Ho Chi Minh-based asset management VinaCapital has officially decided to conclude its investment in poultry firm Ba Huan JSC after the firm sought the Prime Minister’s intervention in terminating its six-month-old investment partnership.
Both sides are presently in discussions with the company to resolve this issue, VinaCapital said in a statement, adding that the terms that were agreed to by both parties are aligned with market practices and are typical of the many mutually successful transactions that have completed in the past.
“The terms also included a number of conditions intended to protect our interests as an investor. These conditions are also consistent with market practices and are only applicable if the company cannot achieve the results forecast by management. In addition, we agreed to invest at a valuation significantly higher than the market valuation from a price-to-earnings basis,” VinaCapital said.
The assets management firm also emphasized that taking over the company has never been its intention, nor is it part of our Group’s business strategy.
Earlier one day, the poultry firm was said to seek the Prime Minister’s intervention in terminating its six-month-old investment partnership with VinaCapital. The firm said it agreed to investment terms it now claims to be unreasonable because they were initially stipulated in English.
In its petition to the government, the poultry firm noted that VinaCapital is seeking an internal rate of return (IRR) of 22 per cent per year. It claims that the terms of the deal stipulate that in the event of the IRR not being met, Ba Huan will be fined or required to return the investment capital, along with a 22 per cent interest, or it must transfer to VinaCapital (or its partner) at least a 51 per cent stake in the company.
It also alleged that the partnership restricts it from engaging in any other business except chicken and eggs. Its litany of grievances includes what it claims is VinaCapital’s tendency to veto all board decisions, despite it being a minority shareholder.
Ba Huan said the issues stem from the confusion caused by the contract written in English that it agreed to in haste.
In February, VinaCapital’s flagship fund Vietnam Opportunity Fund (VOF) had invested $32.5 million to acquire a significant minority stake in Ba Huan.
Announcing its investment in Ba Huan in February, VOF had said that it may also invest a moderate amount of additional capital during the next twelve months as the company delivers on mutually agreed milestones.
“This private equity investment is consistent with our strategy of focusing on companies operating in the sectors of the economy benefitting from strong domestic growth,” VOF managing director Andy Ho had then said.
Established in 2001, Ba Huan accounts for 30 per cent of Vietnam’s pasteurized egg market and is a household brand. The company has made significant investments in its operations, importing modern production lines from Europe and adhering to international standards. In 2018, it expects revenue to surpass $90 million.
Ba Huan JSC operates two fully enclosed industrial poultry farms, including a layer farm with over 1.5 million chickens for commercial egg production, and a broiler farm with over 400,000 chickens for meat production.
Each day, Ba Huan supplies over 1.7 million eggs, delivers over 15,000 chickens, and processes over 25 tonnes of fresh poultry meat. Its products are distributed to over 2,000 agents and points of sales throughout Vietnam.
Egg consumption is on the rise in Vietnam, with both chicken and duck eggs popular, according to Poultry World. Chicken consumption is also increasing, growing at a compound annual growth rate of 8.6 per cent, according to DBS Bank, and local producers have struggled to meet demand.