It’s Time for Investment Funds to Accelerate

After a long time of keeping “silence,” many investment funds in Vietnam began speed up their investment activities despite warnings about economic recession threats and negative impacts on the property market and consumption shrinkage.

 

Instead of accessing bank loans with many barriers and requirements, Vietnamese companies can seek the opportunity for development from cooperation with investment funds.

On December 16, the Mekong Enterprise Fund II managed by Mekong Capital, a Vietnam-focused private equity firm, officially signed a business cooperation agreement with Digiworld Joint Stock Company under which the former would invest US$5 million into the latter. Mr. Hoang Xuan Chinh, the fund director cum director of Mekong Capital, said: “We are very positive about this investment and we believe Digiworld can achieve its ambitious targets in the next 5 years.” In the first and second quarter of 2008, Mekong Capital spent nearly US$37 million to invest in five companies in Vietnam, namely Golden Gate, Mai Son, Traphaco and Phu Nhuan Jewellery.

Mr. Doan Hong Viet, co-founder and CEO of Digiworld said: “Apart from the capital, Mekong Capital will also support with administration consultancy, information, partnership and issues to internationalise operations.”

In October 2008, BankInvest Private Equity New Markets (BankInvest) officially became a strategic shareholder of Son Kim Fashion Corporation (SKF) by acquiring 20 per cent of the latter’s stake. The capital provided by BankInvest will be primarily used growing its current brands, studying the opportunities for new brands in fashion industry, building advanced and modern systems, and attracting high-level human resources. BankInvest now has two investment funds in Vietnam with a total investment capital of over US$300 million. SKF is the eighth to be invested by the fund since its presence in the country in September 2006.

Finance is the decisive factor for the development of small and medium-sized enterprises with bright initiatives and wholehearted workforce. Venture investment funds are good channels for them. Normally, investment funds usually hold 20 - 30 per cent of a company’s equity but they can intervene when they feel necessary.

In fact, not all supports from investment funds will spur the growth of invested companies. Depending on specific contexts, enterprises can agree or reject the cooperation. However, it is still a good option if they found necessary.

Indochina Capital and VinaCapital, two most famous fund management companies in Vietnam, will increase their investment capital in the real estate market when many property companies have been sent into dilemma when banks tighten credit policies.

Indochina Capital, the third largest fund management company in Vietnam, has intended to increase the size of its infrastructure fund from US$400 million to US$500 million in the first half of 2009, compared with the initial US$155 million mobilised in July. Indochina Capital is now managing 20 projects in Vietnam with a total investment of some US$1.5 billion.

On December 9, Indochina Land Holdings in Vietnam, a real estate investor in the country, an arm of the US-based Indochina Capital, broke the ground on Indochina Plaza Hanoi project at No. 239 Xuan Thuy Street, Cau Giay District in Hanoi, the capital city of Vietnam. The US$150 million project covers an area of approximately 16,600 square metres. The Indochina Capital’s third real estate fund, possibly the largest, is forecast to enjoy 25 - 30 per cent profit. 

VinaCapital, the largest investment fund in Vietnam, is negotiating with several investors to launch the second real estate fund in early 2009, which will not be listed on the stock exchange. The new entity is expected to bring in 35 per cent profit.

On December 18, VinaCapital also kicked off the construction on a big realty project in Hanoi.

VinaLand, the largest property investment fund of VinaCapital, is valued at US$790 million and is listed on the London Stock Exchange. VinaCapital also invests in retail and hotel fields. Its portfolios cover Sofitel Metropole Hanoi and Hilton Hanoi Opera.

According to fund managers, the reason for the capital hike by real estate investment funds amid “freezing” housing market and plunging selling price is high interest rate and tightened credit policies. Many realty companies have to suspended or resold to seek cash. This opened a new opportunity for funds to penetrate this market. Within a month, the interest rate was cut for several times. Thus, the opportunity for capital approach will be more.

Moreover, the demand for apartments, offices and hotels in Vietnam will surge because Vietnam is one of the fastest growing economies in Asia. According to a report released by CB Richard Ellis, the average rental of five-star hotel rooms rose 19 per cent over 2007. The occupancy rate was 60 per cent in the third quarter of 2008, compared with 85 per cent last year.

According to Mr. Brett Ashton, Director of Savills Real Estate Company, the house price in Ho Chi Minh City and Hanoi City have dropped between 20 per cent and 50 per cent from the peak recorded last year and may reach the bottom line. Speculators occupied 80 per cent of total transactions in the fourth quarter of 2007.

Another advantage is the falling price of construction materials after a double rise in a year. Lower prices of cement and steel are like the leverage for the warmth of the real estate market.