Investors Optimistic about Private Equity

The outlook has been supported by various developments, including the two legislative changes allowing private sectors to participate in the government’s infrastructure projects and increased foreign ownerships limits in listed companies, and the advent of ASEAN Economic Community (AEC) and Trans-Pacific Partnership (TPP). In particular, Vietnam ranked second among AEC members and ranked first among TPP members to receive more investments after joining, according to the assessment of the American Chamber of Commerce.

 

After 16 business divestments in Vietnam in 14 years by Mekong Capital, Mr Chris Freund, Founder of Mekong Capital, said "It's time to make new investments."

Mekong Capital marked the return of investment with the launch of a US$112 million Mekong Enterprise Fund III Limited Partnership (MEF III) - its fourth fund which will target at investments worth US$8 - 15 million.

 

He explained the motivation for the return of investment in Vietnam that in the past five years, Vietnam has paid attention to improving the business environment and facilitating business start-ups launched by young entrepreneurs. New generation companies are often better managed than those established in the 1990s.

 

Consumer sector is always the most attractive to investors. Mr Chris Freund said consumer investment generates much higher margins than other fields like property, manufacturing or software. All portfolios of Mekong Capital are related to consumer companies such as Masan Consumer, Mobileworld, Phu Nhuan Jewellery, Golden Gate, ICP, Vietnam Australia International School and Traphaco. This system has developed a lot of experience in marketing, distribution and retailing. The fund also has a vast network of global experts in the consumer industry.

 

According to the Grant Thornton report, the food and beverage (F&B) sectors are considered the two most attractive industries for private equity transactions. 76 per cent said that “economic growth” and “sector opportunity” continued to be the two key factors that make transactions successful. Besides, the “difference in price expectations” remains a major barrier to successful deals.

 

Not only Mekong Capital but many other investment funds in Vietnam like Vina Capital, Dragon Capital, Saigon Asset Management, Welkin and AIF also have particular interests in private equity, particularly in food, beverage and pharmaceutical sectors that fulfil basic needs for human beings. In fact, pharmaceutical, food and beverage sectors will benefit directly from the TPP.

 

VOF, a fund managed by Vina Capital, has invested more than US$1 billion in unlisted private companies, listed companies and domestic enterprises. Among its five most outstanding investments, there are two private equity investments. VOF plans to invest some hospitals as Thai Hoa and Hoan My.

 

Mr Chris Freund said unlisted private equity investment will not be impacted too much by macro factors but management force and corporate governance. Foreign investors will be more interested in companies with a professional management team.

 

However, foreign investors are still concerned about some barriers in the investment environment. “Equitisation is good for the economy but still moving too slowly, and the government share remains too high in many equitised companies. Former SOEs like FPT and PNJ, which have 0-10 per cent government ownership, tend to be better managed than companies in which the government owns a large stake. On the other hand, corruption is still a serious challenge in Vietnam, which is why Mekong Capital avoids investing in companies that sell to the government or state owned companies, Chris Freund analysed.