South Korean chaebols are betting big on Vietnamese conglomerates

A Vietnamese national flag is seen at the Flag Tower of Hanoi in Hanoi November 13, 2014. REUTERS/Kham

When one conglomerate has its eye on another, discounts go out the window.

South Korea’s chaebols are betting big on Vietnam’s sprawling corporations. They’re even willing to forgo the markdown that typically comes with them. Samsung Electronics Co. is now the largest employer in the Southeast Asian nation. Since joining the World Trade Organization in 2007, a third of the country’s foreign direct investment has come from South Korea.

Retail money is also chipping in. Last year, Koreans were the second largest foreign buyers of Ho Chi Minh City’s luxury condos, and they’ve rushed into Vietnam-focused stock funds, despite shunning other emerging markets.

Seoul’s presence is felt everywhere. In March, South Korea’s SK Group announced plans to invest $1 billion in Vingroup JSC. This would be the company’s second large bet on a Vietnamese conglomerate: Last September, it bought a 9.5 percent stake in Masan Group Corp., a smaller peer, for $470 million.

The math, though, is very wrong.

At a minimum price of 100,00 dong ($4.31) a share, SK is valuing Vingroup at 43 times 2019 consensus earnings. If the South Korean company is interested in Vingroup’s real estate portfolio, it could just buy into residential developer Vinhomes JSC at 18.3 times earnings. The Vingroup subsidiary accounts for two-thirds of its parent’s revenue, anyhow. Or if SK fancies Vingroup’s retail mall operations, the Vincom Retail JSC unit is up for grabs at 26.2 times earnings.

Of course, it’s up to SK Group to decide how much it wants to pay. But inadvertently, the Koreans are exacerbating an unhealthy trend in Vietnam’s stock market: The so-called Vin Family – Vingroup, Vinhomes and Vincom Retail – now accounts for almost a quarter of the benchmark index, up from 8 percent two years ago. That’s not unlike Samsung Group’s influence on South Korea’s Kospi Index.

With Vingroup returning 20 percent this year – bolstered by SK’s $1 billion placement – active funds now have an unenviable choice: Hold your nose and buy a holding company at a sky-high valuation, or explain to your investors why you’re not beating the ETFs. Foreign portfolio inflow is already muted compared with last year.

Increasingly, Vietnam’s equity market is starting to resemble Seoul’s – you don’t know who’s who in the labyrinth of cross-holdings.

Vietnam Investment Group JSC, a private equity firm, is the largest shareholder of blue-chip Vingroup, followed by founder and chairman Pham Nhat Vuong’s 27.5 percent stake. Who owns the investment group, though? We have scant information since it’s privately held and structured as private equity. All we know is that Vingroup’s chairman “owns more than 10 percent charter capital,” according to a 2016 company filing.

Vietnam Investment Group is by no means a passive investor, either. In 2016, Vingroup paid the firm more than $17 million for a land transfer agreement, and various office-rental and infrastructure-usage fees last year. The influence of this opaque shareholder on Vingroup’s business operations remains a big question mark.

Perhaps this isn’t a big deal for South Korea’s retail investors, who had to disentangle close to 100,00 circular chaebol holdings as recently as 2013. But for everyone else, this is a red flag.

So far, Vietnam is returning the love, and reveres South Korea’s manufacturing prowess. But if Hanoi allows its stock market to fester like Seoul’s, Vietnam will soon catch that notorious Korean discount, too.

Bloomberg

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Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.