Bouncing back

As the stock market in Vietnam continues its rebound, private equity firms are back in the market raising capital for investments.

Two years ago, Vietnam was on the up and up and receiving increasing attention from investors across the globe.

Yet, post-Lehman, this country’s rising star – like that of so many similarly positioned countries – plummeted. Foreign institutional investors who had rushed to invest in the country began liquidating their holdings and the country’s stock market dived – forcing the private equity market onto ice.

The rash of private equity fund launches seen over the last few weeks, however, would suggest Vietnam has turned a corner.

Last week, Mekong Capital disclosed it is in the midst of fundraising for its third fund. The Ho Chi Minh City-headquartered private equity firm is targeting commitments of $150 million for Mekong Enterprise Fund III and expects to hold a final close on the fund in nine to 12 months, Thomas Lanyi, a director at Mekong Capital, told sister publication PEI Asia.

Vietnam Pioneer Partners, a first-time fund manager based in Ho Chi Minh City, has also begun raising capital for its maiden fund, which is targeting commitments of $100 million. That fund is expected to reach a first close by the first quarter of 2010, Viet Hung Do, executive director and co-founder of Vietnam Pioneer, said in an interview last week.

In the same week, Saigon Asset Management (SAM), a Ho Chi Minh City-based private equity and real estate firm, said it was poised to launch follow-ups to its private equity and real estate funds in the near future and had appointed a chief investment officer to help facilitate its plans.

Whereas pre-crisis, these funds may have focused – like funds in other Asian nations – on export-oriented investment opportunities, this time round it’s all about what’s going on at home.

The country’s “rapid urbanisation and growing middle class is creating a new culture of consumerism”, Don Lam, chief executive officer and co-founder of stalwart Vietnam-focused investment firm VinaCapital told PEI Asia recently. This has led to opportunities in sectors such as financial and business services, education, healthcare and residential real estate developments. Other sectors talked about include media and entertainment.

But the domestic consumption-driven opportunities are not really that new – in fact, they pre-date the crisis. What’s new is the handful of other factors allowing these private equity firms to finally dust off their business cards and get their investment proposition out into the market.

Number one amongst these factors is renewed confidence in the stock markets. The Ho Chi Minh stock index, which plunged from 1107 points in March 2007 to just 235.5 points in February 2009, has risen 147 percent to 582 points in the last seven months, improving the likelihood of exits through initial public offerings.

On the investment-sourcing side, there is steady deal flow emanating from the continued privatisation – or “equitisation” – of state-owned enterprises by the country’s communist government.

The private equity market is also seeing support from developmental finance institutions such as the International Finance Corporation, which has invested in Vietnam Pioneer Partners’ maiden fund, and the Asian Development Bank, which according to Reuters has backed Mekong’s third fund.

Vietnam’s star is in the ascendancy once more. Now, only the LPs need convincing.