Private equity major KKR & Co, which has backed subsidiaries of two of Vietnam’s largest private conglomerates, is looking to increase its pace of investments in the country.
“We hope we will be able to invest more and faster (in Vietnam), given the country’s growth trajectory, how the country has managed the pandemic, and the fact that Vietnam may be a long-term beneficiary of supply chain disruptions,” CK Yan, private equity director at KKR, told DealStreetAsia.
KKR marked its debut investment in Vietnam with a $159 million funding for Masan Consumer, a unit of Masan Group, in 2011 and followed it with another $200 million tranche in 2013.
KKR secured a full exit from Masan Consumer in 2016, reportedly generating a 2X return, before it injected $250 million into the parent company Masan and its other unit, Masan Nutri-Science, in 2017.
In June 2020, KKR led a $650 million investment in Vinhomes, the housing development subsidiary of Vingroup. The investment, conducted through its Asian Fund III, came three years after its previous deal and marks the largest private equity transaction in the country to date.
Yan explained that the central theme around the firm’s interest in Vietnam was the country’s growing middle class, which he sees as a “powerful” driver for economic growth.
Vietnam’s annual labour force in recent years stood at 54-55 million people, accounting for nearly 60 per cent of the total population, according to its General Statistics Office.
Seen as one of the most dynamic emerging countries in the East Asia region by the World Bank, Vietnam is expected to see its middle class double to 26 per cent of the total population by 2026, and to become an upper-middle-income economy by 2035.
These macroeconomic indicators point to an expected corresponding increase in the consumption of goods and services. “Financial services is of interest to us, as well. Healthcare is an Asia-wide theme that we like,” Yan added. KKR, like a number of other PE firms, is also taking a keen interest on the education space.
“These are the sectors that we will probably be spending more time on,” Yan said.
KKR’s investments in Vietnam are amongst the largest that the country has attracted. Other major private equity transactions include Warburg Pincus’s investments in Techcombank and e-wallet MoMo, a reported $300-million investment into fintech firm VNPAY by SoftBank and GIC, as well as a couple of e-commerce investments.
KKR’s existing portfolio companies, Masan Group and Vingroup, have bagged big-ticket funding from other private equity and strategic investors, notably the $1-billion investment by South Korea’s SK Group in Vingroup last year.
“As Vietnam’s economy further develops, we hope to support more emerging national champions like Vingroup and Masan,” Yan commented.
It is also part of KKR’s wider strategy in Southeast Asia to back what it calls ‘partners of choice.’ The strategy has been demonstrated in Vietnam through the investment in Masan Group where KKR continued to support its businesses.
Meanwhile, its investment in Vinhomes “is an expression of our positive view on Vietnam,” Yan said. He sees the Hanoi-headquartered firm as an ambitious company set on expansion into new businesses and growth beyond Vietnam.
Vingroup is the biggest listed company in Vietnam with operations spanning from real estate, education, healthcare to automobile and hi-tech. It has also made outbound investments and expanded to overseas markets. Pham Nhat Vuong, the tycoon who built Vingroup from a real estate company into an industrial conglomerate, became Vietnam’s first US dollar billionaire in 2013.
“The number-one aspiration for any growing middle class is the desire to own a home. Vinhomes is the right proxy to play to that theme,” Yan said.
The modern home penetration within the country’s major cities is at an inflexion point in Vietnam compared with China 20 years ago, where the penetration was about 10 per cent and grew to 30 per cent in the following five years, according to the KKR director.
While the Vinhomes brand has grown strong in big city markets, the firm has pivoted towards the mid-market-segment of homes which opens up a much larger addressable market.
“We are excited about it, as we believe that they will be able to replicate this in the other cities,” added Yan.
When it comes to exits, he believes the Vietnamese capital markets will catch up as the economy grows. “Given the country’s prospect and the fact that there have been many international investors in Vietnam now, there’s definitely more interest in Vietnam. Hopefully, as that story becomes more apparent to others, and the liquidity will soon follow as well.”
The local market yielded several exits for international PE firms in the past, such as HPEF Capital Partners’ disposal of English education group ILA, Affirma Capital’s (formerly Standard Charter Private Equity) exit from F&B firm Golden Gate, and Warburg Pincus’s exit from Vincom Retail.