Emerging markets Asia: Vietnam is moving into a different league

Vietnam’s largest initial public offering in a decade, the more than $740 million listing of Warburg Pincus-owned Vincom Retail on the Ho Chi Minh City Stock Exchange, took place in November. The firm had invested $200 million in the retail chain in 2013; the exit generated a return of between 3x and 4x.

KKR is also betting big on Vietnam. In April, it invested $250 million in conglomerate Masan Group and its nutri-science unit, a year after exiting its initial $359 million investment in the company.

Businesses in the country are beginning to reach a level of maturity that  interests private equity investors, says Steven Tran, a partner at Hogan Lovells in Hong Kong.

“Valuations are still fairly reasonable so investors are not needing to pay massive amounts of money for investments as they would in China and elsewhere – a key reason we are seeing increased interest in Vietnam.”

Vietnam is dominated by first-generation entrepreneurs, unlike some economies in South-East Asia, says Partners Group’s head of Asia-Pacific Cyrus Driver.

“It’s an open, dynamic, entrepreneurial market that presents opportunities for institutional capital. For us Vietnam in the last five years has transformed into a high potential market, where companies are getting larger and control opportunities are available.”

Large deals, however, are few and far between. According to an EMPEA report, small deals – between $6 million to $20 million – remain a constant challenge for private equity firms. While it can force creativity in deal sourcing, it also reduces the number of deals. Driver adds investors must get comfortable with currency risk, a constant in the region.

Sources highlight that its private equity market is already replicating China’s, progressing from manufacturing, agriculture and consumer to healthcare, education and fintech.

“It’s a progression of sectors, an increased level of sophistication, and an indication of a growing market in the same tune as China,” Tran says.

“There’s no longer that hesitation that we would have seen from investors if we were talking about this a decade ago.”