Vietnam ventures forth

Is Vietnam an ‘emerging China’- on the private equity front as well? By Judy Kuan.

Last month at a press conference in Singapore, International Monetary Fund chief economist Raghuram Rajan stated, “Certainly, Vietnam is considered by many to be the ‘Emerging China’…Vietnam is doing a number of the things that China did and is progressing faster at relatively strong rates of growth.”

Rajan: Vietnam as an ’emerging China’

While private equity specifically as it pertains to Vietnam did not come up in the press conference, it is unquestionably intertwined with the topic of Vietnam’s growth. Over the last couple of years, private equity investors have cited Vietnam’s anticipated WTO membership, high growth rate, capital market reforms, low costs, educated workforce and shortage of capital as the market’s attractions. Private equity, in turn, brings capital and expertise to a market where state-owned enterprises still play a significant role. 

A number of new private equity initiatives targeting the Vietnamese have sprouted in recent months. In mid-September BankInvest, a Danish investment bank, celebrated the planned opening of a representative office in Ho Chi Minh City for managing its new investment facility Private Equity New Markets. At the opening ceremony, Danish Deputy Prime Minister Bendt Bendtsen applauded the growing Danish interest in Vietnam as a private equity investment target. “This development is very positive and together with the strong development aid programmes in Vietnam, it will contribute to the development of both the private and the public sector,” Bendtsen said at the meeting, according to the website of the Danish embassy in Vietnam. 

Another recent entrant to the Vietnamese is VietNam Holding, a Swiss-based fund which was listed on the Alternative Investment Market (AIM) of the London Stock Exchange in June 2006. Through its listing, VietNam Holding raised $112 million (€88.2 million) to target state-owned enterprises in the telecom, mining, petrol and financial services sectors in Vietnam. Locally-based MeKong Capital raised $50 million for its Mekong Enterprise Fund II – also in June – which the firm says will have invested in four companies within the consumer goods manufacturing space by the end of 2006. Already, Mekong is planning to establish a larger fund in the next year for investing in Vietnam. VinaCapital, another locally-based group, also announced earlier this year that it was raising a third fund to invest in Vietnam’s technology ventures. AIM-listed, China-focused merchant bank London Asia, too, announced earlier this year that it was expanding its operations to Vietnam, entering into a memorandum of understanding with Vietcombank Fund Management in June to launch a fund for investing in Vietnam.

At the IMF press conference, Rajan’s colleague Charles Collyns, the deputy director of the fund’s research department, added that Vietnam “is quite rapidly attaining the status of an emerging market country…we see Vietnam’s prospects as being very favourable, but as it increasingly integrates into the global economy, it will need to make sure that all sectors of the economy are fully ready to meet the additional competition.”

The structural issues raised by Collyns include the need to watch inflation, and with the country facing good prospects for joining the World Trade Organisation, how well and how rapidly reforms of state-owned enterprises take place will be important, as will how Vietnam’s state-owned banks perform once exposed to global competition.

How well Vietnam addresses these issues will determine how closely the course of its economic development parallels that of China. So too, will Vietnam’s actions determine its attractiveness to private equity groups in the upcoming years.