The firm acquired Indochina Land Holdings 2, a property fund, for $106 million in June. The transaction delivered assets including offices, hotels and development sites in Hanoi, Ho Chi Minh City and the coastal resort town of Danang. Now, Gaw Capital has also been given the green light by the Vietnamese authorities to begin construction of Empire City, which would be Vietnam’s tallest skyscraper, in Ho Chi Minh City. It is expected to be worth $1.2 billion on completion. PERE spoke with Kenny Gaw, founder and managing principal of Gaw Capital, on the merits and risks of investing in an emerging market such as Vietnam:
PERE: What attracted Gaw Capital to Vietnam?
Kenny Gaw: From a macroeconomic point of view, Vietnam presents a good turnaround story. The country went through its own economic and currency crises around 2011. Inflation soared above 20 percent and interest rates also went above 20 percent. But the government was able to get things under control. I think the world hasn’t given the Vietnamese enough credit. Inflation has fallen to below 2 percent in the latest quarter, the borrowing rate has come down to 8 percent, the bank deposit rate to 6 percent and the government lending rate to 4.5 percent.
GDP growth is expected to reach 6.3 percent this year, a 10-year high. Confidence is returning and foreign direct investment (FDI) has picked up. Last year, Vietnam attracted $20 billion of FDI and that was an all-time high for the country. This year, it looks like receiving the same amount. Vietnam is one of the main beneficiaries of manufacturers relocating from China to lower-cost regions.
PERE: Describe the investment climate in Vietnam?
Gaw: People are starting to look at Vietnam again, but for most it is still early. The foreign investors today are typically large manufacturers. Many investors left five years ago during the economic crisis. They have been slow to return.
PERE: What is your advice to other foreign investors?
Gaw: You have to treat Vietnam like any other emerging market. You need to understand the legal environment and your own resources. You need to be clear on whether you want to work on your own or have a local partner.
PERE: Is it necessary to have a local partner?
Gaw: We prefer to have a partner when doing development. The language is different. It is not China where they speak our language, so it is easier to have a partner. We are lucky to have Tien Phuoc Real Estate, which has experience with international investors. It is a partner of Singapore’s Keppel Land in Vietnam. That said, we still have our own team on the ground. But other people may have different views.
PERE: What are the risks involved?
Gaw: The yen and the yuan have depreciated. So there will be pressure on Southeast Asian currencies. But the Vietnamese dong has been pretty stable, because it is semi-pegged to the dollar. Secondly, there is the potential for conflict with China. If there is a conflict, it will hurt tourism and FDI. But I think the Vietnamese government has learned its lessons from last year’s problems with China. It will respond quickly to any future conflicts.
From my experience, the government’s policy is pro-business. It doesn’t have the instability that can come from having a populist government. It doesn’t have regular elections so it does not have to cater to populist demands. Of all the governments in Southeast Asia, Vietnam is most similar to China. The government is able to control the economy and can cushion it against many external shocks.
PERE: So how do you compare Vietnam to China?
Gaw: If you look at the macro picture, Vietnam has one of the youngest populations in Southeast Asia. Forty percent of its population is under 25 and it has a high literacy rate. In this sense, it is similar to what China was 15 years to 20 years ago. If you look at what happened to China in that period, I think Vietnam has a good chance to follow China’s footsteps.
PERE: Is there much competition around for assets?
Gaw: There is always competition whenever there is a deal. But I would say not many foreign investors have been looking at Vietnam and local Vietnamese investors typically do not have the balance sheet for big transactions. Compared with China, competition is limited.
PERE: What is the yield on your portfolio?
Gaw: We bought our assets on an initial yield of 9 percent to 10 percent. But since making some improvements, those assets are yielding in the double-digits.
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