VinaCapital’s decade of milestone development

What are VinaCapital’s most remarkable achievements over the past 10 years?

That’s a brisk clip our funds have been moving. In our early days, we had only one fund at a mere $10 million in size, much smaller than our peers. But now, the total assets we manage are bigger than those of other fund managers doing business in Vietnam. Our Vietnam Opportunity Fund (VOF), VinaLand Limited (VNL) and Vietnam Infrastructure Limited, are all London-listed. VinaCapital’s funds are the industries’ most outstanding. Our funds also outdo others in terms of bringing shareholders a big premium and becoming the most reliable entrance for those searching for returns in Vietnam.

Have you met all of your ambitions?

We would have liked to have done even more and better. We’ve brought many investors into Vietnam but the volume of capital failed to meet the potential and opportunities we’ve seen in such a dynamic economy. Most fund managers now find it hard to raise cash as the country’s economic conditions have turned sour.

What were the significant milestones of VinaCapital’s history into a fully diversified investment group?

The 2003-2005 period was our start-up one. Our business during that time was team building and investment strategy formation. In the period, VinaCapital managed only VOF that has listed on the London stock exchange since 2003.

Next, in the 2006-2008 period, Vietnam’s economy and VinaCapital as well, witnessed robust growth. The successful hosting of APEC 2006 made Vietnam become more alluring, thus helping VinaCapital pool more than $1 billion to invest in various fields such as stocks, bonds, the private sector, real estate and infrastructure projects. We then founded two new funds, VNL in 2006 and VNI in 2007, in addition to the $32 million technology fund DFJ VinaCapital.

In 2009, Vietnam’s economy fell into the doldrums due to global turbulence. VinaCapital took advantage of this time to make some staff reinforcements and investment policy adjustments. The 2011-2012 economic downturn challenged investors’ faith. We had to travel more and work harder to market Vietnam, persuading investors that the current problems were in the very short run.

So how has 2013 been?

We were happy to see signs of recovery this year; inflation went down, lending interest rates eased and the local currency became more stable.

Do you think belief will return soon?

Belief is key. It’s expected to return soon. It depends on how stable the macro economic indicators are. No one can be sure of this. We should wait and see how they will be in the next two quarters.

Why did your funds make several divestments recently?

Reviewing investments is among our regular jobs. This helps us actively search out trade sales of matured assets at premium to market price and exit from those getting into trouble.

Which assets are considered matured or troubled?

For us, an asset matures once it reaches the target of 30 per cent return. It gets into trouble when it fails to produce fruit within a certain period, and any extension of holding may cost us more time and money.

Could you name some of your latest divestments?

Our VOF sold its stake in the medical and hospital group Hoan My to Fortis Healthcare Group, the logistics services provider TMS to a Japanese strategic investor, Legend Hotel Saigon to Lotte Hotel Group, the real estate constructor Cofico to Maeda Corporation of Japan. Meanwhile, VNL divested its stake in the Hao Khang project located in HCMC’s District 9. This was a future development site with a total area of approximately 50,000 square meters which was acquired in 2007 for development into an apartment and villa complex. Our exits provide strategic investors a chance to step in for a replacement and give a fresh impetus to the investees.

Not all investments produce fruit. Some will fail. Have any of your investments become bogged down?

That’s right. When you invest in 10 projects, if two of them fail, that’s acceptable. It’s impossible to think of the success of all 10.

We’re stuck with some equities, not in real estate projects. There is a 15 per cent holding stuck in a leading transport group. We would have put more money here if it didn’t aggressively expand outside its core business. Another example is a stake in a leading producer and exporter of high quality arabica coffee beans. We have decided to cut our losses and move to other businesses.

How they get into difficulties?

The transport firm invested tremendously in projects outside its key business, such as real estate projects. It and the coffee firm have used hefty loans to finance their projects. As a result, they have racked up huge debts and losses. Our investments in these firms have now become duds.

Have your investment strategies changed?

Actually no. We always embrace a conservative attitude. We’ll only invest in the top three companies of an industry. Investments will still be in the top Vietnamese companies in defensive sectors like consumer goods, healthcare, and agriculture and continue to produce good earnings growth. However, they’re required to focus only on their core business. Even when the economy gets tough, leading businesses survive. We’ll also limit the use of bank loans; only use them for a number of projects in the final stages. We’ll have to evaluate and do due diligence process better to avoid mistakes. 

Is VinaCapital interested in the sectors that are expected to benefit once the Trans-Pacific Partnership (TPP) trade pact is signed?

We’ve looked closely at these opportunities but benefits to certain sectors are not clear as some say this, and others say something else. It still needs to be studied.

VinaCapital-managed funds’ shares currently trade at a wider discount to NAV per share, preventing VinaCapital from raising new funds for projects under development. What are you going to do to have enough cash for those investments?

Besides cash withdrawn from divestments, we’re considering raising additional capital in the form of debt or quasi-debt instruments to refinance existing project loans and commitments as well as to provide additional working capital in the medium term. The current initiative being explored is a zero dividend preference share issuance. However, it must be taken in a very carefully approach because high leverage imposes risks.

What are your preparations for an upturn of the economy?

This time is not favorable, but in the long run we will mobilise domestic capital in the form of open-ended funds. VinaWealth has been founded as a preparation for that.