Andy Ho, Managing Director & Chief Investment Officer at VinaCapital, shares his views on the recent development of private equity investments in Việt Nam.
Việt Nam’s financial market has not been showing signs of stable investment over the past few months. Do you agree?
I think Việt Nam’s stock markets have done well since the beginning of the year. The VN-Index has increased by 8.2 percent (in US dollar term). It can always be more stable, but we like a little instability so as to create more opportunities for investments and divestments.
How do you view the performance of private equity (P/E) investments in Việt Namn in 2017?
Private equity is a long-term investment activity so it is difficult to make an assessment over a four-month period. However, I can say that we have opportunities of over $200m in our pipeline and we are currently going through due diligence with three large private equity opportunities.
For which business sectors in Việt Nam do you believe P/E could be profitable in the long run?
We focus on private businesses operating in sectors that contribute to the growth of the domestic economy. Most or all of these opportunities are in profit businesses. The key is what sort of valuations and terms we have to invest with. If the valuations are lower, we have a higher chance of having a very profitable investment and vice versa.
How has VinaCapital prepared for its future P/E investments into Vietnamese firms in 2017 and coming years?
Preparing for private equity investments is a very difficult task and comes with many years of experience. The key is reviewing the business and management before we invest and having a good exit strategy.
What should authorities do to facilitate the market for P/E investments?
Private equity is private and thus, really does not involve the Government. The Government should continue to help develop rules and regulations to improve the investment environment in general.
How do you assess Việt Nam’s equitization process?
Vietnam has been equitizing State-owned enterprises (SOEs) over the last 15 years and has made solid progress. Included in such success is Vinamilk, Bao Viet and Vietcombank. More recent success includes the Aviation Corporation of Vietnam (ACV), in which we have been fortunate enough to be a major investor. However, there are those who think the process of equitization has been slower than planned. As a result, the Government has made a few changes to ensure that the process will speed up and become more successful.
The equitization process is one in which employees of the SOEs are enfranchised to own a small piece of their business and align their interests with new and existing shareholders, including the State (since the State normally remains a major shareholder). After equitizing, our experience indicates that SOE’s tend to operate more efficiently and effectively, increasing the shareholder value of the business. in a number of cases, we also see better and more effective application of capital in various projects and investments.
In your view, how can the process be improved?
Foreign investors have made some recommendations to improve the process of equitization, including extending the time available for investors to consider the opportunities after prospectuses are provided and to increase the quality of information disclosed in the prospectuses. Such improvements should in theory attract more investors and increase the value of the stake the Government wishes to divest.
We would also like to point out that many of the management teams of these SOE’s being equitized are reluctant to meet with foreign investors mostly because they are not comfortable conversing in English. At VinaCapital, we tend to have good access to these management teams because we are Vietnamese and they do provide us with a lot more relevant information to assess, but we do encourage them to become mor proficient in English to encourage international investors to participate.
What do you recommend for foreign investors interested in the SOE equitization?
We understand that it can be quite cumbersome for foreigners to register for a trading account in Vietnam (a requirement to participate in equitization). We would encourage foreign investors that want to participate in the equitization process in Vietnam to visit international investors like us and we can share with them how we navigate this process quickly and effectively. At the end of the day, the Government is encouraging foreigners to invest in Việt Nam and trying to make it as easy and least costly as possible to participate in the equitization process.