Vietnam needs hotel rooms. According to Business Monitor International's latest Vietnam Tourism Report, hotel rates in the country soared year-on-year by 40 percent in 2007 as increased visitor numbers sought limited rooms. The capital city of Hanoi, for example, needs another 13,000 rooms by 2011 if it is to meet demand.
Banyan Tree Holdings, the Singapore listed developer and manager of leisure resorts in the region, is banking on such rising visitor numbers to Vietnam as it raises its latest vehicle, the Banyan Tree Indochina Hospitiality Fund.
“Awareness of this region is growing and this can be observed from the encouraging growth in tourism figures over the last few years with double digits recorded in international arrivals,” Steve Small, chief executive of the fund told PERE. His findings were supported by Vietnam's National Administration of Tourism, which found that in the first quarter of 2008, 1.28 million people visited Vietnam, a 15.7 percent on 2007 numbers.
Vietnam, and in particular Banyan Tree's 686 acre Laguna Hue resort development near Danang and Hue airports, will absorb 75 percent of the fund's $400 million equity target, with Cambodia and Laos, sharing the remaining 25 percent.
“It is expected that tourist arrivals will continue to display an upward trend as these economies continue to open up and the government of each country continues to invest in their infrastructure and tourism sectors,” Small said.
Banyan Tree Indochina Hospitality Fund's main investors are HSBC Special Investments and Nan Fung. Last month, both contributed $16.7 million to the fund, as it sought a third equity raise of $100 million. Banyan Tree and another undisclosed investor contributed the remaining two-thirds.
The investments by HSBC and Nan Fung were their second in the fund, after previously committing $33 million each last February. The fund now stands at $268 million with a fourth and final close due in the first quarter of 2009.
Small says Banyan is targeting opportunistic returns of approximately 30 percent from the seven-year vehicle.
However Banyan Tree's investors will need to have faith in the projected spoils as other Vietnamese economic statistics present mixed tales.
According to the Economist Intelligence Unit, Vietnam's gross domestic product growth is set to fall from an average of 8.1 percent between 2003 and 2007 to 3.2 percent in 2009 as weaknesses in global trade hit Vietnamese exports hard. On the flipside, the massive 22.4 percent rate of inflation experienced in the country last year as a result of rising food and fuel prices is expected to dissipate to a more reasonable 6.3 percent in the next 12 months.