Done deals

Recent investments in local companies can be seen as a milestone with respect to returning interest and confidence from international private equity funds in Vietnam. 

The increase in deals conducted by private equity firms, including a small number of larger deals, appears to reflect more favourable valuation multiples and also the ongoing need among some of the larger private Vietnamese companies for expansion capital. 

According to PricewaterhouseCoopers (PwC), there were some notable private equity activities announced during the second half of 2009.

In October, TPG Capital LP (TPG) from the US and the BankInvest Group (BankInvest) from Denmark announced investments in the Masan Group Corporation (MSN), a Ho Chi Minh City-based investment holding company, for an estimated $35 million and $22 million, respectively. On completion, TPG acquired bonds convertible into equity of MSN and BankInvest acquired a 10.15 per cent equity stake. Companies that MSN own and in which it invests include Masan Food, one of Vietnam’s largest food and beverage companies, and Techcombank, a leading joint stock commercial bank that has HSBC as a strategic partner.

On November 5, 2009, MSN began trading on the Ho Chi Minh Stock Exchange. At the close its market capitalisation was VND20,580 billion ($1.15 billion), making it one of the top five private sector listed companies in Vietnam by equity value, with the third largest weighting on the VN Index.

Later, in December 2009, BankInvest purchased an additional 6,350,474 shares of MSN at a market price of VND36,300 (around $2) per share (totalling over $12 million), increasing its ownership from approximately 10.15 per cent to 11.48 per cent. 

In December, Private Equity New Markets A/S (PENM), a $90 million private equity fund established by BankInvest in 2006, raised its stake in Vien Dong Pharmaceutical JSC, a Phu Nhuan-based manufacturer of pharmaceuticals to 40.4 per cent from 6.73 per cent, by acquiring a further 33.37 per cent stake, or 3 million ordinary shares, for VND80,500 ($4.347) per share, for a total of VND 241.5 billion ($13 million), in a privately negotiated transaction. 

In September, the DWS Vietnam Fund Limited (DWS) made a $10 million investment in Hoan My Corporation JSC (Hoan My) via a wholly-owned subsidiary. DWS is managed by Deutsche Asset Management (Asia) Limited, a member of the Deutsche Bank Group. Hoan My, established in 1999, is one of the largest private healthcare providers in Vietnam in terms of scale, with a combined 620 beds and 300 physicians at four operating hospitals. An additional hospital in Ho Chi Minh City is under construction. Later in October, Vietnam Opportunity Fund Limited (VOF), an AIM traded fund managed by VinaCapital and established to target key growth segments within Vietnam, also announced that it has acquired a minority equity stake of $10 million in Hoan My. 

In September, VinaCapital’s Vietnam Opportunity Fund Limited (VOF) announced the sale of its entire equity stake in the Hilton Hanoi Opera Hotel. According to VOF reports, the exit value was approximately 10 per cent above the March 2009 book value of the property used to calculate the funds’ net asset values and represented an IRR of 23 per cent over the three years since the stake was acquired. Together with a 52.5 per cent stake in the hotel owned by VinaLand Limited, which was also sold, the two VinaCapital-managed funds held a controlling 70 per cent stake in the hotel owner.

In August, Mekong Capital announced the sale of Mekong Enterprise Fund’s investment in Duc Thanh Wood Processing Joint Stock Company (Duc Thanh), a Ho Chi Minh City-based manufacturer and wholesaler of wood products, to Vietnam Rubber Corporation. It also announced the completion of the Fund’s sale of its holding in Tan Dai Hung Plastic Joint Stock Company (Tan Dai Hung), a leading manufacturer of polypropylene and polyethylene woven bags for packaging rice, fertiliser, animal feed, and other agricultural products. The Fund originally invested in Tan Dai Hung in March 2003, the purchase representing its first investment in Vietnam. Tan Dai Hung’s shares were listed on the Ho Chi Minh City Stock Exchange in November 2007 and it sold its shares in the company from May to August 2009 via a series of open market transactions. Following sales of holdings in Saigon Gas and Duc Thanh, this was the third full divestment by the Mekong Enterprise Fund. 

In October, VOF also announced the sale of its entire equity stake in the A&B Tower office project in District 1, Ho Chi Minh City. It purchased a 50.1 per cent equity stake in the project, now under construction, in 2004. According to VOF the (undisclosed) sale price results in 17.5 per cent IRR over the four year holding period. The office tower, with a gross floor area of 25,500 square metres, is expected to open in 2010. 

Several important developments occurred during 2009 of significance to the private equity sector in Vietnam, according to PwC experts. There are a number of reasons why. Firstly, there was acceleration in the number of divestments by the more mature funds, which was a very positive sign for the industry in Vietnam, indicating that profitable exits can be successfully concluded and achieved through a variety of routes. PwC experts also observed an increase in the rate of new investments by private equity funds, especially in the second half of 2009, indicating that funds were still available to invest and that market pricing had become more attractive, although in general it appears as if the funding for such deals represented either recycled cash following divestments of older investments or cash raised in earlier periods, as opposed to funds newly raised in 2009. Lastly, 2009 saw the demise of Indochina’s private equity fund, which is now in the process of being liquidated, an event that may affect efforts at further fund raising and encourage a more cautious future approach to investing in private equity amongst fund managers.

2010 is likely to see much of the same, with the more mature funds looking to exit quite a number of mature investments and to recycle funds into more dynamic sectors or companies, and this will also create opportunities for strategic investors to acquire significant stakes in a number of private or newly-listed Vietnamese companies from the private equity funds. Certain fund managers are looking to raise new funds in 2010 but admit that the environment is still very challenging in this regard. However, most still have cash available to invest, while regional and global fund managers will be focusing greater attention on Vietnam due to its economic performance and prospects, hence the opportunities for deals appear positive. “Pricing for private equity investments, while still expensive relative to other countries in the region, remain below the levels seen in 2007 and to some extent reflect the rapid rates of growth being achieved by many private companies,” according to PwC experts. 

The combination of the above factors leads PwC experts to expect an increase in divestments from the established funds and an increase in new investments by Vietnam-focused and regionally-focused funds during 2010. Increasing interest rates may also encourage cash-hungry private Vietnamese companies to turn to private equity for expansion capital, creating more opportunities for fund managers.

According to Mr Ken Atkinson, Managing Partner of Grant Thornton Vietnam, more and more private equity investors are seeking to acquire strategic stakes in local Vietnamese companies as part of their investment portfolio. “The continued growth in the domestic economy during a globally uncertain investment period offers opportunities that other economies cannot provide,” he said.

Singapore developers boost presence in Vietnam

Leading Singaporean real estate companies have focused on HCMC’s property market as they continue to invest here and form partnerships.

Singapore-based, CapitaLand, through its wholly-owned subsidiary CapitaLand Vietnam Holdings recently signed a US$40 million joint venture agreement with locally based NovaLand Investment JSC to develop a nine hectare, 500 apartment project in HCMC’s District 9.

The group last week launched its new brand CapitaValue Homes, aiming to develop affordable projects for middle-income homebuyers.

Liew Mun Leong, president and chief executive officer of CapitaLand Group, said CapitaValue Homes are for people buying an affordable home, not speculators. “CapitaLand started the strategic initiative to tap into the genuine and non-speculative demand of locals who have a real need to set up new homes arising from rapid massive urbanization in Vietnam,” says Chen Lian Pang, chief executive officer of CapitaLand Vietnam Holdings, who has also been appointed managing director of the new brand.

He says the group plans to take advantage of its proven track record in property development and strong networks in Vietnam to develop this segment.

CapitaValue Homes plans to provide apartments from 60 to 70 square meters each and will work with local governments to find land for low-cost apartment development. The group is in the last phase to finish its first residential project, The Vista, in HCMC’s District 2 after three years of construction. The project, which is jointly developed with two local developers, Thien Duc and Phu Gia, has five blocks of 28-storey residential towers with 750 residential apartments, 100 serviced apartments and some 35,000 square meters of commercial space. The US$200 million residential project will complete June next year.

The group said Vietnam was its fourth pillar of growth after the core markets of Singapore, China and Australia. CapitaLand’s total investments in Vietnam are expected to grow from its current asset base of S$400 million (around US$310 million) to approximately S$2 billion (around US$1.5 billion) over the next three to five years.

On the sidelines of the ASEAN Summit, another leading Singapore real estate development firm, Keppel Land Limited, said it had signed a joint venture agreement with Hung Phu Real Estate Investment Corp. to develop a US$63 million villa development on 10 hectares in HCMC’s District 9.

The company marked its fourth partnership with Vietnamese partners by signing a joint venture agreement with Tien Phuoc Company to develop a US$115 million villa project covering 13.5 hectares in HCMC. Other joint venture projects underway include The Estella with 1,393 apartments, a 30-hectare mixed-use township and a waterfront residential development in District 12.

Kevin Wong, chief executive officer of Keppel Land, said in a statement that the sell-out success of its first residential development in HCMC, Villa Riviera project, demonstrated that prime villa developments were highly sought after, so it would continue to deliver quality homes in the country.

Another leading property developer from the Singapore, Allgreen Properties, entered Vietnam recently through a partnership with An Phu Corp local real estate company to develop a property project in HCMC.

The US$105 million residential project named Regency Park on 25B Road in HCMC’s District 2 will deliver 515 highend apartments and 12 penthouses in 2013.

The company said in a statement that it had a long term view on its position in the Vietnamese market, and that Vietnam had one of the fastest growing economies in the Asia Pacific region.

Singapore is the fifth largest foreign investor in Vietnam with cumulative investments of US$17.9 billion in registered capital across 851 projects, according to International Enterprise Singapore. These investments span a range of industries including industrial parks, urban infrastructure, hospitality, logistics and port developments.

Building more garden for market demand

The trend of designing apartment buildings with substantially large gardens has gradually become more popular as many property developers have started to bring “resort” lifestyle values into their condo projects in response to homebuyers’ demands. Some of them, besides highlighting their projects’ location, are creating as much green space as possible in their projects, boasting it as a competitive advantage in the market, especially in the current silent market.

Although the concept of apartment with substantial garden is quite new for many local developers, garden apartment complex development has been following the footprints of other countries in the region. For multinational companies, natural values in a building are one of the most important criteria for their options. However, local buyers are step by step showing interest as well in natural values in the apartment where they want to live and invest.

Residential development in Vietnam has followed the trend in response to increasing demand as homebuyers are becoming more sophisticated in buying a property. Landscape and green space are what homebuyers are interested in, besides other elements such as price, location and other serviced facilities offered in a condo project. For that reason, some developers have tried to design their condo project in harmony with the surrounding environment, partly to contribute to protecting the environment which has been turning worse, and partly not to be kept an outsider in the current market trend. Some condo projects are bringing more highlight green values in their projects as a competitive advantage over other competitors when approaching potential customers.

The condo project City Garden on Ngo Tat To Street in HCMC’s Binh Thanh District is an example. The project owner has put advertising boards featuring the condo project along some streets in the city. Instead of showing luxury facilities in the condo project as others may do, the developer selects two points to introduce the property and to woo homebuyers. The first thing is the project’s location from where future residents will take only some five minutes to get to the heart district of the city, and the second one is the green spaces that will benefit future residents when they live there.

William T. Baker, General Director of City Garden, says the company is investing over US$150 million in the 2.3-hectare project that will have six blocks from 21 to 30 floors, with 927 apartments from one to three bedrooms and penthouses. The elliptical condo currently under progress dedicates as much as 77% of its total area for the green space, which will prove great green values for residents seeking a retreat in the hustle and bustle of a mega city like HCMC.

Baker says the American planning, design and consulting firm Belt Collins uses tropical plants to add characteristics to the four residential towers in City Garden, as depicted in its blueprint. The design integrates over 17,000 square meters (77%) of garden areas with the four towers. Two of the high-rises are single towers, while the others are twin towers.

Besides City Garden, some other projects such as Diamond Island follow the trend highlighting landscapes, green values and living environment to woo homebuyers. Those condo projects owners say it is green values that support their sales program, helping them access potential buyers who become more sophisticated because the abundant supply in the property market offers more options.

According to the market research firm Savills Vietnam, market demand increased in the third quarter of this year as it witnessed the highest number of apartments. Savills projects a positive demand trend remains in the HCMC market, fueled by increasing disposable income, and growing migration in the city.

Some experts remark the property market is on track to where it should be as affordable apartment segment has been designed to serve the majority of homebuyers, filling the basement of the triangle of demand. However, there are plenty of rooms for luxury apartment segment that is designed to target the triangle’s peak to serve well-to-do homebuyers.