Vietnamese asset management firm VinaCapital is training its sights on increased private equity investments as it tries to diversify from real estate and listed equity play. Vietnam has a lot of well operated companies but corporate size remains an issue, reasons Don Lam, CEO, VinaCapital.
The PE portfolio in VinaCapital’s Vietnam Opportunity Fund (VOF) accounts for 20-40 per cent of the fund value. With the latest investment in wood-working firm An Cuong, VOF has injected nearly $2 billion as capital into Vietnamese companies.
VOF, which migrated to the main market of the London Stock Exchange in March, was included in the FTSE Small Cap/All-Share Index on June 17, a major milestone that will boost the liquidity of the fund as international investors show interest in Vietnam.
“The fund is in the process of reducing direct real estate investment and re-balancing its portfolio toward private equity investments, where it has a strong track record of performance, and sees tremendous opportunities in a range of sectors including consumer discretionary, education, and healthcare,” VinaCapital said in a statement.
Don Lam added that if the government is more radical in the privatisation of state firms, Vietnam will see more significant involvement from foreign investors. DEALSTREETASIA spoke to Don Lam to know more about the fund’s PE approach and the investment scene in Vietnam.
Excerpts:
What is the reason behind the fund’s move to reduce holdings in real estate and listed equities? Is it because of lack of investible opportunities in these areas?
In property and real estate, we think the market has gone up significantly in the last few years. So we are trying to diversify away from real estate. In equities, growth is there but there are not enough new listed companies for us to invest in. So, we see opportunities mainly in private equity as our experience in the past with this kind of investing has been very successful. Transactions where the original owner was still a controlling stakeholder and we helped them to grow the business. For example, Kinh Do (now listed confectionery Kido Group), which grew more than 10 times in 10 years. In Hoa Phat (currently listed), we invested only eight years ago, and the company has grown over 15 times.
We find private equity-backed companies can grow faster in a market like Vietnam.
On an average, how many PE deals do you close per year?
On an average, we have done three to five private equity deals a year. The reason why there are not that many (deals closed) in Vietnam is that most of the bigger companies in Vietnam are SOEs (state-owned enterprises). As Vietnam starts to privatise this sector and opens up the economy, you will see more and more private companies growing. Keep in mind that Vietnam only opened up some 15 years ago, it will take time for private enterprises to grow bigger, to become large enough for institutional investors like us to invest in.
Do investors find the SOE privatisation attractive given that the state parts with only a tiny fraction of its holdings?
We are hoping that the government will change and maybe offer a bigger stake to the market. Especially in most companies, if they are not in the strategic industries (such sectors as energy, aviation and defense), the government should divest to own below 50 per cent. Controlling stake should be in the private space, then institutional investors like us will be more interested in buying.
How hard is it to conduct due diligence in private companies in Vietnam?
In all companies in emerging markets, not just Vietnamese companies, private company due diligence review is very difficult. But we have a very experienced and large team in Vietnam. And we have been doing three to five deals per year, so we are very experienced in looking at companies. If you are an institutional investor outside Vietnam, it would be more challenging.
How about the exit environment?
In most of the companies when we exit, we divest to another strategic investor. Or we go into the listing mode. Once we IPO the company, we divest to the market.
What about the status of the fund unit in partnership with Draper Fisher Jurvetson?
We do have a venture capital fund, called VinaCapital DFJ, which invests in technology startups. But those are very small companies, a different asset class. The fund is now fully invested. We are now looking at raising a new technology fund later this year or next year.
Also read:
Vietnam: VinaCapital to focus on PE investment, reduces real estate holdings
VinaCapital fund among buyers of shares in Vietnam airport operator IPO
M&As, consolidation in retail play steering Vietnamese realty to recovery path: VinaCapital
