Vietnam to receive more source of capital from foreign investment funds

CA - Although there are many obstacles in making investment in joint stock companies in Vietnam, the foreign investment funds are still optimistic because there will be more capital sources from the newly established funds.

Since early this year, less than ten investments into private companies have been announced by the foreign investment funds.

The funds say it is difficult to invest, since the company’s values given by private businesses are very high.

To date, after exact one year entering Vietnam, the Dream Incubator Asia Industrial Fund (DIAIF) has not yet chosen a Vietnamese firm to invest. general director of Dream Incubator Vietnam (DI) Shinichiro Hori said it is very difficult to conclude negotiations with Vietnam’s firms at this time since the prices are still at high level.

Hori added that DI has made a list of 300 companies in different sectors (excluding real estate and financial sectors). After doing research, there are 20 companies left, of that, five to 10 companies have been examined and approved, and are in talks on investment decisions. DI expects to invest in two or three companies towards the end of the year.

Despite admitting that the investment activities of the funds have slowed down in the recent time, Managing director of VinaCapital and Head of Investment Management Andy Ho said the market is still growing well. VinaCapital, in the last six months, has made nearly ten investments, but only two or three cases were published, since the Vietnamese partners did not want to publicise.

In contrast with the animation in the previous years, investment activities of the two technology-venture- capital funds IDG and DFJV (joint venture between VinaCapital and Draper Fisher Jurvetson) have been relatively quiet. The most recent investment of DFJV is in TaxOnline website of Twenty-Four Techonological Solutions Joint Stock Company (TS24), since February 2010.

The most impressive deal was the $15 million investment from VOF of VinaCaptital into prime Group, a ceramic and tile manufacturer located in Vinh Phuc. In addition, Mekong Capital in the last seven months has invested $9.1 million into Nam Long Investment Corporation.

SEAF Blue Waters Growth Fund (SEAF), an investment fund with smaller scale from $300,000 to two million dollars, has just completed the third investments into Cong Hoa healthcare limited company, since early of the year. The company’s representative Nguyen Bao Tri said the decision to be in partnership with SEAF was difficult, because his company has received various offers from other funds.

Explaining on the delayed disbursement, Hori said that it is firstly due to the lack of understanding of Vietnam’s firms on DI’s operations, and then due to the competition from large funds, which Hori and his colleagues were unexpected. This difficulty has been multiplied since local firm’s valuations are two high. According to Hiro, unlisted companies tend to offer company value of 10 to 15 times higher than the actual value, even 30 times in some cases. The negotiation, hence, often takes long time.

Sharing the same view, Ho said that the most difficulty is negotiating with medium sized companies, with high profit and liquidity. These companies draw many attentions from investment funds, so they have their own requirements.

Ho shared that many people believe good investment is to invest in good businesses, but he thinks most good-rated investments are investments in poor companies. Investors later restructure, reorganise and offer to the stock exchange. Therefore, the problem is that the two parties should together win. Ho is willing to pay a high price, but the company in return should have strong growth.

According to experiences of various investment experts, it is hard to invest in the companies that are equitised from state-owned businesses.

Ho said at first it could be very enthusiastic, since those companies have many development potential, but it is later risky when the parent company changes business strategies of those businesses. Thus, they only invest in large-scale equitised firms.

Just returned from the Europe and Japan to meet with investors, Ho said foreign investors still believe in Vietnam’s market.

Compared to other markets, their investments in Vietnam, through VinaCapital are still profitable. Thus, VinaCapital is confident in establishing two new funds Vinaland 2 and VOF2.

According to Ho, both funds would be private funds. The capital resources would mainly be from organisations such as Japanese pension funds and charity funds in the US. The scale of the funds is from about $150 to $250 million. In the recent visit in Vietnam, president of IDG venture capital fund has also revealed that IDG would open two new funds with the scale of about $400 million.

The above optimistic signs are on the line with the second quarter report on investment in private businesses in Vietnam, announced by market research company Grant Thornton Vietnam. Corporate Finance director Matthew Lourey said that investors currently have very positive assessments on the Vietnam’s economic prospects and the level of investment attraction.

According to the survey conducted with 200 people who are able to make investment decisions into Vietnam or are interested in investing in Vietnam, 87 percent of investors believe that Vietnam is more attractive than other investment destinations, up by 20 percent compared to last year; 67 percent of investors are determined to increase investment in Vietnam.

The percentage of people believing in Vietnam economic growth rises to 81 percent, compared to 59 percent and 36 percent of the two surveys conducted in the second and fourth quarters of last year. According to Grant Thornton Vietnam, investors are most interested in retail, health, medicine and education areas.