Private equity investments in Vietnam take off in Year of the Dog

Ample foreign capital is flowing to private equity deals in Vietnam

Increasing appeal to foreign capital

It looks like foreign investors are wasting no time when it comes to Vietnam’s robust private sector. This week, Malaysia-based investment fund Creador just announced its plan to open an office in Vietnam in June, as well as spending up to 20 per cent of the upcoming $500-million Creador IV fund on Vietnam-based private equity (PE).

Last month, the fund made its debut in Vietnam by forking out $43.8 million for shares in leading retailer Mobile World Corporation. The purchase was done via both public markets and private transactions with Mekong Capital, a long-term investor of Mobile World.

In an interview, Brahmal Vasudevan, founder and CEO of Creador, said that he was impressed with Vietnam’s booming growth and believed that the country will expand in a similar fashion to China and India. The fund is also targeting another deal as it launches the Vietnamese office this year.

Just a few days beforehand, American PE firm Warburg Pincus also unveiled a $200-million joint venture with Vietnam’s Investment and Industrial Development Corporation, better known as Becamex IDC. The new joint firm, called BW Industrial JSC, will develop logistics warehouses and other industrial facilities in Vietnam’s economic zones.

Similar to Creador, Warburg Pincus’ representatives voiced their enthusiasm for Vietnam’s rising manufacturing power and domestic consumption. Previously in 2013, the American investor has poured $200 million into Vincom Retail, the leading mall operator in Vietnam, for 15 per cent of the stakes.

Upon the listing of Vincom Retail last year, this figure fell to 4.9 per cent. The $700-million listing went down in history as the largest initial public sale ever held in Vietnam, cementing Warburg Pincus’ confidence in the company.

In 2016, the American PE firm also partnered with VinaCapital in a $300-million joint venture for hospitality investments across Southeast Asia. The joint venture then bought out Hanoi-based Sofitel Legend Metropole Hotel from VinaCapital in last February.

Strong prospects as economy heats up

Standard Chartered Bank forecasts that Vietnam’s GDP will grow by at least 6.8 per cent this year, with inflation and foreign exchange rates remaining stable. About half of the 100-million Vietnamese population is now under 30, and at least 33 million people are expected to become middle-class consumers by 2020. Consumption in the country is booming as disposable incomes increase.

With this in mind, PE investors are about to strike when the iron is hot. In a recent note to investors, Andy Ho, chief investment officer of VinaCapital, noted that PE deals will take up 20 per cent of Vietnam Opportunity Fund within the next three years, compared to the current 8.1 per cent threshold.

“Vietnam Opportunity Fund is focusing PE investments in the consumer and infrastructure sectors to gain exposure to Vietnam’s growing middle class and the government’s infrastructure spending over the next five years,” wrote Ho.

Rising investors’ attention also makes it easier for current PE investors to make a profitable exit. Mekong Capital, for example, collected $79 million in net proceeds from its withdrawals during the first ten months of 2017. In the Mobile World sale to Creador last month, the PE fund recorded a historic internal returns rate of 61.1 per cent, one of the highest ever in Asia.