Fresh opportunities for foreigners
HO CHI MINH CITY -- Over 100 Asian and European investors recently gathered in southern Vietnam's economic hub for a conference organized by VinaCapital Investment Management to review recent developments.
There was much to discuss given new free trade agreements, a resurgent property market, the stock index hitting its highest level since 2009, and the devaluation of China's yuan.
VinaCapital has $1.3 billion in assets, and runs three closed-end AIM (Alternative Investment Market) funds on the London Stock Exchange: VinaCapital Vietnam Opportunity Fund (VOF), VinaLand and Vietnam Infrastructure.
AIM, a London sub-market, allows smaller companies to float shares more flexibly than on the main market. The most profitable element in the VOF portfolio, VinaCapital's main fund, is private equity.
VOF will focus on the food and beverage industry and real estate in the coming year, but is also seeking opportunities in education, health care, media, logistics and agriculture, with both direct private investments and over the counter.
VinaCapital also launched Forum One -- VCG Partners Vietnam Fund (VVF) three months ago. It is Vietnam's largest fund compliant with undertakings for collective investments in transferable securities for marketing across the EU. According to VinaCapital, VVF is uniquely positioned to unlock value in listed Vietnamese companies for European and Asian investors.
"VVF is designed to meet the needs of today's investor, and is a direct reflection of [the] ongoing transformation strategy of VinaCapital," said Don Lam, VinaCapital chief executive and founding partner.
Vietnam has recently gained an edge over other Asian investment destinations with its low interest rates, mild inflation, improved infrastructure, friendlier investment policies and solid economic growth of about 6% over the past five years.
According to Deputy Finance Minister Truong Chi Trung, Vietnam's economy has been steadily integrating globally, which facilitates development and investment. More than 19,000 projects with foreign direct investment have been registered and are worth some $270 billion.
Developments such as the fruition of the Trans-Pacific Partnership will improve conditions for investors and open the way for a new wave of capital. Vietnam's stock exchange is relatively attractive with a price-earnings ratio of 11.1 compared to 22.5 in Indonesia, 20.1 in the Philippines and 17.1 in Thailand, according to VinaCapital.
Vietnam's market capitalization is also low by regional standards at only 26.3% of gross domestic product compared to 96.3% in Thailand, 68.5% in Malaysia, and 61.5% in the Philippines.
Vietnam's stock market could grow to over 60% of GDP in the coming years given more open investment policies, according to Andy Ho, VinaCapital's chief investment officer.
Ho said the government "has created attractive opportunities for foreign investors in the market." These relate to investment, banking, state enterprises, the stock market and insurance.
A key reform is reducing foreign ownership limits in many sectors. Saigon Securities Inc. became the first listed company entirely foreign owned on Sept. 1, the day new rules came into effect.
Another attraction is the hundreds of state enterprises queued for privatization. Truong reminded the investors' gathering that the government plans to divest its interests in ten major state enterprises, including Vietnam Dairy Products (Vinamilk) and FPT. "This divestment process will accelerate," said Truong.
The big ten
Last week, the Vietnamese government allowed its State Capital Investment Corp. (SCIC) to announce the sell-off of interests worth some $3 billion in ten large companies with state shareholdings.
Vinamilk tops the list and is expected to generate up to $2.5 billion based on Friday's closing prices. Proceeds from FPT are valued at around $50 million.
"Investors reacted positively," said Ho. "They could invest as much as $4 billion into these kinds of stock."
The divestments and higher ownership ceilings have been welcomed in a market short on blue chips, but details have still to be announced in the coming weeks. Investors will be given guidelines for share acquisitions in the ten companies as well as SCIC's auction schedule.
According to Pham Viet Muon, a VinaCapital senior adviser, the timeline is unclear but the government is firm on complete divestment. Pham was previously vice chairman of the National Steering Committee for Enterprise Reform and Development.
Some local analysts believe the national deficit is an important reason for divesting state assets, including Vinamilk's profitable dairy business. The capital can be better used funding infrastructure projects, including Long Thanh International Airport for congested Ho Chi Minh City.
In October, the State Bank of Vietnam and the ministry of finance discussed withdrawing overseas deposits for state investment. The government has also proposed a $3-billion international bond issue for debt, three times larger than the last such issuance in late 2014.
The local press has quoted an unnamed senior banker saying the finance ministry plans to sell $1 billion in bonds to Commercial Bank for Foreign Trade of Vietnam (Vietcombank), after a successful issuance in May of another $1 billion.