Vietnam’s PE landscape improves, SOE opportunities remain uncertain

Ho Chi Minh City, Vietnam. Photo: Pixabay

Deal making by private equity firms in Vietnam this year has already reached around $770 million through 19 deals compared to $750 million across 13 completed transactions in the last fiscal year, according to DEALSTREETASIA data.

The deal flow is on track to continue in 2017, as fund managers have not announced all of their investments. A new Ho Chi Minh City-based firm has been incorporated and will announce its maiden fund soon, this portal has learnt.

In both years, local PE firms VinaCapital and Mekong Capital were still the most active investors. Other local companies active in the space include Dragon Capital and SSI-Daiwa Fund.

However, investments by these firms constituted only $30 million each. Big ticket deals have always been made by large global players.

The biggest transaction in 2016 was the $382.5 million acquisition of Hanoi’s tallest building Keangnam Landmark by South Korea’s AON Holdings. This year, KKR made Vietnam’s largest investment by pouring $250 million into consumer goods conglomerate Masan Group.

*Based on estimation and market sources       **convertible notes

Vietnam: Top PE deals by value, 2016 and 2017

The year 2017 to date has seen the entry of first-time investors in the country such as EQT Capital Partners and Blue HK Investments, adding to the diversity of investors in this emerging market. Vietnam has also seen debt facilitators like the International Finance Corporation (IFC) roll out their private equity investments.

When it comes to sectors, while the real estate and consumer industries acted as the best performers in terms of attracting large capital, education, entertainment and technology also emerged as new areas.

Vietnam, home to around 94 million people with an expanding middle and upper class and surging Internet use, is expected to see the growth of strong SMEs in technology, education and green agriculture, according to global business development firm Reddal.

Thanks to the government’s support for the startup ecosystem, some strong startup companies have bagged private equity funding since 2016, including e-wallet MoMo (Standard Chartered Private Equity and Goldman Sachs invested $28 million), VNPT E-Pay (UTC Investments invested an estimated sum of $38 million) and Toong Co-working Space (Indochina Capital invested in the firm).

Vietnam: Top PE investments by sectors, 2016 and 2017

However, Reddal said in a recent report that Vietnam’s focus on venture capital funding may not solve the underlying issues of the shallowness of entrepreneurship and innovation.

“While consumer- and digital technology-driven sectors continue to drive private equity and venture capital activities, the lack of “back-bone” industrial development stresses the importance of further development, it added.

PE can play a role in steering the consolidation of the largely fragmented manufacturing sector and driving value creation through operational improvements for domestic manufacturing SMEs.

Recent movements of local private conglomerates like Vingroup toward car manufacturing might send a positive signal and, if successful, boost confidence in local manufacturing capabilities and the growth potential of Vietnamese owned companies, according to Reddal.

Also read:

Vietnam: Vingroup starts construction on $1-1.5b first phase of car factory

However, the Southeast Asian nation will need to ease the path for private equity investment, especially in research and development. “Ensuring there is a strong domestic component in private equity should be seen as a priority. Removing barriers and risks of entry and operating also attract private equity investments and activities. Comparing to other countries in the region, for example the Malaysian government has been active and achieved some good results, but recent political turmoil has scared off foreign investors which slowed down the ecosystem development”, said Samppa Sipilä, Reddal Kuala Lumpur office manager.

“Thus, the ability of the government to execute cleanly is important to get the desired impact; political scandals and other mishaps easily ruin even the most carefully thought out program,” he continued.

SOE opportunity uncertain

While a number of investors have acknowledged that the privatisation of Vietnamese state companies could generate opportunities for private equity firms, Reddal report opined that the PE play will only be realistic if SOE reforms become more robust and transparent.

“Higher-value deals are expected from upcoming SOE privatization in critical industries but PE significant participation remains uncertain,” the firm said, adding that good SOEs were most likely to be bagged by a few interest groups.

Meanwhile, over 60 per cent of SOEs slated for privatization by 2020 have a charter capital under $5 million each, according to Stoxplus data.

Vietnam needs to avoid being too dependent on multi-national corporations and build strong local industries that are regionally competitive by transforming current leading SOEs, said the Reddal report.

Stoxplus’ senior analyst Khieu Duy Hai added that corporate management remained a headache, and delayed IPOs also discouraged PE investors from participating.

In short, Vietnam’s private equity sector is still small and volatile, said Reddal.

Foreign PEs drive up deal size and valuations, they said, but the actual number of suitable targets is still small and PE firms must adapt to this in their investment decision process and in how they create value.

“It’s a bit of catch-22: market is not yet mature for value creation as done in Western economies, but active value creation is badly needed,” Dr. Per Stenius, CEO of Reddal, commented. “While the government wants to ensure job creation and overall growth, a key measure for long term success should be whether a solid Vietnamese industrial back-bone is created.”

Also read:

Vietnam M&A deal value up 12% to touch $5.8b in 2016

CapitaLand launches first $300m Vietnam private equity fund

Mekong Capital bets on vision-driven investing formula for mega returns

Private equity funds increase emerging market assets to over $500b

 

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.