Despite the global financial crisis, the foreign indirect investment (FII) amount disbursed has already amounted to some US$5 billion. However, the list of investment funds liquidating their portfolios have prolonged from the second half of 2009. Is this a bad sign for the FII capital downtrend in the coming time?
Massive liquidation
At the start of the third quarter of 2009, the Vietnamese stock market witnessed steep slumps after Indochina Capital Vietnam Holdings Limited (ICV) announced to start orderly realisation of its entire portfolio. The realisation list included many blue-chips in Vietnam, including Baoviet Holdings, FPT Corporation, Vinamilk, Hoa Phat Group, Hau Giang Pharmaceutical Joint Stock Company, Mai Linh Group, and North Kinh Do Joint Stock Company. This ignited liquidations of many other investment funds.
Following the move by ICV, Mekong Capital, a Vietnam-focused private equity firm that focuses on growth equity in Vietnamese small companies and has a total investment capital of US$168.5 million, also sold its stakes in Kinh Bac City Development Share Holding Corporation and Saigon Gas Joint Stock Company. In August 2009 alone, Mekong Capital also completed selling its stakes in Tan Dai Hung Plastic Joint Stock Company and Duc Thanh Wood Joint Stock Company.
After a series of investment expansion activities in infrastructure and construction, VinaCapital also withdrew its capital in Masan Trading Corporation and 70 % of its capital at Hilton Hanoi Opera.
In securities investment, Vietnam Securities Investment Fund (VF1 Investment Fund), which has a total investment capital of VND1,000 billion, also retreated at Thu Duc Trading and Import - Export Joint Stock Company, Chuong Duong Beverages Joint Stock Company, Rangdong Light Source and Vacuum Flask Joint Stock Company and other companies.
The list of realisations by investment funds in Vietnam is still longer and the question is why investment funds are retreating from Vietnamese firms while the economy is gradually recovering and the Vietnamese Government is granting for preferences for FII.
Avoiding adverse effects
According to economic experts, the retreat of ICV has not caused much impact on the Vietnamese stock market in the past time. In fact, the liquidation of ICV is only aimed for short-term earnings targets.
Meanwhile, Mr Chris Freund, Director General of Mekong Capital, Mekong Capital retreated from several companies because the average net profit growth at these companies in the portfolio of Vietnam Azalea Fund is very high, reaching 87 % of the investment time. Therefore, Mekong Capital has withdrawn its capital from high-profit enterprises to shift its investments to other businesses, including Masan Food Corp (a total investment of US$9.4 million), International Household Goods Joint Stock Company (US$6 million), Intresco Housing Investment - Trading Joint Stock Company (more than US$14 million), Phu Nhuan Jewellery Joint Stock Company (over US$12 million USD) etc., said Mr Chris Freund.
Mr Andy Ho, CEO of Prudential Vietnam Investment Fund said: “Funds temporarily withdraw their capital from the Vietnamese stock market because they need to balance their portfolios. Most of them are very optimistic about the medium and long-term prospects of the Vietnamese stock market.”
Mr Don Lam, CEO of VinaCapital Investment Management Ltd, anticipated that investment funds will focus on technology, infrastructure and real estate projects rather than only securities market as at present. Therefore, FII source will be channelled into many projects and fields. Mr Lam also admitted that the capital retreat of VinaCapital in Masan Group and Hilton Hotel is aimed to invest in Pho 24, MobizCom Company, Global Electrical Technology Corporation, PetroVietnam Drilling and Well Services Corporation, etc.
Wider door for FII
Economic experts said the growth, below the potential of capital flow, of foreign portfolio investment is due to the shortfall of legal basis. Although many amendments have made to the Investment Law, the Enterprise Law and the Securities Law, legal provisions for indirect investors are still very troublesome, non-transparent and inconsistent. Therefore, Vietnam is gradually perfecting its mechanisms and policies to attract more cash flows for this area.
Recently, the State Securities Commission said the Government will raise the holding ratio of foreign investors in public companies from 30 % to 49 % of charter capital (except for credit institutions). For member funds, they will not be subjected ownership limit and they can set up wholly foreign-owned member funds.
Furthermore, State management organs are considering allowing foreign investors to hold 49 % of charter capital in securities companies in the country. Starting from 2012, they will be allowed to buy up to a full 100 % interest in securities companies and no foreign ownership requirements were now being applied to member funds.
According to the Vietnam Association of Financial Investors (VAFI), Vietnam is able to draw much larger FII amount. At present, FII capital of foreign investment in Vietnam accounts for only 0.05 % of the total capital of investment funds in the country. One of the most attractive channels for FII is the stock market but it only absorbed only US$5 billion in 2008 while China lured US$480 billion, Thailand US$110 billion and the Philippines US$80 billion. Also according to VAFI, The report of VAFI, over 1,000 foreign institutions registered to open securities transactions accounts in Vietnam, including many multinational financial corporations. Although the Vietnamese stock market nosedived in November and December 2009, foreign investors continued with net purchase, with an average of VND50 billion per session. Hence, investment funds are likely to continue disbursing the investment capital in Vietnam.
Huong Ly
Vietnamese
