A shining light in nation’s growth

Don Lam

VIR’s Duong Kieu talks to Lam about how he together with the VinaCapital team has grown the firm, promoted Vietnam’s capital markets, helped build a  better investment environment in Vietnam and contributed to Vietnam development.

You have been granted one of the government’s most notable orders as the acknowledgment for  your contributions to the development of Vietnam’s economy. How do you feel?

I think my contributions to Vietnam have followed the development of VinaCapital Group. One of the most considerable contributions is that VinaCapital has been a leading commercial ambassador for Vietnam, by promoting trade and investment in Vietnam with partners around the world.

Our Investor Conference last October brought almost 100 shareholders to Vietnam, over the course of 2010, VinaCapital also attended international events including WEF Davos, SuperReturn, Cityscape, Cambden, MIPIM, GRI, and others. At these events we worked to increase investor’s understanding of, and interest in, the Vietnamese market.

VinaCapital was the first Vietnam-based business to join the World Economic Forum, and we lobbied for three years to have a WEF event in Vietnam. Last year saw the fruits of this effort as the WEF East Asia meeting was held in Ho Chi Minh City.

In addition to our work overseas, VinaCapital has added value to Vietnamese companies through injecting capital and supporting their business plans, providing management expertise and promoting good governance. Most VinaCapital-invested companies have listed successfully over the past 18 months, including Eximbank, QCG, Khang Dien, and DIC Corp. In all, we’ve had 12 listings in 18 months.

VinaCapital has been well known for its charity activities through VinaCapital Foundation (VFC), how have you found yourself in these activities?

Several years ago I was extremely busy with work, and all I had in my mind waswork, work and work. I then happened to see a mother with her daughter who wasgoing to die of a heart disease.

I asked myself why this child had to die just because of his mother’s lack of money. That was why I decided to help him, andsoon after I asked Robin Austin from East-West to help found the VinaCapitalFoundation. 

VCF’s principle is to bring money directly to the needy, not in an indirect way. We focus on children with heart-disease and we will stop doing this when no children in Vietnam are dying of this disease.

VCF has so far providedheart surgery funding to 1,970 children, continuing care  grants to 88 cases, and family grants  to 84 families. It has also helped bring outreach clinics  to 19 provinces, which have  provided free care to 7,868 children and  discovered 3,177 children with congenital heart  defects.

How did you come up with the idea of setting up VinaCapital in 2003?

There has been three waves of investment into Vietnam, starting in the late 1990s after the 1997 financial crisis in Asia, then in the early 2000s and the final wavearound 2006.

VinaCapital was established in 2003 and officially made its first investment in 2004. This was not an easy decision at all.

VinaCapital was the first fund management firm established after 2000 when many other peers like Dragon Capital, Mekong Capital, and Indochina Capital saw a slowdown and some even decided to leave the country. Not many people dared set up a new fund at that time, but we did with the first amount of $10 million.

After the financial crisis in Asia in 1997, no one wanted to inject money to this area, so it was extremely tough for Vietnam’s fund managers to mobilise capital.  However, challenges always entails opportunities. Vietnam then started to see a series of major changes such as the debut of the stock market in 2000 and the openness of Vietnamese enterprises. 

Our first $10 million fund, VOF, invested its original capital quickly and was able to raise more, and VinaCapital as a whole is now a diversified investment firm with over $1.7 billion in asset under management.

Unlike the previous VinaFund (VF1), which focused more on foreign-invested businesses, VOF aims at helping domestic firms. In early 2004, we assisted KinhDo Limited Company to take over Unilever’s Wall’s ice cream in Vietnam, by restructuring its local plant. The Wall’s deal was really successful. We protected the Wall’s plant from being moved to Thailand, kept the capital in Vietnam, and helped keep jobs for over 100 people in the plant at that time.

In addition to investing in Vietnamese companies, VinaCapital has also invested directly into many of its own FDI projects, such as our pioneering investments in Danang and Quang Nam province. At the time we first invested, these areas werevery undeveloped and we had to start first by investing into infrastructure and real estate development. Now Danang is one of the fastest growing regions of the country.

It was a milestone when the firm decided to pump capital into property developments while the stock market was still “really hot” in 2005-2006. This move helped your firm avoid the slowdown in the stock market after that, so what was your real driving forces for this move?

It is common in emerging markets, not only in Vietnam, for companies to trade at about ten or twelve times their earnings per share. But at the peak of Vietnam’s stock market in 2007, companies were trading at 37 times their earnings.

This did not make sense to us and certainly the market then would have to adjust sooner or later. However, many investors at the time found it hard to stop chasing the VN-Index. For us, if a company is valued at say $50 million, it is unrealistic to  just inflate it to more than that.

That was why we decided to restructure our investment portfolio to property investment. As a member of the group’s management board, I found it hard to persuade investors to approve the restructuring, but we did try to reduce foreseen risks in the stock market at the time. Our profits from stock investment in 2006-07 were not as high as some competitors, but finally they endured bigger losses when the stock market went down after that.

For Example, in 2006, when many other fund management firms recorded a high profit rate of 80 per cent, VinaCapital just had 40 per cent. Actually, we had prepared for investment into a real estate fund three or four years before that.

In the context that Vietnam has faced a lot of macroeconomic uncertainties, especially high inflation and currency depreciation, what will be your future investment portfolio?

We now have 12 property projects under construction and another three are set tobreak ground this year. Most of the projects are residential complexes and villa developments. VinaCapital will stop investment into office for lease developments, while focusing on retail, residential, villas, resorts and hospitality developments.

The fact that Vietnam received five million international tourists in 2010, together with its political stability and competitive travel costs will continue to be inspire further development of hotels and resorts.

VinaCapital now has seven hotels and resorts nationwide and is expecting business to increase as the government is considering exempting tourists from needing visas. Regarding retail property, besides Hung Vuong Plaza, we are planning to develop some more department stores and shopping malls to accommodate more and more international brands that are entering the country. Meanwhile, we have reduced investment into luxury residential projects and look to develop more villas and semi-detached houses in the surrounding districts of Ho Chi Minh City.

The most important step is that we launched the VinaLiving brand in 2010, aiming to become the preeminent real estate and lifestyle brand in Vietnam. VinaLiving continues to grow rapidly as more residential developments launch, focusing on family-oriented communities.

How about the stock market?

Vietnam’s stock markets lagged the region in 2010. The index went down 7.2 per cent while others made gains. However, underlying company performance is strong, which is still a good environment for deals. To move the index higher, it will also depend on controlling the inflation rate and other factors such asincreasing the foreign ownership cap, listing of major state-owned enterprises (SOEs), and the establishment of a formal bond market.

Investors are waiting to see if the difference between the open-market foreign exchange rate and the official rate narrows or not. VinaCapital will continue look to invest in fast-growing companies with profit increase by 20-25 per cent per year and PE below 10 times. The companies which have no debt in the areas of manufacturing, food processing, and exporting, will have more potential for development no matter where the inflation rate is heading.

What is the possibility for foreign investors to inject money into Vietnam this year?

Foreign investors do recognise Vietnam’s long-term potential , but during 2010-11 they still wait to see how Vietnam responds to current economic challenges. I believe Vietnam remains one of the world’s top emerging market investment destinations.

I hope that room for foreign investors will be expandedbeyond the 49 per cent for listed companies. The equitisation of some big state-owned companies such as Vinaphone, MobiFone, and Vietnam Airlines are also very important this year.

 VinaCapital has recently opened VictoryCapital in Phnom Penh, to source and manage VinaCapital’s investments in Cambodia, and to help Vietnamese companies wanting to  invest into Cambodia. We are looking to bring VinaCapital’s total asset under management to $3-4 billion in the coming five years.