Bright prospects for private equity

Bright prospects for private equity-illustration photo (shutterstock)

Vietnamese brokerage SSI Securities Inc. has joined forces with Thailand’s C.P. Group and the Development Bank of Japan to kick off a $150-million private equity fund to invest in Vietnam. SSI Asset Management (SSIAM), a subsidiary of SSI, has inked a deal to set up the Vietnam Growth Investment Fund (VGIF).

VGIF is a member fund which invests in private companies with an estimated size of $150 million, a 10-year term, and a 5-year investment period. Officially established on October 14, the fund’s main focuses are consumer goods and other sectors with high competitive advantages in Vietnam, mainly in essential industries that have many growth factors due to the change in demand/consumption, attractive supporting policies, and high annual growth. Such areas include food and beverage, retail, healthcare, energy, and water.

Le Thi Le Hang, CEO of SSIAM said, “The launch of the private equity (PE) fund precedes market trends as PE funds are not yet popular among domestic investors. However, with the growing economy and increasingly diversified investment needs, and with a longer-term vision, we believe that the VGIF will achieve many successes in the future.”

Kenneth Atkinson, founder and senior board adviser at Grant Thornton Vietnam, told VIR that there seems to be a lot of activity at the moment as PE prepares for a post-pandemic world, with last week’s SSI deal a prime example.

Elsewhere, Swiss group Excelsior Capital recently announced the establishment of a sixth fund for investment in Vietnam, with a first closing of $60 million. This trend is expected to continue as foreign direct investment continues to increase and local Vietnamese companies mature and grow.

Atkinson added that PE is a key source of capital for many investment projects and business expansion programmes. For PE firms and funds with no established offices in Vietnam, COVID-19 has presented challenges as face-to-face meetings and company visits have been impossible to arrange. This has inevitably caused something of a slowdown in PE investments but not a complete halt.

There are strong signs that PE is alive and well and will rebound strongly when the borders reopen – if not before, Atkinson added. Temasek and KKR, for example, closed a deal earlier this year to invest $650 million in Vinhomes. Lodgis (Vinacapital and Warburg Pincus) also completed the acquisition of Grand Ho Tram Resort and Casino.

The latest report by the VinaCapital Vietnam Opportunity Fund showed that its net asset value per share increased 2.9 per cent, while the figure for the calendar year to date is up 8.5 per cent, outperforming the VN Index by 13.1 per cent. The positive performance of the fund is partly attributable to the growing investment in PE (19.4 per cent) and bonds (3.3 per cent), thereby reducing reliance on the volatile stock market.

With this growing investment in PE, Atkinson is upbeat about the strong outlook for PE in 2021. The main factors driving this will be the fact that Vietnam will be one of the top countries for GDP growth in 2021 and the continued migration of manufacturing from China to Vietnam. PE will also follow companies from Europe that are looking to invest in Vietnam after the coming into force of the EU-Vietnam Free Trade Agreement.

It is not just overseas companies moving manufacturing from China – China itself is now in the top three investors in Vietnam. Another factor for growing attraction will be Vietnamese companies joining the global supply chain, which will also create opportunities for PE investments.

To attract more of these funds into Vietnam, Mekong Capital founder and partner Chris Freund said that the Vietnamese government has demonstrated great leadership in managing the health crisis while keeping Vietnam’s economy growing. “In the long run, we believe that the government should focus on cultivating a strong middle class in Vietnam, which will ensure the long-term stability of Vietnam’s economy,” Freund said. This can be contrasted with countries that have a big imbalance of wealth between the wealthy and the poor, which leads to instability, as currently witnessed in the United States.

“Apart from the macroeconomic factors, one important thing in raising PE funds is the track record of the PE firm and investment in that country. Another critical factor is the strength of the PE firm’s team. We believe PE firms that can add value to grow the companies in any economic environment and generate high absolute long-term returns, regardless of external circumstances, will gain reputation,” Freund added.