PE eyes public-to-private in Vietnam

Vietnam has attractive opportunities to take a company private, but regulatory and operational hurdles tend to get in the way.

Private equity firms in Vietnam are considering public-to-private deals following the country’s multi-year stock market decline, sources said.

The full year average price-to-earnings ratio for a company on the Vietnam stock exchange was 9.79 in 2012, according to data from Thomson Reuters. That’s down from 11.4 in 2010 and one of the lowest annual P/E ratios among Asia’s stock markets. 

Vietnam’s average annual P/E was among Asia's lowest in 2012

India S&P SENSEX       14.95
Australia S&P/ASX200 12.78
Indonesia IDX COMPOSITE        12.74 
China SSE COMPOSITE   11.48
Hong Kong Hang Seng Index 9.97
Vietnam Vietnam index 9.79
Singapore Straits Times    9.44

Source: Thomson Reuters

“We’ve had a lot of inquiries [about public to private deals] from foreign buyers,” said Dao Nguyen, managing partner for Vietnam at Allen & Overy. “People are seriously looking at it.”

Among Vietnam's private equity firms, Mekong Capital sees attractive opportunities in public-to-private deals, according to Chris Freund, founder and managing partner. He pointed out that in some cases companies with strong growth potential are trading around seven times earnings. 

Andy An Ho, managing director at VinaCapital, added that some businesses may be trading high at 15x-20x earnings, but they are growing at 40 percent – 60 percent per year. “We have not found a [public-to-private] opportunity yet, but are actively looking.”

No firm has done such a deal yet because taking a company private in Vietnam carries both regulatory and operational challenges, sources agreed. 

“The process is untested,” Freund said. “It’s cumbersome compared to doing traditional private equity deals.”

In Vietnam, publicly-listed companies are limited to 49 percent foreign ownership, Nguyen explained. If a foreign buyer wants to buy out a listed company, it has two separate procedures: delisting, which involves approval by minority shareholders who collectively hold at least 50 percent of voting shares, and then making the company private, which is done by reducing the number of shareholders to less than 100. 

We’ve had a lot of inquiries [about public-to-private deals] from foreign buyers. People are seriously looking at it

Dao Nguyen, managing partner for Vietnam at Allen & Overy

However, there is no mechanism for buying out minority shareholders, added Tony Foster at Freshfields Bruckhaus Deringer in Hanoi. “You could get down to 150 shareholders, all of which have one share, and you’d still have a problem.”

Then there’s the operational side. The aim of a public-to-private deal is to enhance the company’s performance without the pressures of a public listing, perhaps by bringing in professional managers, said VinaCapital’s Ho.

“A big difficulty is finding experienced managers,” he said. “Vietnamese management has a short history and bringing in regional managers has cost implications and even issues around cultural adaptation.” 

Although global funds are in Vietnam sourcing deals, they like to keep transactions as simple as possible and therefore would not be inclined to do a take-private deal, sources said. However, foreign corporate buyers are showing the strongest interest and they may end up being the pioneers in this area.

“We get constant inquiries from strategic buyers who want to buy all or most of public Vietnamese companies,” Foster said.