High economic growth and market reforms have helped Vietnam become an attractive destination for big foreign investment funds.
Warburg Pincus some months ago announced its intention to invest more than US$370 million in Vietnam Technological and Commercial Joint Stock Bank (Techcombank) IPO, in what it said was the largest ever private equity investment to date in the Southeast Asian nation.
The leading global private equity firm did not disclose the size of its stake in the bank following the transaction but a source familiar with the matter said it would own less than 10% and that it would become one of the bank’s biggest shareholders.
“The investment into TCB (Techcombank) marks our continued commitment and strong belief in the long-term prospects for Vietnam,” Jeffrey Perlman, head of Southeast Asia at Warburg Pincus said, adding that Vietnam was one of the fastest growing banking markets in Southeast Asia.
The leading global investment firm KKR has also funded US$250 million investment in Masan Group. KKR’s investment is comprised of a US$100 million purchase of secondary shares of Masan Group from PENM Partners, an independent Danish private equity company, and a US$150 million primary investment in Masan Nutri-Science for a 7.5% stake.
“Vietnam holds great opportunity with its growing economy and favorable demographic trends,” said Ashish Shastry, member of KKR and head of KKR Southeast Asia.
Vietnam’s boom is part of a larger trend across Asia, where total private equity investment rose 38% to US$158 billion in 2017 — eclipsing Europe for the first time, according to research company Preqin.
“The region continues to experience strong growth compared to other major markets, presenting compelling investment opportunities across sectors,” said Joe Baratta, Blackstone’s global head of private equity.
Growth has been particularly strong in Southeast Asia, where total private equity investment nearly tripled to US$23.5 billion in 2017. Investors are betting on higher economic growth, rising investment in technology and growing.
The World Economic Outlook report by the International Monetary Fund forecasts stable growth for the five major ASEAN nations of Indonesia, Malaysia, the Philippines, Thailand and Vietnam, with growth of 5.3% in 2018 and 5.4% in 2019.
Big returns on investments
While the projected growth rates for China and India are even higher, a Hong Kong-based investment fund specialist points out that with shares already trading at relatively high levels in those countries, big returns on investments are less likely.
In Southeast Asia, on the other hand, investors have more opportunities to invest in promising companies without breaking the bank. As a result, the specialist said, “high yields can be expected in three to five years.”
Another factor steering funds’ attention toward Southeast Asia is widespread capital market reforms.
Reforms in Vietnam have focused on the public sector, including recently privatizing state-owned enterprise. The number of SOEs is projected to fall to around 120 by 2020 from 1,500 in 2010.
The government had intended to privatize state companies more gradually, but is now looking to speed up the process, in part to meet a projected US$9 billion shortfall in its 2018 budget.
State companies that have gone public so far this year include Binh Son Refining and Petrochemical, PV Oil, PV Power and Vietnam Rubber Group. Major upcoming offerings include mobile network operator MobiFone, Vietnam Posts and Telecommunications Group and Vietnam National Tobacco Corp.
Prime Minister Nguyen Xuan Phuc has pitched these IPOs at numerous local and overseas business conferences, describing them as “opportunities for private and foreign investors to hold shares in Vietnamese enterprises.”
These efforts are being recognized internationally. According to Ousmane Dione, the World Bank country director for Vietnam, recent progress in enhancing Vietnam’s business climate has been very encouraging and clearly reflects the government’s strong commitment to narrow the gap with top performing economies.