this year. It followed other notable deals such as late last year’s $300-million hospitality joint venture between VinaCapital and Warburg Pincus, and Fraser & Neave’s $500-million stake increase in Vinamilk.
“With more buyers out there, there are more opportunities to sell in a more competitive pricing environment,” said Andy Ho, chief investment officer at Vietnam-based asset management firm VinaCapital.
Breaking down by sectors, food and beverage (F&B) and retail will continue to be the most favoured by investors, according to Grant Thornton.
Buoyed by increasing disposable incomes of its 95-million residents, Vietnam continues to hold investors’ confidence. Official data from the country’s statistics office declared an impressive VND1.6 quadrillion ($70.4 billion) value of retail sales and consumer service costs.
The transportation and logistics sector continues to grow in terms of attractiveness, according to investors surveyed by Grant Thornton. Within the last 10 months, Mekong Capital has announced two investments in the logistics industry – undisclosed sums in Nhat Tin Investment Trading Development in May this year, and in ABA Corporation in August last year.
“Over the recent years, this sector has proved to be a key determinant of Vietnam’s business environment, contributing 20.9 per cent of Vietnam’s total GDP, with approximately 1300 companies providing asset-based service or contract logistics services,” the consulting firm said in its report.
Exits riding on listing
For players such as Mekong Capital and VinaCapital, this is a good time to exit.
This year, Mekong Capital will fully divest its stake in Vietnam Australia International School as TPG picks up a majority stake in the K-12 school chain. Similarly, PENM Partners sold its stake in Masan Group to KKR. Earlier, it was Warburg Pincus’ hospitality JV with VinaCapital that acquired Sofitel Legend Metropole Hanoi Hotel from the latter’s Vietnam Opportunity Fund.
With an increasing influx of foreign capital into the Vietnam private equity market, global PE firms are set to be the most competitive source of M&A activities.
“We believe that regional and global PE firms may play a role in some upcoming exits of our funds as well,” said Chris Freund.
On the sell side, IPO was pointed out as the most favoured exit option, with the major source of new opportunities being privatisation of state-run companies, Grant Thornton said.
“Equitisation (aka privatization) provides PE investors with opportunities to penetrate the Vietnamese market through investment in key areas such as telecommunications, oil and gas trading, infrastructure and retail,” it said, adding that the local government was paving the way for a faster listing of state companies.
Historically, funds such as VinaCapital and Mekong Capital have scored successful exits through a public listing of their portfolio firms, including those controlled by the state.
Putting all together, investors target a minimum return in the region of 15-18 per cent from their PE investments in the country.
Local players eye a slice of the pie
Along with busy global PE firms, local fund managers continue to ramp up their investments. VinaCapital said it has $120 million in cash for investment alongside a planned $200-million fund.
Meanwhile, Mekong Capital’s fourth fund, which has sealed five investments already, said it will announce a couple of new ones in the near term.
“Vietnam is on the radar of an increasing number of international investors. The potential private equity opportunities in Vietnam are seemingly enormous, so it is no surprise that some new players might be considering entering the market. What they will likely quickly realize is that success here comes in large part from knowing how business in Vietnam works, the role the government plays, market dynamics, and so on,” said Vinacapital’s Ho.
It is no wonder then that tie-ups such as those between Warburg Pincus and VinaCapital, and Sunwah Kingsway and Saigon Asset Management are also taking shape.
PENM Partners’ managing partner Hans Christian Jacobsen is positive that there is room for many more deals, as Vietnam is a big market. “I believe macro and investment climate remains good, and we stay fully focused,” he said.
