Dragon Capital, a Vietnam-focused group of investment funds, kicked off the year with the merger of two of its two funds, Vietnam Growth Fund Limited and Vietnam Enterprise Investments Limited, to create an enlarged fund with net asset value of $791.64 million.
Dragon Capital, which launched in 1994 from an initial base of $16 million and only eight staff, manages closed-ended and open-ended funds across various segments of public equities, private capital, fixed income and infrastructure and also tailors assets of international entities that are keen to invest in Vietnam.
Dominic Scriven, Dragon Capital’s CEO, is a distinguished figure in the local investment space and is acknowledged for his work on developing the capital market of Vietnam. Dragon Capital has presence in Ho Chi Minh City, Hanoi, the UK, Bangkok and Hong Kong.
“Since Dragon Capital was established in 1994, the nation has visibly evolved from bikes to motorbikes to cars. Vietnam is centuries of material development compressed into decades,” the fund says, on its website, chronicling the region’s development.
Scriven talks to DEALSTREETASIA in a freewheeling interview on his expectations and predictions for the Vietnamese market. Edited excerpts:
What is the current status of investments by International Finance Corporation (which put in $2 million in 2002) and France’s aid agency Proparco (which used to hold 5 per cent).
They have finished their period of investing in us, so they are no longer shareholders. But they were shareholders for a very long time (IFC for 13 years and Propaco for 10 years). Both of them felt that the particular job they wanted to do with us had finished, which was to help us become an institution. They were great shareholders. They bring a lot of experience and have a broad mandate to help finance development. One of the ways they do that is by helping the development of financial institutions. Now their job is fully done in that sense for us but it was very very constructive.
Could you tell us about your portfolios?
We have a public market investment division, that is the biggest part. It is investing in the public market, both equity and debt markets. And we have a private capital business unit, which is smaller and newer. With the private capital unit, we do some real estate, infrastructure, clean tech and some private equity.
With public market, we look after capital for global institutions, sovereign wealth, family offices, pension funds, investment groups who want to invest in Vietnam but do not like to invest in foreign ETFs (exchange-traded funds). Our job is to invest in big and medium-sized companies for the long term. We like to support good ESG (Environmental, Social and Governance) behavior. Basically most people care about governance, but we also care about the environment and the society.
We invest in a lot of blue chips. That is the equity side. The fixed income side is mostly government and corporate debt.
How do you assess the bond market potential?
I think it has great potential. The government is borrowing a lot, there need to be other borrowers and the interest rates are high. That’s a good sign for the future. Corporate bond market needs to develop further with crediting agencies. I know one which has been authorised but is not operational yet. And we need to test the legal system, so if the bond issue runs into trouble, we need to understand whether the legal system will support the structure of the bonds. For example, if a bond has collateral, we need the legal system to support the bond holders getting the collateral. But if the legal agreement doesn’t support or doesn’t have collateral, we need to know the risks to the bondholders.
How about opportunities in private equity?
Private investing is rather more difficult in Vietnam because it’s not such a well developed ecology. There are some companies here that are doing a rather good job, like Mekong Capital, Vietnam Investments Group and PENM Partners. We can call them growth capital investments, in mainly private companies.
At Dragon Capital, we don’t want to compete with them, as we look in other spaces. So, we look into restructuring of state-owned enterprises, and restructuring of anything, really.
What’s your approach about the small capitalisation scale of Vietnam’s listed equity market?
You might remember what I was talking about at the Vietnam Business Forum in Hanoi was one thing, which is the size of the capital market. I think it’s important for Vietnam to develop the capital market, because you cannot have private equity if you don’t develop it. That’s kind of the default access mechanism.
The capital market today is better than it was a year ago, but it needs to improve of course, to become bigger, more efficient, more diverse, and with more investors.
What do you think are the next drivers of growth for Vietnam?
One driver is recovery from the recession Vietnam had in real estate, banking sector and consumer sentiment. Another driver is growth, because Vietnam is a growing economy, while many countries are not growing very fast. Other major drivers domestic consumption, FDI (foreign direct investment) and state reforms.
The impact of international organisations like the ASEAN, European, South Korea free trade pacts and the Trans Pacific Partnership (TPP) will be significant, and we can find interesting opportunities in that combination of recovery, growth, restructuring and international organisations.
What are the specific opportunities from FTAs?
The FTAs will bring markets for expansion, investment and changes to the way Vietnam has done things in the past. For example, you can have a different set of privileges for private companies and foreign companies.
And what is your projection for the trend of investment in the coming years?
FDI is very successful, and with the trade agreements, there’s likely to be more FDI. Indirect investment still has some problems because the market is not big enough, but they will (pick up). I have read from Vietcombank that the capital market of Vietnam will grow five times in the next two years.
The recent removal of foreign ownership is positive. It’s a little ambiguous but generally positive. Foreign investors like things to be really simple and really clear (as talking about a spate of guiding documents for the new regulation), but it’s still good news.