Private Equity in Vietnam: Investment Sentiment & Outlook ...€¦ · This report is the 4 th...
Transcript of Private Equity in Vietnam: Investment Sentiment & Outlook ...€¦ · This report is the 4 th...
Private Equity in Vietnam: Investment Sentiment & Outlook Quarter 4, 2010
Grant Thornton Vietnam, December 2010
2
Ken Atkinson
Managing Partner
Grant Thornton Vietnam
Contents
About the study 3
Foreword 4
Key highlights of the survey 5
Economic landscape 6
Investment attractiveness 7
Industry attractiveness 8
Access to finance 9
Investment holding periods 10
Key factors for investment 11
Investment obstacles 12
Exit strategy 13
“The Private Equity investment space remains as competitive as ever in Vietnam. New funds continue to enter the market, seeking quality investments – something that takes time and perseverance to get right. Existing participants are not standing still either, with numerous announcements of investment commitments and new fund launches reaching the market this year. ”
About the study This report is the 4th report that Grant Thornton Vietnam has released looking at investment sentiment and outlook for the Private Equity sector in Vietnam. The results in this report are based upon survey responses provided by decision makers working in the Private Equity space. Respondents are located both in and outside of Vietnam and are involved in Vietnam’s Private Equity sector. In this study we have again sought to understand the current sentiments of investors in Vietnam towards the economy generally, their industry preferences and the impediments to investment. This survey was undertaken in October 2010.
Survey participants – sector analysis
55%
4%
29%
2%2%
4%
Investment Fund/Fund Manager 55%
SecuritiesFirm 4%
Advisory/Legal Firm 29%
Institutional/CorporateInvestor 2%
PrivateInvestor 2%
Others 4%
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Private Equity in Vietnam: Q4, 2010 – Grant Thornton
Foreword
Our Quarter 4, 2010 Private Equity Investment
Sentiment Survey continues to track the feeling
in the investment community towards Vietnam’s
economic conditions and the future that lies
ahead.
Since conducting our initial survey in April 2009,
we have seen the ups and downs in regards to general
sentiment and towards specific sectors and issues. The
concerns raised by investors when making and
monitoring their investments are certainly valid and
these issues are often the reason we don’t see more
participants enter, into Vietnam, despite the high levels
of optimism to the market.
That said, the general interest in Private Equity
investments in Vietnam remains high and subject to the
completion of a number of the large fund raisings that
have been announced, in recent times, the volume of
investment transactions should continue to increase.
This is the fourth Private Equity survey that Grant
Thornton Vietnam has conducted and we look forward
to continuing to produce and release these, every six
months, to assist the investment community into the
future.
“New Private Equity investors into Vietnam are often
caught in a trap: very buoyant sentiment and compelling
investment opportunities in the market, but overwhelming
challenges and issues that can take many years to
understand. The quandary is whether to jump in and learn
from potential mistakes, or to take the time to study
carefully and miss out on the opportunities. Both have
their risks and rewards.”
Matthew Lourey
Advisory Services Director
Grant Thornton Vietnam
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Private Equity in Vietnam: Q4, 2010 – Grant Thornton
Key highlights of the Survey
Key survey highlights from Quarter 4, 2010 responses
65% of respondents maintain a positive outlook for Vietnam’s economy over the next 12 months
76% rank Vietnam as more attractive than other investment destinations
59% of investors plan to increase their portfolio allocation to Vietnam
Retail is the most attractive sector for Private Equity investment in Vietnam
71% consider the availability of debt finance to be an obstacle for Private Equity investment
76% of investors intend to, on average, hold Private Equity investments for more than 3 years
Legal system
is the biggest obstacle for Private Equity investors when investing in Vietnam
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Private Equity in Vietnam: Q4, 2010 – Grant Thornton
Economic outlook over the next 12 months
Positive sentiment towards Vietnam’s economy
has decreased compared to our previous survey
however 65% of all respondents still rate the
outlook for Vietnam’s economy as positive over
the next 12 months.
The feature that possibly underlies the confidence in
Vietnam’s economy is the percentage of respondents
indicating a negative outlook for the next 12 months at
only 4% and this has remained constant over the past
two surveys. The percentage of respondents who have
indicated a neutral view with their outlook has increased
to 31% from 15% in our previous survey.
Despite the generally positive view, there are still
many businesses in Vietnam that have been struggling,
particularly those who never fully recovered from the
global downturn. Unlike other nations, bankruptcy and
forced sales remain relatively low in Vietnam due to a
range of legal and social reasons and our survey results
confirm this with only 22% of respondents indicating
that distressed assets are a driver of investment
transactions in Vietnam.
“Recent economic data, particularly
rising inflation and likely continued
devaluation of the Vietnam Dong, has
provided some investors with reasons to
be less confident about the Vietnamese
economy. However, the fundamentals for
growth remain and most investors sit on
the positive side of the fence.”
Trinh Kim Dung
Advisory Services Manager
Grant Thornton Vietnam
General outlook for the Vietnamese economy over the
next 12 months
Are distressed assets a driver of investment transactions
in Vietnam?
27%
51%
22%
No
Unsure
Yes
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Positive Neutral Negative
Q2, 2009Q4, 2009Q2, 2010Q4, 2010
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Private Equity in Vietnam: Q4, 2010 – Grant Thornton
Investment attractiveness
Allocation of investment funds to Vietnam
Respondents have shown their confidence in
Vietnam’s investment attractiveness when
compared to other investment destinations, with
76% indicating that Vietnam remains more
attractive.
The Quarter 4, 2010 survey results show a decrease
in attractiveness from the 87% recorded from the
previous quarter. However, the generally high levels of
investment attractiveness recorded, along with the 59%
of respondents indicating an increasing allocation of
investment funds to Vietnam, should see both existing
fund managers and new market entrants continuing to
raise fresh capital for investment into Vietnam.
There has been some negativity in international
investment circles in recent times towards listed
investment funds focused on Vietnam, however those
with experience in investing in Vietnam appreciate the
opportunities that exist and remain buoyant towards the
economy.
76% of respondents
believe that Vietnam
remains a more attractive
investment destination
Vietnam’s ranking in terms of investment attractiveness,
compared to other destinations
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Extremelyattractive
More attractive Neutral Less attractive Not attractive
Q2, 2009Q4, 2009Q2, 2010Q4, 2010
9%
32%
59%
6%
28%
67%
32%
5%
63%
42%
50%
8%
Decreasingallocation to
Vietnam
No change
Increasingallocation to
Vietnam
Q2, 2009Q4, 2009Q2, 2010Q4, 2010
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Private Equity in Vietnam: Q4, 2010 – Grant Thornton
Industry attractiveness
“With domestic retail sales growing
at 25% year-on-year, it is not
surprising that retail remains the
most attractive sector for Private
Equity investors.
The domestic economy
continues to shift towards modern
trade and away from traditional
markets, and this is providing
opportunities for investors to
develop brands and to gain market
share as a foundation for their
future.”
Ken Atkinson
Managing Partner
Grant Thornton Vietnam
Retail has returned to top the list again as
respondents’ most positive sector when investing in
Vietnam. Oil, Gas and Natural Resources, along with
Agriculture, remain the least positive sectors,
consistent with sentiments from our last survey.
The survey results indicate that the higher ranked
sectors are generally those with more of a domestic focus
and less of an international or export reliance. Education,
Real Estate, Healthcare and Retail all fit into this category.
The lowest ranked sectors, Oil, Gas & Natural
Resources, Manufacturing, Agriculture and Hospitality, all
have a larger reliance on international markets and were
ranked as the least positive sectors. It should be noted that
no sector received an overall negative response for
sentiment from respondents, providing quite a solid base
and expectation across all sectors and the economy.
Industry sectors in Vietnam: Most positive or negative for investment
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Hospitality
Transportation & logistics
Retail
Financial Services
Agriculture
Manufacturing
Healthcare & Pharmaceuticals
Real Estate/Property
Oil Gas & Natural Resources
Education
Very positive
Somewhat positive
Neutral
Somewhat negative
Very negative
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Private Equity in Vietnam: Q4, 2010 – Grant Thornton
Access to finance
The availability of debt finance in Vietnam remains a
barrier for Private Equity transactions. Respondents
to the survey indicated that debt finance remains
difficult to access and is an impediment to
investment.
Although the availability of debt finance for Private
Equity transactions actually improved compared to our
previous survey, 71% of respondents still indicated that
debt was somewhat difficult or extremely difficult to obtain
(Quarter 2, 2010 – 88%).
Private Equity investors, in Vietnam, are no different to
those undertaking transactions elsewhere and rely on a
portion of debt to leverage their investment returns and to
extract maximum profit from their investment. In Vietnam
41% of respondents indicated that debt finance was
important to Private Equity transactions, essentially
unchanged from our previous survey. If not for high
interest rates in Vietnam at present we would expect the
importance of debt finance to be higher.
Debt finance is difficult or
extremely difficult to obtain
in Vietnam according to
71% of respondents
The availability of debt finance for Private Equity
investments in Vietnam
The importance of debt finance in Vietnam for Private
Equity transactions
0%
10%
20%
30%
40%
50%
60%
70%
ExtremelyEasy
to obtain
RelativelyEasy
to obtain
Neither Easynor
Difficult toobtain
SomewhatDifficultto obtain
ExtremelyDifficultto obtain
Q2, 2009Q4, 2009Q2, 2010Q4, 2010
22%
37%
41%
Not Important
Neutral
Important
10
0%
5%
10%
15%
20%
25%
30%
<1 y ear 1-2 y ears 2-3 y ears 3-4 y ears 4-5 y ears 5+ y ears
Private Equity in Vietnam: Q4, 2010 – Grant Thornton
Expectations of holding periods for investments
27%
41%
32%
Longer
No Change
Shorter
The general expectation for the length of time investors
plan to stay invested in Vietnamese companies
Will the transactions undertaken in Quarter 4 2010 take a
longer or shorter time to complete compared to one year
earlier?
Survey responses show that Private Equity investors in
Vietnam intend to stay invested in Vietnamese
Companies for mid to long-term periods, with less than
24% of respondents indicating they expected to hold
investments for periods of less than 2 years.
This result is consistent with commentaries from
investment professionals that quick profits are difficult to
achieve in Vietnam and that Private Equity investors need to
stay invested in companies for longer periods, than in other
destinations. 27% of investors expect to stay invested 5 or
more years for each individual investment.
When asked about timing to complete transactions,
respondents were split over whether there was any change in
the market that will result in shorter or longer time periods to
complete. 32% felt that the period to complete would be
shorter, with 27% believing they would be longer. This may be
more a reflection of individual investors than the market as a
whole.
76% of respondents
expect to hold
investments for 3 or
more years
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Private Equity in Vietnam: Q4, 2010 – Grant Thornton
Key factors to be considered when investing in Vietnam
The most important factors to consider when investing in
Vietnam
Most concerning issues when investing in Vietnamese
companies
8%
12%
13%
18%
8%
14%
9%
8% 8%
2%
Operational / Cultural fit
Speed which value can becreatedTax shields and investmentsavingsTarget's management support
Brands / Products
Transparency in businessactivitiesStrategic fit
Growth story / forecasts
Track record
Cash flow
Other
Transparency in business activities continues to
be the most important factor that Private equity
investors consider when making investments in
Vietnam at 18%, followed by the Growth
Story/Forecasts of the target at 14%.
Successful investors in Vietnam tend to spend a
considerable time to understand their investee
companies before making an investment. The
transparency, or more importantly the lack of
transparency and openness, combined with growth
forecasts, will often be the two key factors determining
whether money will be spent on a formal Due Diligence
or not.
There are a number of other key factors, such as
management support, brands/products, and track
record, that rank highly and which are considered
throughout the assessment process.
Of the issues that raise most concern to investors,
Corporate Governance and Transparency continue to
be the biggest issues. The results show that not only are
these concerns when making investment decisions, they
remain considerable issues throughout the investment
cycle.
Corporate Governance is the
most concerning issue for
when investing in
Vietnamese companies at
29%
29%
16%
26%
10%
5%
14%Corporate Governance
Skills / Experience of existingmanagementTransparency
Finance / debt issues
Existing shareholders
Financial records and reporting
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Private Equity in Vietnam: Q4, 2010 – Grant Thornton
Investment obstacles in Vietnam
“Infrastructure is constantly raised by
foreign investors in Vietnam as a major
constraint holding back additional
investment.
The Government is acutely aware of
many of these problems, such as power
disruptions, however, difficulties remain
that prevent infrastructure needs being
effectively addressed.”
Nguyen Thi Vinh Ha
Audit Partner
Grant Thornton Vietnam
Investment obstacles when investing in Vietnam
The legal system in Vietnam is indicated as being the
biggest obstacle, when investing in Vietnam
according to respondents, replacing corruption from
the top of the list in our previous survey.
Infrastructure came second in this survey, and combined
with Government red tape and Corruption, the top four
issues have remained consistent across recent surveys as
problems for investors. Although still rated as the third
biggest issue, the decrease in corruption as a problem to
investment in Vietnam would be a pleasing result to many.
We have continued to see a decline in employment laws
being an obstacle to investment in Vietnam. This is not to
say that there isn’t room for improvement, but recently some
issues, such as work permits for foreigners, appear to have
decreased in importance.
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Access to debt finance
Real estate ownership laws
Government red tape / processes
Corruption
Legal system
Currency controls
Infrastructure
Employment Laws and processes
Substantial problem
Problem
Neutral
Not an obstacle \
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Private Equity in Vietnam: Q4, 2010 – Grant Thornton
Exit Strategy
The most attractive or achievable exit strategy for
investments in Private Equity
41% of respondents believe that a
Trade Sale is the most attractive or
achievable exit strategy in the
current environment.
33%
14%
41%
10%
2%
IPO
Secondary Sale
MBO
Trade Sale
Refinancing
Other
Over the past 6 months there has been a
movement away from IPO’s as the most favoured
exit strategy in Vietnam and a strong move
towards Trade Sales as the preferred exit for
Private Equity investments.
Over recent years, IPO’s have been the favoured exit
for investors, due to the low costs and higher P/E ratios
received on the Vietnamese stock exchanges. However,
as the local stock exchanges have remained flat, investors
are returning to the more traditional route of seeking
trade buyers.
The market sees secondary sales as a less attractive
option, although it was still indicated by 14% of
respondents as their preferred exit strategy. New Private
Equity funds into Vietnam, in particular, often seek to
acquire a stake in businesses that have gone part way
through a transformation with an existing Private Equity
investor, for their first foray into the market.
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Private Equity in Vietnam: Q4, 2010 – Grant Thornton
About Grant Thornton Grant Thornton
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company, was established in 1993 as the second international
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Private Equity in Vietnam: Q4, 2010 – Grant Thornton
Contact Details
For any queries please visit our website www.gt.com.vn, or contact us below:
Ken Atkinson Dung Trinh
Managing partner Advisory Service Manager
T +84 8 3910 9100 T +84 8 3910 2650
E [email protected] E [email protected]
Grant Thornton (Vietnam) Ltd offices:
Hanoi
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39A Ngo Quyen Street
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Vietnam T +84 4 2220 2600 F +84 4 2220 6449
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Matthew Lourey
Advisory Service Director
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