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In their sights (25/05)
06/08/2010 - 19 Lượt xem
Once again, fund managers have been convinced by the Prime Group - a
multi-function construction material producer headquartered in northern Vinh
Phuc province. This time it’s the Vietnam Opportunity Fund (VOF), managed by
VinaCapital, which on April 28 announced investment of $15 million into the
1999-established Group, to gain a 7 per cent stake.
Founded under the name Vinh Phuc Co., Ltd. and specialising in producing ceramic tiles, water heaters, terracotta bricks, and fenfat materials, the Prime Group now has some 25 affiliated companies in at least five business functions, from construction materials, ore exploitation, transport, and real estate such as industrial zones and urban residential zones, to trade centres, supermarkets and mega stores. Since its first plant was built at the Binh Xuyen Industrial Zone in Vinh Phuc in June 1999, with a capacity of 2 million sq m of products a year, the Group has moved into infrastructure and property areas under the names Prime Infrastructure and PrimeLand.
While not considered the best private enterprise in Vietnam, most analysts agree the investment in Prime Group is a smart move by VinaCapital at this time and is a another clear sign of the continual interest among fund managers in Vietnam’s growing private sector. “Prime Group has the highest market share in its sector, which allows for economies of scale, a unique advantage that will help sustain its growth,” said Mr Andy Ho, Managing Director of VinaCapital. “Prime operates at very high efficiency, as management invests a lot in improving technology and optimising costs. We like the management; they are very ambitious with a strong capability and commitment to deliver.” In addition, the ceramics sector, where Prime Group has increased production capacity by 45-times since establishment in 1999, has major potential given the extensive urbanisation seen in rural areas, according to Mr Ho.
Vibrant path
VOF is actually the second fund manager to invest in the Prime Group. In December 2008, DWS Vietnam Fund Limited - managed by Deutsche Asset Management (Asia) Limited, a member of the Deutsche Bank Group - invested $20 million into the Group. Leaders on both sides were quoted as saying that the investment “is an indication of the opportunities that are available in Vietnam.” The fund manager believed there were many opportunities available to Vietnamese corporations that focused on the domestic economy.
Since Vietnam launched “doi moi” and introduced pro-business policies, in particular encouraging the development of private enterprises, State budget contributions from the private sector have increased constantly and the sector’s role has become bigger and better appreciated by the public. The Prime Group is just one of a number of names such as Dong Tam Group, Hoang Anh Gia Lai, Massan Group and ICP that have been acknowledged by their foreign-invested competitors in the country. This is the major reason why most fund managers - apart from taking a slice of the state owned enterprise (SOE) cake during equitisation - prefer investing in vibrant, well-managed and ambitious private enterprises when setting up their Vietnam portfolio.
The private sector has undoubtedly become a tremendous foundation for Vietnam’s economic growth. “Private sector development since the early 1990s has been nothing short of spectacular,” believes Mr Ho. Importantly, the wealth creation stemming from the development of the private sector and the equitisation of SOEs has brought Vietnam much closer to international business and economic communities. “Vietnam’s entry into the WTO is evidence that Vietnam has chosen the appropriate path of developing its private sector,” he added.
One of the most active players in this trend is Mekong Capital - a Vietnam-focused private equity firm focusing on growth equity in Vietnamese companies - which currently manages the Mekong Enterprise Fund (MEF) I and II and the Vietnam Azalea Fund, which together have made more than 20 private equity investments since Mekong Capital’s establishment in 2001. In 2009, Mekong Capital’s 21 investee companies recorded 103 per cent net profit growth compared to 2008 levels, despite the global financial crisis. Performance was strong in all three funds, as net profit growth was broad-based across the 21 investee companies, with median net profit growth of 75 per cent.
In particular, private companies in consumer businesses such as retail, restaurants, food and consumer products performed especially well, according to Mr Chris Freund, Mekong Capital’s Managing Partner.
Meanwhile, many companies with manufacturing operations substantially improved their efficiency, leading to greater net profit margins. “The extraordinary net profit growth in 2009 contributed to substantial improvements in the internal rates of return (IRR) of all three funds in 2009,” Mr Freund said. “We are committed to continuing to empower our investee companies to set high targets and achieve those, which will lead to strong returns for each of our funds.”
The extraordinary success of Vietnam’s private enterprises over time has encouraged both authorities and other SOEs to restructure the public business sector into so-called joint stock entities under the equitisation process, which transforms the State stake into non-State shareholders where foreign investors may have a minor stake. One of the perfect transformations of this kind is the FPT Corporation - specialising in technology industry and founded by a group of local engineers led by Mr Truong Gia Binh, who is now FPT Chairman. Mr Binh handed over the position of FPT CEO in April 2009 to his deputy, Mr Nguyen Thanh Nam, who was CEO of F-Soft - an FPT affiliate - for many years.
Although Mr Binh modestly declines the oft-bestowed title of “Vietnam’s Bill Gates”, the 2002-equitised FPT Corporation he has led since 1988 has become one of the few equitised SOEs where foreign capitalists covet a seat on the board. According to its 2009 annual report, the giant’s total revenue has increased from VND13,893 billion ($731 million) in 2007 to VND18,741 billion ($986 million). In the first quarter of 2010 total revenue was reported to have grown 8.7 per cent year-on-year to VND4,272 billion ($224 million) while its after-tax profit was VND290 billion ($15.2 million), for a 32.1 per cent increase. “We believe the private sector is an attractive area to invest in as there are many private companies that control decent market size, have strong management teams, and possess proven and differentiated products and services,” said Mr Louis Nguyen, CEO of Saigon Asset Management (SAM).
Despite the global economic difficulties a number of private Vietnamese companies are reported to still be growing, albeit at different levels. For example, the net profit of Digiworld - a technology distributor - grew 366 per cent in 2009. An Giang Plant Protection recorded 125 per cent net profit growth in 2009, which was the result of strengthening its sales team and sales network, while Masan Food saw 75 per cent net profit growth in 2009, driven by a strong management team and successful expansion into instant noodles, with the Omachi and Tien Vua brands. Mekong Capital said last month that it would launch the $50-million MEF III within the next couple of months, continuing to invest in Vietnam’s private sector.
Brushing-off needed
But it appears to take much time to find the right investee companies for fund managers, analysts say, due to a wide range of issues in the local private sector. According to Mr Ho from VinaCapital, Vietnam faces and will continue to face difficulties in finding a sufficient number of experienced business managers and other human resources. “The rapid development of the private sector has also challenged the legal infrastructure to keep up with economic development,” he said. “However, at the end of the day, most developing countries would love to have these growth-related challenges.”
VOF has already invested almost $900 million into Vietnam, of which over 50 per cent has gone to companies in Vietnam’s private sector. “The pace of investment slowed during 2009 due to the economic conditions, but we are now seeing a lot more investment activity and a strong pipeline of companies to invest in over the next 12-18 months and beyond,” said Mr Ho.
In particular, according to Mr Nguyen from SAM, investing in private companies requires thorough due diligence from the foreign investor, while obtaining sufficient and correct information can be a challenge. “While other opportunities abound that are more transparent and provide greater liquidity, such as listed companies or later-stage real estate projects, some investors may prefer this route,” he said. “I think the local private sector should try to learn from the top listed companies, and be transparent, have good corporate governance and reputable auditors, and think big and act big, within their budget.”
For his part, Mr Ho believes that Vietnam’s private sector will continue to do well as family businesses mature into increasingly larger corporations. “And we hope to have opportunities to invest in these growing businesses,” he added.
Source: VNEconomy.
