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WALL STREET JOURNAL
Private Money Is Flooding This Frontier Market
Private-equity firms and sovereign wealth funds flock to
Vietnam, following years of economic reform
By Jake Maxwell Watts and P.R. Venkat
Global private-equity firms and sovereign wealth funds are pouring
record sums of money into Vietnam, fueled by a loosening of ownership
restrictions in the communist nation’s largest companies and
accelerating economic growth.
At least $3 billion worth of stock sales by Vietnamese companies are
taking place or being planned in the coming weeks, including large
initial public offerings by private companies. The government is also
preparing to sell stakes in dozens of state-owned enterprises to local
and foreign investors. Helping to underpin the deal activity is a recent
surge in Vietnamese stocks that’s seen the country’s benchmark index
become one of the world’s best performers so far in 2018, gaining close
to 14%.
One of Vietnam’s largest private sector banks, Techcombank, on Monday
priced a $922 million stock sale in the country’s largest-ever initial
public offering. The shares were priced at $5.61 apiece, at the top end
of their offered price range, reflecting strong investor demand for
assets in the Southeast Asian frontier market, bankers on the deal said.
Techcombank’s offering drew investments from private-equity firm Warburg
Pincus, which came in as a pre-IPO investor. Singapore sovereign wealth
fund GIC Pte. Ltd. and Fidelity Management and Research took up shares
in the IPO, the bankers said.
Foreign funds took nearly 75% of the IPO shares, and the company will
have a market capitalization of $6.5 billion when it begins trading on
the country’s main Ho Chi Minh stock exchange on June 4.
Morgan Stanley , Deutsche Bank AG and Viet Capital Securities are among
the banks advising Techcombank on its offering, people familiar with the
IPO said.
In what could be an even larger IPO, property developer Vingroup JSC is
currently talking to potential cornerstone investors about a listing of
its residential property business Vinhomes, people familiar with the
situation said. Such an offering could raise more than $2 billion, the
people added.
Singapore’s GIC has already agreed to invest $1.3 billion in Vinhomes by
purchasing stock in its IPO and a debt-like instrument in the company,
Vingroup said in a statement last week. Malaysia’s Employees Provident
Fund is also looking to invest, people familiar with that deal said.
Vietnam, a country of 93 million people with a large young and
tech-savvy population, presents a rare opportunity for investors.
Inefficient state conglomerates traditionally dominated the economy,
until the government several years ago began restructuring the firms,
saying it would sell or list hundreds of them to raise money for
infrastructure spending.
“Recent deal activity represents a major inflection point for
international investor interest in capital markets in Vietnam,” said
Vijay Vaidyanathan, Morgan Stanley’s head of capital markets for
Southeast Asia. “Investors are focusing on the compelling arguments on
demographics which are expected to drive strong growth across sectors.”
Government companies up for sale this year include the country’s largest
telecommunications operator, MobiFone Corp., two electricity companies
and other firms in sectors spanning from health, to transportation to
manufacturing. The activity comes on the heels of a $4.8 billion deal in
December, when Thailand Beverage PCL agreed to buy more than half of a
government stake in beer brewer Saigon Beer Alcohol Beverage Corp.,
known as Sabeco.
The stake sales have helped boost the country’s stock market: Daily
turnover on Vietnam’s largest exchange has soared from about $80 million
in early 2017 to as high as $300 million this year. Economic growth is
humming, with the economy expanding 6.8% last year, according to
official data. It’s a stark turnaround from Vietnam’s previously high
levels of inflation, and bad loans that crippled the banking industry
before the government began rolling out reforms.
Private-equity funds are now looking to grab a bigger slice of the
action as new assets come up for sale and Vietnam’s small public markets
get big enough to provide a place where these funds can exit past
investments. The combined market value of all stocks listed on the Ho
Chi Minh Stock Exchange has increased nearly fourfold in less than five
years, to more than $134 billion.
“Vietnam is a much more diverse economy today than it was five years
ago.” said Jeffrey Perlman, head of Southeast Asia at Warburg Pincus.
Mr. Perlman said Warburg is looking at other potential deals in Vietnam
as the market develops and opportunities for exiting investments
improve.
The activity marks a sharp pickup from 2017, when private equity and
sovereign wealth funds invested just $260 million in a handful of
deals—a fraction of the $32.2 billion across Southeast Asia—according to
data from Dealogic.
“It’s all about access,” said Kevin Snowball, chief executive of PXP
Vietnam Asset Management in the country’s financial hub, Ho Chi Minh
City. “There is now proven liquidity in the market.” |