VinaCapital Vietnam Opportunity Fund...
Transcript of VinaCapital Vietnam Opportunity Fund...
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VinaCapital Vietnam Opportunity Fund Limited
VinaCapital Investor Conference 15 October 2015 Ho Chi Minh City, Vietnam
Andy Ho – Managing Director
Contents
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1. Macroeconomic review
2. VOF’s performance
3. 2015 highlights
4. Top holdings
5. Strategy going forward
① Sustainable growth 2015 forecast 6.0 – 6.5%
• GDP growth reached 6.8% in Q3 2015 from a year earlier.
• VOF impact: Industrial production continues to increase, and companies in the sector will benefit from increased fiscal infrastructure spending (Hoa Phat Group).
② Low inflation 2015 forecast 1.5 – 2.0%
• Inflation is at just 0.4% year-to-date.
• VOF impact: Consumer goods sector will benefit from income growth and increased consumer confidence (Vinamilk, Phu Nhuan Jewelry).
③ FDI sector performs 2015 YTD up 30% vs. 2014
• TPP joins list of recent FTAs (Eastern bloc, EU and S.Korea) in promising increased FDI inflows.
• VOF impact: Wage growth and urbanisation will benefit consumer goods sectors (dairy, IDP) and real estate (Novaland).
④ Real estate recovery 2015 YTD credit growth 10.2%
• Credit growth target revised up to 15 – 17% for full year, led in large by real estate.
• VOF impact: Quality real estate investments with strong downside protections (Khang Dien Homes, Novaland).
⑤ Currency devaluation & NPL Resolution
• Exchange rate forecasted to increase to VND22,500 – 22,800 by end of 2015.
• VAMC has purchased USD9.26bn in NPLs since inception, but can’t fix it all alone.
• A small devaluation will minimally impact the portfolio, while exposure to the banking sector is limited.
Macro environment – key themes
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500
1,000
1,500
2,000
2,500
2005 2007 2009 2011 2013 2015F
40
45
50
55
60
2011 2012 2013 2014 2015
Vastly improved macro economy
4 Source: General Statistics Office, State Bank of Vietnam, Vietnam Customs, VinaCapital research
GDP growth more sustainable while inflation has been tamed
Interest rates have come down from their peak GDP Per Capita almost doubled between 2010-2014 In USD
Production Manufacturing Index in expansion since 2013
Expan
sion
C
on
traction
7.1 7.6 7.5
12.7
7.9
11.2
14.0
10.5
7.1
5.8 5.8
11.0 11.2 11.2
15.8
10.1
13.1
17.0
13.5
10.4
8.7 9.0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015F
Deposit rate (% pa) Lending rate (% pa)
8.4 8.2 8.5
6.2 5.3
6.8 5.9
5.0 5.4
6.0 6.5 6.2 6.5 8.4
6.6
12.6
19.9
6.5
11.8
18.1
6.8 6.0
1.8
3.0 3.5 4.0
2005 2007 2009 2011 2013 2015F 2017F
GDP growth (YOY%) Inflation (YOY%)
VND compared to other regional currencies – relative volatility since Jan 2012
5 Source : Bloomberg. Period 30 Sept 2012 to 06 October 2015, All currencies rebased to 100.
The VND continues to remain one of the most stable currencies against the USD compared to regional peers
(10%)
0%
10%
20%
30%
40%
50%
60%
2012 2013 2014 2015
Thai Baht Malaysian Ringgit Indonesian Rupiah Philippines Peso Vietnam Dong
Country 1yr 3yr
Vietnam -5.8% -7.7%
Philippines -4.1% -12.0%
Thailand -11.4% -16.9%
Indonesia -20.8% -44.0%
Malaysia -33.1% -37.5%
Vietnam was ranked #8 in the world for foreign direct investment attractiveness and #6 for private sector investment in 2014
Vietnam has successfully attracted FDI, especially in the high-tech sector
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Value add activities like processing & manufacturing attract FDI 2014 FDI breakdown by sectors
FDI has continued to grow Disbursements, in USDbn
Source: Vietnam Customs, Ministry of Planning and Investment, International Trade Centre
Rapid growth is being driven by major multinational companies Recent FDI commitments and key facts
50% of the world’s mobile phones are produced by Samsung Vietnam
USD11.3bn
USD300mn 80% of Canon laser printers are produced by the world’s largest plant in Vietnam
USD220mn 39 production lines are shifting from Hungary, China and Mexico to Vietnam
80% of world’s Haswell computer chips are made by Intel Vietnam
USD1.0bn
USD1.5bn 70% of LG Vietnam’s products are exported to over 35 countries
72%
13%
5% 2% 8% Processing and manufacturing
Real estate
Construction
Food & beverage services
All others
3 4
8
12 10
11 11 10 12
12 13 14
2005 2007 2009 2011 2013 2015F
Next phase of growth will be underpinned by better competitiveness and larger contribution from the private sector
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32%
48%
20%
38%
46%
16%
State
Non State
FDI sector
2005 GDP:
USD 52.6b 2015 GDP:
USD204.5b
Source: World Economic Forum, World Bank, Government Statistics Office, VinaCapital analysis
Contribution to GDP by Sector % Contribution
129
109
73
68
71
52
28
20
126
107
68
56
55
47
28
18
Pakistan
Bangladesh
Sri Lanka
Vietnam
India
Philippines
China
Malaysia
2015 2014 Global Competitiveness Index Rank
+2
-
+5
+16
+12
+5
+2
+3
Improvement in Ranking
Vietnam loves capitalism! According to a recent survey from the Pew Research Center, 95% of Vietnamese support capitalism. Surprisingly, only 70% of Americans would agree with them.
19%
10%
2% 2%
3% 3%
61%
United States
Japan
Singapore
Malaysia
Australia
All Others
Non-TPP
The Influence of the Trans-Pacific Partnership (TPP)
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A net earner from TPP countries, Vietnam will benefit directly from tariff reductions on
roughly 18,000 goods
31% (USD 92bn) In Total Trade
39% of Exports
22% of Imports
Exports 2014, % Share
Imports 2014, % share
High tariff sectors to benefit Textiles, Agriculture, Commodities, Wood
Products
Support industries must grow The rule of origin demands deeper value
chains from Vietnam
Local businesses must compete Greater FDI will force local manufacturers
to improve
4%
9%
5% 3% 1% 1%
77%
The lifting of foreign ownership limits for many listed companies is a potential game-changer for Vietnam
• Decree 601 now permits foreign investors to own up to 100% of listed companies
• Companies in non-restricted2 sectors now set their own limit for foreign ownership
• Vietnam has suffered from a liquidity discount of between 25% and 35% when compared with regional peers
• Opening capital markets up to more foreign capital will bring Vietnam closer to Emerging market status
1 Decree 60 took effect on the 1st September 2015
2 Restricted sectors include Financial Services, Telecommunications, Airlines, Defence and some Logistics sectors 3 As at 7th July 2015
Banks2
Financial Services
2
Construction4
Healthcare & Pharma
5Consumer
Goods5
Utilities2
Logistics3
Real Estate3
Food & Beverage
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There are 28 companies trading 3 without any foreign room, accounting for USD11.5bn of VN Index 28 companies breakdown by sector
Longer-term catalyst: Foreign ownership limits and Privatisation
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Investment environment outlook
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Favorable environment • Low inflation and declining interest rates
• Latest projections for VNI performance shifted up to between 620 and 650
• Ample liquidity and increased bank purchases of government bonds
Investment class rotation • Investors are trending away from safe haven investments
• Active shift to stocks and real estate as inflation and interest rates decline
• Increasing margin lending is providing upward momentum for the market
Continuing reform • Political reforms continue to progress
• No indication of backtracking on any policies implemented to date
Watching for inflation • Long term VGB auctions suggest inflation at 7% to 7.5% as long as ten years out
• VND weaknesses, could create a flight to other assets
Contents
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1. Macroeconomic review
2. VOF’s performance
3. 2015 highlights
4. Top holdings
5. Strategy going forward
Size and structure offer a unique pure-play investment opportunity into Vietnam
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Multi-asset portfolio
• VOF’s scale allows greater participation in the Vietnamese investment universe:
o Meaningfully sized PIPE opportunities eg PVD
o Attractive SOE equitizations eg Vinatex
o Access to large, scalable family-owned businesses undergoing transition eg IDP
o Pre-IPO deals
• No liquidity or asset-class restrictions
Synergies across all asset classes
• By not limiting asset class investments VOF achieves a deeper understanding of sectors
• Especially where the fund holds investments in a listed security as well as private equity businesses, e.g. Vinamilk (listed) and IDP (PE)
Advantage of large stakes in companies
• Exit at a premium to market prices (eg Vinamilk block at over 10% premium)
• Seek minority protections and can take legal or controlling stakes
VOF NAV and share price performance
VOF share price reduced 6.4% CYTD Aug 2015, the discount has contracted from 42% at the start of the buyback program in Nov 2011, to 24.5% as at 31 Aug 2014
USD2.48
USD3.12
1. As of 31 Aug 2015 NAV per share (latest published NAV per share). 2. Bloomberg (VOF LN) share prices 09 October 2015 3. VOF share price movement from 30 Sep 2003 to 09 October 2015
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-
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Share price NAV per share
VOF NAV and share price since inception In USD
Discount at 9 October 2015: 20.5%
PE and OTC deliver superior returns – our focus are on these asset classes
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Annual return1
Asset class FY2015 Last 3 years2 Last 5 years2
Capital market 0.8% 15.3% 9.8%
Overseas equity -3.0% 2.1% -7.6%
Private equity 9.9% 24.7% 20.6%
Bonds 4.6% 2.8% 3.0%
Hospitality projects 4.5% 3.3% 3.9%
Real estate projects -10.0% -9.2% -9.2%
VOF NAV/Share -1.0% 10.5%3 5.7%
VN Index (USD) 0.3% 10.5% 0.5%
Best performing asset class over 1, 3
and 5 years
1. Source: VOF Audited FY reports from 30 Jun 2010 to 30 Jun 2015 2. Annualized compound return of the last 3 and 5 financial years to FY2015 3. Hospitality is being renamed Operating assets which will include the Sofitel Legend Metropole and Hung Vuong Plaza.
Source: VOF NAV as of 31 August 2015 *Real estate consists of hotels, shopping malls ** Hospitality includes serviced apartments, buildings
VOF portfolio by sector VOF portfolio by asset class
Portfolio weights
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0% 5% 10% 15% 20%
Infrastructure
Pharma & health care
Agriculture
Industrials
Consumer discretionary
Cash and others
Mining, Oil & Gas
Financial services
Construction Materials
Hospitality projects
Indirect real estate
Direct real estate
Food & beverages
CYTD2015 CY2014
3.6%
5.0%
5.1%
10.7%
11.6%
14.9%
49.0%
0% 10% 20% 30% 40% 50% 60%
Overseas equity
Cash and others
OTC stocks
Hospitality**
Private equity
Real estate*
Listed equity
VOF peer comparisons
• For CY2015 YTD, VOF underperformed the comparable peers: -4.7% vs. -2.2%.
• For FY2016 YTD, VOF outperformed its peers: -3.5 vs. -4.4%.
1. Source : Edmond de Rothschild Securities Emerging Markets Funds Daily Parity Sheet as of 30 Sep 2015 NAV per share (latest published NAV per share). 2. Bloomberg (VOF LN) share prices 30 September 2015 3. VOF performance and VOF Capital Markets performance as of 30 Sep 2015
• For CY2015 YTD, the VOF Capital Markets component underperformed its peers: -4.4% vs. -2.2%.
• For FY2016 YTD, the VOF Capital Markets component returned -3.4%, outperformed the VN Index (-8.0%) and peers (-4.4%) thanks to strong performance of EIB, VNM and HPG in our portfolio.
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Peer comparison
-4.4%
-1.8% -2.2%
-16.7%
-14.4%
-3.4%
-8.0%
-4.4%
-13.4%
-11.0%
VOF CM VN Index Peer Avg. VNM ETF FTSE ETF
CY2015
FY2016
-4.7%
-2.2%
-3.5%
-4.4%
VOF Peer Avg.
CY2015
FY2016
VOF: Significant stakes in listed holdings
VOF’s top five listed holdings add to USD229m, accounting for 31% of total NAV as of 31 August 2015
17 1. Price-to-book value multiple is used instead of price-to-earnings multiple. 2. Excluding EIB and KDH. 2014-2015 profit change for VOF’s top holdings is 13%, outperforming market consensus earnings growth of 10% for
2015.
Holding Market Cap
(USDmn) FOL Premium (%) %NAV 2015 PE(x)
VNM Vinamilk 5,385 15% 12.0% 15.0
HPG Hoa Phat Group 1,029 0% 8.0% 9.3
EIB Eximbank 661 0% 5.0% 1.0 1
PVS Petrovietnam Technical Services Corporation
433 0% 3.0% 6.1
KDH Khang Dien House 109 10% 3.0% 1.11
Total 5 stocks 31.0% 10.12
VOF’s Capital Markets Portfolio 49% 10.32
Active stock selection1
18 1. Above are 5 key stocks where we have a large position, both absolute and relative to the benchmark as at 31
August 2015.
Stock % of
VOF Listed % of VN Index
Over (Under) weight
VOF Performance
(Index sector) 3 mths % 1 yr % 3 yr %
VNM 24.1 11.0 13.1 12 23 112
Food & Beverage 25.9 14.3 11.6 4 9 96
HPG 17.2 2.1 15.1 4 (20) 268
Industrial Goods & Services 17.2 6.6 10.6 4 10 257
EIB 9.4 1.3 8.1 (8) (2) (7)
Banks 13.0 28.4 (15.4) (5) 47 63
PVS 7.0 0.9 6.1 (17) (45) 103
Oil & Gas 13.1 9.2 3.9 (28) (57) 26
KDH 6.8 0.2 6.6 - 5 90
Financial Services 7.5 8.1 (0.6) (11) (13) 24
Totals 64.5 15.4 49.1 (8) (11) 33
$268
$268 $56
$324
$229
$553
Equity Invested Realised Profits Unrealised Profits
$155 $155
$155
$175
$330
Equity Invested Realised Profits
1. Returns are gross of tax and fees; 2. Weighted average by deal value 3. Partially Realised includes deals in which 20% to 95% of the holding has been realised. Unrealised deals are deals in which less than 20% of the holding has been realised. 4. Figures are since inception of VOF, equity invested but unrealised includes investments that have been reclassified as public equities post listing
Private Equity investments have realised USD231m1 in gross returns to date at a multiple of 2.1x2 for fully realised assets and 2.0x for partially realised3 assets
Fully Realised: 18 Deals In USDm
Partially Realised: 8 Deals In USDm
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18 deals realised proceeds of $330m for an IRR of 26%
8 deals partially realised at an IRR of
21%
In addition there is a further USD167m in 8 unrealised deals
VOF: A strong legacy of private investments since inception
Investment at cost USD224m (50%)
Exit proceeds
USD144m (26%)
Investment at cost USD130m (30%)
Exit proceeds
USD300m (54%)
Investment at cost USD88m (20%)
Exit proceeds
USD108m (20%)
Top 10 exits account for 30% of capital invested but 54% exit proceeds (in a total of 35 exited investments)
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0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35
Multiple < 1.0x
Exi
t M
ult
iple
Multiple > 1.5x Multiple 1.5 – 1.0x
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Historically, larger deals have provided higher returns in private equity
Real estate: A change in strategy
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RE Investment Market Value
(USDm)1
% of total of VOF NAV1
Direct RE Projects
101.5 14.9%
VNL Shares 19.0 2.8%
Total Direct RE Projects 120.5 17.7%
Listed Shares 38.5 5.6%
OTC Shares 3.9 0.6%
Private Equity 21.2 3.1%
Total Indirect Investment 63.6 9.3%
Total Real Estate Investment 184.1 27.0%
VOF will continue to move away from direct real estate investments to indirect investments, such as Novaland
14.9%
10.7%
74.4%
DRE
Operating Assets
CapM and others
4.8%
10.7%
84.5%
Current Allocation
Allocation after expected exits
1As at 31 August 2015
Share buyback summary
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VOF has returned USD47.3m to shareholders during FY2015 and USD 220.5m since inception of the share buyback programme
(45%)
(40%)
(35%)
(30%)
(25%)
(20%)
(15%)
(10%)
(5%)
0%
2
4
6
8
10
12
Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep
2011 2012 2013 2014 2015
Dis
cou
nt
to N
AV
/sh
are
(%)
VO
F sh
ares
pu
rch
ase
d (
mill
ion
s)
Shares bought back Discount to NAV
VOF: Our strategy moving forward
① Focus on sectors that contribute to domestic economy
• Food & beverage: Anticipate strong earns growth as consumers benefit from low inflation, increased spending power/wealth creation
• Indirect real estate: Low bank deposit rates will channel money into real estate
• Other sectors include
‐ Education, ‐ Healthcare, ‐ Media, ‐ Logistics, ‐ Construction materials, ‐ Agri/aquaculture, ‐ Hospitality.
② Increase PE and OTC holdings
• Continue to pursue PE deals of meaningful size (USD10m to USD40m). Several market leaders are seeking investments in exchange for minority / non-controlling stakes
• SOE equitisations provide opportunities to rebuild our OTC portfolio. Several successful investments include AGPPS, Vinamilk., Vinatex and South Basic Chemical
• Continue to restructure the portfolio away from direct real estate holdings
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Contents
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1. Macroeconomic review
2. VOF’s performance
3. 2015 highlights
4. Top holdings
5. Strategy going forward
Making good investments by re-investing our proceeds
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Proceeds from exits... ... Re-invested into private deals
AGPP USD63m IRR 23% Agri-chemicals
VNM USD20m Premium 10% Dairy products
KDC USD32m IRR 34% Confectionary
IDP USD35m Entry P/S <1x Dairy products
Vinatex USD8m Entry P/E 11.9x Textile and garments
QNS USD13m Entry P/E 10.4x Soymilk products
VOF: Private equity investment into IDP
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Established brand name but limited product mix and growth.
VOF has implemented: • New CEO
appointment • New product range
and branding • Doubling of sales
YOY.
Mr Tran Bao Minh, CEO
2013 and earlier
Following VOF’s involvement USD45m
Co investment Revenue of
USD80m 31% annual growth rate
A top five manufacturer of dairy products in Vietnam
Ranked 2nd in yogurt and 5th in UHT milk, IDP is projected to enjoy USD100m revenue
in 2015
Vietnam’s F&B sector has high barriers to entry, VOF is building IDP into a sound
business, attractive to global dairy players
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Quang Ngai Sugar (QNS)
Value Add Manufacturer
• Products include beer, cream mix biscuits, confectionery, soft drinks mineral water, industrial and food alcohols, glucose, sugar cane and paperboard packages
VOF is the largest institutional investor in QNS
Market share in core products
• 85% market share in Vietnam soymilk in carton box
• Produces and distributes 8% of total Vietnams sugar by Volume
Adding value at the corporate
level
• VinaCapital is introducing international experts to promote QNS’s products regionally
Revenue
up by
19%p.a
Profits up
by
32%p.a.
2015P
ROE
37%
The bottom Line:
• NVLG is a leading private real estate developer in Vietnam and has established a good reputation as a developer which focuses on well-located mid-scale projects
• The company’s projects are located throughout Ho Chi Minh City, developed under the Novaland brand they were valued at USD753.4m at YE 2014
• Up to 30 April 2015, NVLG had sold and pre-sold over 5,900 units, as well as holding over USD190m in signed contracts to acquire additional land for future development
About NovaLand
Deal Structure
• NVLG sought to obtain capital for expansion as it seeks to leverage its strong position in Ho Chi Minh into accelerated growth as the property sector warms up
• The deal was structured to provide both income and capital growth with significant downside protections for note-holders
• VOF will target an exit in 2-3 years, primarily through IPO with trade sale also a possibility
Leading real estate developer in Vietnam’s
biggest market
Growth in both revenue & profits to exceed 50% p.a.
Robust downside protections at company
and sponsor level
In June 2015, as part of a syndicate, VOF successfully led negotiations in a convertible preferred share offering in Novaland Group, investing USD15m as part of a USD45m syndicate.
Latest investment: Novaland Group (“NVLG”)
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Contents
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1. Macroeconomic review
2. VOF’s performance
3. 2015 highlights
4. Top holdings
5. Strategy going forward
Our priorities over the next 12 months…
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#1 Execution
#2 Operations
#3 People
• Grow PE portfolio from 10% to 15%
• Reduce real estate from 15% to 10%
• Deliver stable returns in excess of 15%
• Wean ourselves off sell-side research
• Leverage our research platform
• eFront – portfolio management system
• Grow investment team (added 5 new members in past year)
• Encourage new investment ideas
• Leverage “grey hair” operational experts
Focus: A private approach to public and private market investing
What we will be focusing on
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Challenges
• Competition: competition for PE deals increasing.
• Other funds and strategic investors
• Valuations are rising
• Returns: how to deliver consistent returns.
• PE investments have longer time horizons
• Liquidity constraints
• Discount: more effective means of closing discount.
• Other forms of capital return
• Threat from hedge and activist investors
Opportunities
• Focus: investing in PE-type deals.
• Grow from 2% to 9% of portfolio
• Over USD400m of deals in pipeline
• Differentiated: private-style investing.
• Minority protections, non-control positions
• PIPEs, SOE equitizations, negotiated deals
• Unique: only LSE main board listed fund.
• Delisting and consolidation of other funds.
• Remains most liquid VN fund traded.
VOF strategy
Actions to close the discount to NAV:
• Continue the share buyback program
• Broaden investor base and increase knowledge of VOF by improving communication with investors:
• Marketing and promoting our fund
• More research coverage
• Main board listing on the London Stock Exchange
Investment strategy to continue enhancing total NAV:
• Privately negotiated investments in private and listed companies, with a focus on:
• Sectors that support domestic growth;
• SOE privatisations;
• Selective real estate equity investments.
• Target deeply discounted listed equities with strong fundamental sand M&A opportunities
• Rebalance the Real Estate portfolio with a focus on companies instead of projects
• Actively seek to exit matured assets at premium to market price
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VinaCapital Group 17th floor, Sun Wah Tower 115 Nguyen Hue, District 1, Ho Chi Minh City, Vietnam
P: (84 8) 3821 9930 F: (84 8) 3821 9931
Email: [email protected]
Website: www.vinacapital.com
Ho Chi Minh City Hanoi Danang Nha Trang Singapore