Vietnam’s SSI partners CP Group, DBJ to launch $150m PE fund

Source image World Travel Guide

Vietnamese brokerage SSI Securities Inc has partnered with Thailand’s largest private company CP Group and the Development Bank of Japan (DBJ) to launch a $150-million private equity fund to invest in the Vietnamese market.

The tripartite agreement is between general partners SSI Asset Management Company Limited (SSIAM), a subsidiary of SSI; CT Bright, the investment arm of CP Group; and Mercuria Investment Co., a fund management company under DBJ.

The newly established fund — the Vietnam Growth Investment Fund (VGIF) — has raised $25 million from GPs for its first close and is expected to reach a final close next year.

VGIF will focus on enterprises in consumer, agriculture, food, beverage & retail, industry, technology, media, financial services, healthcare, pharmaceuticals, real estate, logistics, and travel & hospitality sectors. It is targeting 5-10 investments with ticket sizes ranging from $10-20 million.

The partnership leverages the strong ties between Japan, Thailand, and Vietnam as well as the collaboration between CP Group, DBJ, and SSI, which will add value to portfolio companies.

“Our new fund will focus on larger deal sizes than previous SSIAM funds. A special feature of the VGIF fund is to create post-investment value for the [investee] business. This will be through the combination of the strengths of the general partners (GPs) such as DBJ’s financial capacity and the experiences of CP Group in agriculture, manufacturing and retail chain,” said Nguyen Duc Minh, SSIAM’s Investment Director.

The launch of the fund is well-timed as Vietnam is emerging as one of the most dynamic countries in Southeast Asia, having tamed the COVID-19 pandemic and also clocking stable economic growth. The country’s GDP is forecast to grow at 6 per cent annually until 2023, and Vietnam is primed to be among the top 20 global economies by 2060, according to SSI.

The country’s PE market in recent years has attracted investors. Private enterprises, too, consider PE as a relatively good capital mobilisation channel, according to Minh.

Established in 2007, SSIAM is a one-member limited liability company wholly-owned by SSI Securities. The firm had assets under management of $196 million as of August 31, 2020.

The firm is raising $100 million for its third fund in partnership with Japan’s Daiwa Securities Group. The new vehicle follows the $40 million Daiwa-SSIAM Fund II set up in 2016. Its first $30-million private equity vehicle, DSCAP-SSIAM Vietnam Growth Investment, was set up in 2009.

The Bangkok-based CP Group, meanwhile, is one of the world’s largest global food groups and manufacturers. Founded in 1921, its total enterprise value exceeds $150 billion. The company describes itself as having eight business lines with investments in 21 countries to date.

Mercuria, the third general partner of the VGIF fund, is an investment company with the major shareholders being DBJ, Itochu Corporation and Sumitomo Mitsui Trust Bank. The Japanese fund management company has an AUM of about $2 billion. Listed on the Tokyo Stock Exchange since 2016, the firm has managed over 10 investment funds to date.

In an interview with DealStreetAsia, Minh shares more details about the new fund as well as the private equity market in Vietnam. 

Edited excerpts:-

What is the significance of this new fund for SSIAM’s investment activities? What is the difference between this new fund and those in cooperation with Daiwa?

The fund brings together three leading partners from Japan (DBJ), Thailand (CP group) and Vietnam (SSI). CP Group is the largest food manufacturer and distributor from Thailand, while DBJ come with a strong global network and investment management capacity. And, SSI is a securities company with a large network of customers.

The new fund will allow us to invest in larger deals (up to $20-30 million) that we could not in the past. Participation in large deal sizes also creates negotiating power as well as a better ability to exit when there is a significant proportion of ownership in the business.

In recent years, Vietnam’s PE market is attracting a lot of attention from foreign investors and is a good capital mobilization channel for private enterprises. PE will help the capital market develop as well as facilitate capital mobilization for businesses and create investment opportunities when enterprises conduct IPO and list on the stock market.

How has Covid impacted SSIAM’s investment and fundraising activities over the past few months? Has it led to any changes in your deal-making approach? How are your LPs reacting to the situation? 

Covid had made it difficult to meet face-to-face, so SSIAM’s fundraising was behind schedule. However, one thing that has not changed is Vietnam’s long-term development potential. Although Covid presents many difficulties, it also comes with many investment opportunities for the fund. For many businesses, attracting long-term capital from investment funds during this period is necessary for businesses to overcome difficulties and regain growth momentum after the pandemic is over. We see that the LPs somewhere have the same view and still show interest in the long-term development of the economy and the fund’s investment strategy.

What is your view on the valuations in the backdrop of the pandemic?

During the appraisal process, investment funds basically perceive the essentials of the business, and sometimes there are events (such as COVID) that cause different valuation expectations. However, in the long-term, we think such events will always take place in 3-5 years of working together. Therefore, cooperation between the two sides is necessary at such times. Successful negotiation in these periods is also an advantage for highly local funds like SSIAM compared to international institutions.

When will the SSIAM III, the third fund in partnership with Japan’s Daiwa, close?

Daiwa SSIAM Fund III will make the first close at the end of October. At the moment, we meet the expectation set for the first close.

SSIAM continues to remain focused on manufacturing while this industry has been hit hard by the pandemic? How do you view returns from this sector compared to the others?

We believe that manufacturing companies still have a lot of room for growth. The impact of the pandemic is more short-term than a long-term development trend. In fact, we also had very successful investments in manufacturing companies (such as packaging manufacturing company DHC IRR 24%, Viglacera Ha Long IRR 40%), which is equivalent to the profitability of other sectors.

Will the new fund look at technology companies and opportunities in distressed/ restructuring deals?

Basically, our orientation is to support private businesses in need of capital and create added value for the business based on the strengths acquired by the fund. So, technology, distressed assets and refactoring are in the fund’s shortlist.

How do you compare the returns of PE with the public market?

According to SSIAM’s own experience, PE fund returns tend to be more stable and higher than the listed market. In addition, PE funds also have plenty of time to choose when to divest their investments instead of the daily reported fluctuating returns of the listed market that are sometimes heavily influenced by demand, psychological factors, especially in periods of high volatility such as 2018 or 2020.

IPO is not considered a favourable exit route in Vietnam. What do you think is the most suitable exit option in Vietnam at the moment?

The fund’s divestment strategy is quite flexible. Besides IPO, the fund can divest when a company is listed or it can divest to strategic investors.

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.

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.