Mekong Capital plans to divest from Traphaco

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Mekong Capital and Traphaco

Vietnam Azalea Fund (VAF), managed by Mekong Capital Ltd., invested in Traphaco in 2007 and has continued to increase its ownership ratio ever since. At the moment, VAF is holding 25 per cent of the shares at Traphaco, second only to State Capital Investment Corporation (SCIC).

In 2008, Traphaco was listed on the Ho Chi Minh City Stock Exchange (HOSE) and soon became one of the blue-chips on the market. While TRA shares were sometimes sold below par value in its early days in 2008, it is currently one of the highest-priced shares on the exchange, with the average price in mid-August 2017 being VND120,000 ($5.3) per share.

Currently, Traphaco is one of only two companies with investment from VAF, with the other company being Loc Troi Group JSC.

However, Mekong Capital has signed agreements to transfer all shares in Loc Troi, essentially completing this investment cycle. Specifically, on July 26, VAF sold 75 per cent of the shares in Loc Troi at VND68,000 ($3) per share to earn a total of $9.2 million. The fund also signed a deal to sell the remaining 25 per cent of the shares at the same price, which is expected to be finalised before the end of September.

Chris Freund, partner at Mekong Capital, said that the investment fund highly appreciates Loc Troi’s cooperation in the listing and divestment process.

Traphaco divestment plans

After VAF finishes its divestment from Loc Troi this September, Traphaco will be the only company holding VAF investment and the fund is eager to complete its divestment.

According to Vu Thi Thuan, chairman of the managing board of Traphaco, two foreign investors have recently approached Mekong Capital to discuss a share transfer, and it is likely that these investors will acquire VAF’s TRA shares. One of the investors was an Asian pharmaceutical company, while the other was a European financial investor.

After the Loc Troi deal is completed, Traphaco will be the only company with shares under VAF's control

Details of the divestment process have not been announced, however, a divestment through share transfer will not have much impact on the price of TRA shares. Furthermore, a foreign pharmaceutical company becoming a shareholder will be of great interest for Traphaco, as the Vietnamese pharmaceutical company still wants to develop further both its professional capacity and market size, with the potential of expanding to foreign markets.

Now seems to be an opportune moment for VAF to divest since Traphaco’s business is heading in a positive direction. In the second quarter of 2017, Traphaco reported an after-tax profit of VND67 billion ($2.95 million), increasing 10 per cent compared to the same period last year, and an accumulated profit of VND117.4 billion ($5.2 million) in the first six months of 2017, increasing 4.6 per cent.

Also, Traphaco has relatively low debts, with total liabilities at VND302 billion ($13.3 million) as of June 30, 2017, less than a third of stockholders’ equity (VND1.07 trillion - $47.1 million).

The majority of Traphaco’s liabilities are accounts payables to suppliers, valuing at VND139 billion ($6.12 million) in total. The rest consists of other payables to workers, the national budget, as well as various short-term costs. The company’s bank loans only account for a small portion of total liabilities, with a short-term balance of VND64.6 billion ($2.84 million) and long-term balance of VND8.65 billion ($380,600).

The low dependency on loans showed that Traphaco possesses a high level of financial autonomy and almost no payment risks. However, some financial experts have argued that this also means the company has not been able to fully utilise financial leverage to increase business performance.