Photo: Viet Tuan
Flush with capital, Vietnam-based fund manager set to build upon fruitful 2016.
Vietnam-based fund manager VinaCapital said it has around $120 million in the kitty to re-invest in either private or publicly-traded companies, alongside the new $200 million private equity fund it is planning to raise. “This has been part of our ongoing strategy since inception,” Andy Ho, CIO of the fund manager told foreign newswire dealstreetasia.
The money will primarily be invested in the domestic market, given VinaCapital’s strong presence in Vietnam and the country’s ample opportunities. However, Mr. Ho said, the company will also explore and review opportunities in other regions such as Myanmar and Cambodia.
Founded in 2013, the firm has three closed-end funds that trade on the London Stock Exchange (LSE). Vietnam Opportunity Fund Limited (VOF), the firm’s flagship fund, moved from the Alternative Investment Market (AIM) to the Main Market of the LSE in late March last year. It was the first Vietnam-focused fund to trade on the board, which in turn led it to be included in the FTSE All-Shares index. And while the move from the AIM to the premium segment of LSE’s Main Market has significantly removed barriers to certain potential new investors, 2016 has also marked a return to form for VOF after a relatively pedestrian 2015.
Closing as high as $879.6 million in terms of estimated net asset value (NAV), or $4.24 per share, on January 13, VOF’s NAV per share saw a surge of 25.5 per cent (in USD terms) last year, nearly double the 13.4 per cent (in USD terms) of the VN Index and was the best performing fund in Vietnam. The Forum One-VCG Partners Vietnam Fund (VVF), the country’s largest open-ended UCITS-compliant fund, posted solid 12.8 per cent growth. Additionally, Vinaland divested several key assets and returned cash to shareholders, while Vietnam Infrastructure Limited (VNI) nearly completed its asset divestments.
The portfolio of listed equities represented 47.9 per cent of total net assets at the end of June 2016, down from 52.4 per cent in the previous financial period. Last year, VOF divested its stake in Hau Giang Pharmaceuticals to Taisho, a leading Japanese pharmaceutical company, at a large premium to market prices at the time. While the country’s pharmaceutical industry has always been a potential destination for foreign investors, thanks to the country’s dynamic population together with the signing of free trade agreements, the fact that the country’s biggest publicly-traded drug maker decided to retain its 49 per cent foreign ownership limit (FOL) was considered to be the main driver of the deal.
Significant new private equity investments came just in time to fill the gap. Together with DEG - one of Europe’s largest development finance institutions - VinaCapital became the strategic shareholder at the An Cuong Wood Working Company, one of Vietnam’s leading wood working and decorative materials companies, with investment of close to $30 million by a consortium led by VinaCapital. $9 million was also invested by VOF in March in the Thai Hoa International Hospital in the Mekong Delta.
But despite real progress on the investment and governance fronts, VOF’s discount to NAV saw little change during the last financial year, mostly range bound between 19 per cent and 23 per cent, only to widen and close at 25.2 per cent at the year’s end. The relisting of the company’s shares, with a premium listing on the main market of the LSE, had been expected to improve liquidity and the entry into the FTSE All Share/Small Cap Index was to lead to significant buying index trackers. But as index trackers have been active buyers of shares, as have new constituencies of retail investors, the effect on the discount has yet to be seen. “Lowering the discount remains a priority for the Board, and the continuation of the share buyback program should help achieve that in conjunction with other developments, including more active shareholder communications and maintaining relationships with existing investors as well as seeking new ones,” VOF’s Chairman Mr. Steven Bates wrote in the company’s 2016 annual report released in late November.
For CEO and Founding Partner of VinaCapital Mr. Don Lam, anything that will make money is worth investing in. And beyond the traditional domestic consumption story, where he believes “people always have to eat and drink”, the banking sector and infrastructure will be areas of interest. Vietnam will increase the limits on foreign ownership in banks this year to quicken the overhaul of the banking system and further lure overseas investments to boost economic growth, Prime Minister Phuc told foreign media on January 13. While the new ceiling has not been introduced as yet, which is currently 30 per cent, “we would certainly evaluate opportunities in those sectors, provided the conditions are right,” Mr. Lam told VET.
Capturing the rise in tourism numbers coming to Vietnam, VinaCapital entered into a $300 million partnership with US-based private equity firm Warburg Pincus on a new hospitality platform. The deal has been sowing its first seeds, with VOF selling its entire holding in an unnamed trophy asset for $100 million to the consortium. The unnamed asset, which had an audited NAV of $60 million as at June 30, 2016, is believed to be the landmark, century-old Sofitel Legend Metropole Hotel Hanoi, which VOF had been seeking to divest from since 2012 at a premium to market price but had yet to do so.
And with Vietnam’s tourism industry remaining undeveloped compared with neighbors such as Thailand and Malaysia, the joint venture with Warburg Pincus, which focuses on development, acquisitions and operations of hotels in Vietnam and Southeast Asia, was part of the plan. The $4 billion Nam Hoi An Casino Resort, a joint venture between VinaCapital, the Macau-based SunCity Group, and the Hong Kong-based Chow Tai Fook Enterprises, where VinaCapital holds a total of 32 per cent, broke ground in April last year and is expected to become the second integrated resort in Vietnam after the Grand Ho Tram Strip when it comes into being in 2021.
Admitting a more challenging year lies ahead from an equity perspective, as price-to-earnings (P/E) ratios have risen, Mr. Lam remains confident about the new opportunities for private equity investment, especially given that “there are still many undervalued companies in the market.” And his optimism is backed by the plan Mr. Ho revealed last year, where the fund manager may establish a new fund with more than $200 million to invest in Vietnamese private companies with great potential. Mr. Lam is certainly aiming for a second blockbuster, just like the effort he has put into the Kido Group.