Vietnam: ‘It’s like China 10 years ago’

Interest in Vietnam is on the rise. The country is home to 90 million increasingly affluent consumers, with domestic growth forecast at around 7 percent this year, according to the Asian Development Bank’s Growth Outlook for 2016. Combine this with a new government determined to improve regulation, vigorous expansion of manufacturing and construction, positive import-export figures thanks to a stable Vietnamese dong, and you have one of the most compelling growth stories in Asia.

Vietnam’s vibrant potential is a magnet for private equity funds. Jeffrey Perlman, head of South-East Asia at Warburg Pincus, has said the firm sees the country as an “extension of its China strategy”, which is set to become a key long-term focus in the region. “What we see in markets like Vietnam – a sizeable population and increasing urbanisation – is similar to what we had seen in China five to 10 years ago,” he noted.

In 2013, Warburg made one of Vietnam’s largest private equity investments when it bought a 20 percent stake in shopping mall operator Vincom Retail for $200 million, topping it up two years later with another $100 million. 

In early 2016, KKR made a successful exit from consumer goods company Masan Consumer Corporation, generating a more than 2x return on its $359 million investment made across two rounds in 2011 and 2013. 

Standard Chartered Private Equity, the bank’s private equity arm, has also been eyeing opportunities. It bought a stake in restaurant chain operator Golden Gate and recently invested in M_Service, which operates a mobile e-wallet app called MoMo.

Giles Cooper, partner at law firm Duane Morris Vietnam, said the firm has seen more global private equity firms doing deals in Vietnam in the last six to eight months.

Global interest is having an inevitable positive effect on domestic players. Ho Chi Minh-based asset management business VinaCapital told Private Equity International it wants to increase its private equity exposure to as much as 30 percent in the next three to four years. VinaCapital invests across a range of asset classes, but is looking to capitalise on an increasingly benign private equity exit environment, says chief investment officer Andy Ho, as multinational companies are becoming more open to acquiring Vietnamese businesses.

The new government is setting the tone for economic reform, most notably in foreign direct investments. Foreign ownership of domestic businesses was capped at 49 percent, but in one of the most liberal measures yet adopted, Vietnam now allows foreign shareholdings of up to 100 percent. According to Australian bank ANZ, $2.7 billion worth of foreign investments were registered in the first quarter of 2016, more than double the $1.2 billion a year earlier.

While interest is growing, private equity in Vietnam is still in its infancy and its status as a frontier market may yet prevent global LPs committing in earnest. Ho Chi Minh-based Dragon Capital launched a Vietnam-only private equity fund in 2011, then broadened the strategy to include Cambodia, Laos and Myanmar, but had to cancel the fund due to lack of LP interest. The firm still does one-off transactions and club deals, but has shifted its focus to listed equities and real estate. 

“With as much promise as it has, private equity is still lagging to some extent relative to the potential,” Bill Stoops, chief investment officer of Dragon Capital said.