The billion USD race to invest in Vietnamese firms

VOF of VinaCapital and its Japanese partner - Daiwa PI Partners - funneled $45 million into the international dairy product company (IDP), which owns Ba Vi milk brand.

 

For Peter Sorensen, CEO of ABB Vietnam Consulting JSC, 2015 was an exciting year of Vietnam on mergers & acquisition (M&A) activities, as well as the busiest year of ABB since its formation. However, he expects that the number and value of M&A deals will grow strongly in the coming time.

 

As an active consultant in the field of M&A, ABB has recognized the great interest of foreign investors in the fields of retail, distribution, FMCG, agriculture and financial services. Thailand, Japan and South Korea are the countries with the greatest demand in these sectors. In 2016, the active participation of PEs for M&A activities impressed Peter Sorensen.

 

Previously, if PEs often engaged in transactions of non-dominant securities, now they are ready to invest at a higher rate to increase profits and reduce increasing competition in good deals. In addition, the increase in the percentage of ownership will also help PEs increase the intervention in business activities of enterprises to create surplus value, said Peter Sorensen.

 

Peter Sorensen revealed that some regional PEs were planning to allocate over $2 billion into the Vietnamese market and seek deals to acquire large domestic companies. A typical case is Navis (operating mainly in Southeast Asia, currently manages funds worth $5 billion and holds a controlling stake in 70 companies) acquired the Vietnam-France Hospital in Hanoi at undisclosed value.

 

In fact, in the Vietnam market, the operation of PEs has shown positive signs. Recently, Mekong Capital which specializes in unlisted firms in Vietnam, has officially completed the process of raising capital for its fourth fund Mekong Enterprise Fund III Limited Partnership (III MEF), with total commitments of $112 million.

 

It is known that after 15 years of operation in Vietnam, Mekong Capital’s funds have completed 29 investments in unlisted equity. Mekong Capital manages 4 funds and one of them is making new investments.

 

SSIAM is also listed as a major fund today. SSIAM manages about VND6,600 billion of investors in the form of funds, portfolio and investment advice. For the investment fund management segment, SSIAM currently manages 6 investment funds, with total assets of more than VND2,200 billion. By the end of June 2016, investment activities of the funds outperformed market indexes.

 

Specifically, Daiwa - SSIAM Vietnam Growth Fund II LP specializing in PE investment, with a total capital of about $40 million, has started disbursement. SSI Start-up Fund with capital of VND100 billioninvested in companies in the start-up period, potential small and medium-sized enterprises in agriculture, food and consumer oriented sectors, and has just completed disbursement of the first investments in Hellomam.

 

All ASEAN members are creating conditions to attract foreign investment flows. However, Vietnam possesses many plus points for PE funds, while investors also realize the important role of Vietnam in the ASEAN Economic Community (AEC) and the Trans-Pacific Partnership (TPP).

 

Analysts said that there are two pretty big hurdles for PEs to enter the Vietnamese market: the transparency of corporates and signs of market saturation in some industries. PEs often select leading enterprises to take advantage and be able to disburse a large amount of capital.

 

Ms. Le Thi Le Hang, CEO of SSIAM, said that for Andbanc Investment SIF (foreign funds) managed by SSIAM, the fund focuses on small and medium companies, the ones that can have value increased through the participation of SSIAM in the board of directors or the supervisory board of the companies.

 

For Mekong Capital, compared with the previous startup funds, the market sees more companies founded by young entrepreneurs of Vietnam and it is a favorable factor for the fund to find firms appropriate to its standards and conditions. However, many companies are still on a small scale, so one of the biggest challenges is the scale of investment which tends to be smaller than the fund’s objectives.

 

Meanwhile, Ms. Dang Pham Minh Loan, deputy director of VinaCapital, said the capital for PEs in the region and the world is abundant. Besides the funds focused exclusively on the Vietnam market as VinaCapital, Mekong Capital, VIGroup, Saigon Asset Management and PENM Partners, the global PEs is showing their increasing interest in Vietnam.

 

Some big PE funds with huge capital for Vietnam are DEG, member fund of the KfW Group (Germany), Daiwa - SSIAM Vietnam Growth Fund II LP, and some banks from Japan, such as Southeast Asia Development

Foundation of the Development Bank of Japan (DBJ) or Mizuho Bank,which also established the ASEAN PE fund worth $180 million with capital contribution of the Japan Bank of International Cooperation.

 

A private equity fund is a collective investment scheme used for making investments in various equity securities according to one of the investment strategies associated with private equity. Private equity funds are typically limited partnerships with a fixed term of 10 years (often with annual extensions). At inception, institutional investors make an unfunded commitment to the limited partnership, which is then drawn over the term of the fund.

 

A private equity fund is raised and managed by investment professionals of a specific private equity firm (the general partner and investment advisor). Typically, a single private equity firm will manage a series of distinct private equity funds and will attempt to raise a new fund every 3 to 5 years as the previous fund is fully invested.