VINACAPITAL VIETNAM OPPORTUNITY FUND€¦ · VN Index, VND terms Vietnam Index… the past 12...

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Confidential

VINACAPITAL VIETNAM OPPORTUNITY FUND2019 VinaCapital Investor Conference Update

October 2019Hanoi, Vietnam

Andy HoManaging Director andChief Investment Officer

Classified: Public

Disclaimer

The information contained herein has been prepared by VinaCapital Group Limited (the “Company") and is subject to updating, completion, revision, further verification and amendment without notice.

The information contained herein has not been approved by any listing authority or any investment regulator. The information does not constitute or form part of any offer for sale or solicitation of any offer to buy or subscribe for any securities nor shall they or any part of them form the basis of or be relied on in connection with, or act as any inducement to enter into, any contract or commitmentwhatsoever.

No undertaking, representation, warranty or other assurance, expressed or implied, is made or given by or on behalf of the Company or any of its directors, officers, partners, employees, agents or advisers or any other person as to the accuracy or completeness of the information or opinions contained herein and no responsibility or liability is accepted by any of them for any such information or opinions or for any errors, omissions, misstatements, negligence or otherwise for any other communication written or otherwise.

The information herein may not be reproduced, re-distributed or passed to any other person or published in whole or in part for any purpose. By accepting receipt of this document, you agree to be bound by the limitations and restrictions set out above.

Neither these pages nor any copy of them may be taken or transmitted into or distributed in any jurisdiction where the distribution of such material would be prohibited under the jurisdiction’s applicable securities laws. Any failure to comply with this restriction may constitute a violation of national securities laws.

Past performance is not a guarantee of future returns.

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Welcome back…Wow -it’s certainly been an interesting 12 months!

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Interest rates negative, VND and USD stable

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What does this all mean?Potential market and portfolio risks

6 |

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7 | Source: Bloomberg. VN Index, VND terms

Vietnam Index… the past 12 months have been very volatile

500

700

900

1,100

1,300VN Index Index Peak: 1,204

Market Cap: USD143 billionTTM P/E: 21.7x

Jan 2016:apply T+2

Aug 2017:launch derivatives

market

Jun 2015: companies allowed to determine own

FOL

Jun 2019:Covered

warrants (call option only)

Sep 2018:FTSE added VN to

watchlist for Secondary EM

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Vietnam, still a compelling case among regional peers

10.2%

4.7%

-6.5%

7.6%

12.5%

Vietnam Indonesia Malaysia Philippines Thailand

CY2019 Stock Market Performance (USD terms)

0.1%

-1.3%

1.7%

-0.9%

-5.2%


CY2019 FX depreciation

16.7 20.2 19.5

17.9 18.6 15.8

25.5

21.2 18.9

14.4


VN P/E now at a 12% discount to peers (16.5x vs 19.1x)

Aug-19 Dec-18

4.2

7.3

3.3 4.4

1.5


VN bond yield vs regional peers (10yr bond)

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Focus: Meaningful stakes with Downside Protections and Minority Rights

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MARKETDYNAMIC

PORTFOLIOMANAGEMENT

Market volatility, uncertain growth prospects, delayed capex

FX devaluation, lower cost of capital

Exposure to listed equities, underweight index constituents

Holding meaningful stake with M&A Option

TRADE WAR IMPACT LOWER INTEREST RATES

MARKET VOLATILITY

ACQUISITION vs

GREENFIELD

Privately-Negotiated Investment Opportunities

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Vietnam has one of the most dynamic private equity markets in region

● Vietnam one of the top four most dynamic private equity markets in Southeast Asia (2018).

● USD1.6 billion poured into the country’s private equity sector, up 285% year-on-year, according to Moody’s analytics’ Bureau Van Dijk.

● In 2018 witnessed a significant increase in the number and set new records in deal value, especially in technology and financial services sectors.

10 | Source: Grant Thornton “Private Equity – Investment Outlook 2019”

1

2

3

4

5

6

7

8

9

10

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VinaCapital Fully Realized Private Equity-Related

Investments Gross IRR, 20.0%

VN Index, 9.5%MSCI Emerging Markets Asia,

7.5%

MSCI Frontier Markets, 3.3%

Vs. VN Index, 10.5%

Vs. MSCI Emerging Markets Asia, 12.5%

Vs. MSCI Frontier Markets, 16.7%

0%

5%

10%

15%

20%

25%

Over the long-term VinaCapital’s private equity investments outperform1

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1 Figures are from 30 June 2003 to 31 August 20192 Source for benchmark performance: Bloomberg. Performance are on a gross basis. VOF’s gross returns are non-weighted and are only for fully realized private equity-related investments.

VinaCapital’s private equity investments outperform the VN Index by 10.5% (from inception June 2003 to August 2019)2.

Outperformance vs. Benchmarks

28 Fully Realized Investments

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Fund updatePerformance and portfolio review

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VOF’s investment objectives

● VOF’s objective is to achieve medium to long-term returnsthrough investment either in Vietnam or in companies with a majority of their assets, operations, revenues or income in, or derived from, Vietnam.

● The goal of the Investment Manager is to deliver excess performance on NAV per share, over an 8% compounding hurdle.

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14 |1. Data as at 27 September 2019.2. New fee structure applied from 1 July 2019.3. Prepared in accordance with the Association of Investment Companies (AIC) recommended methodology.

VinaCapital Vietnam Opportunity Fund (VOF)

Fund type: Closed-end listed fund (LSE: VOF)

Listing: London Stock Exchange Premium Market Listing, FTSE 250

Focus: Alternative assets, Vietnam, multi-sector, high-growth focus

NAV1: USD921 million

Discount1: 15.8%

Investment manager: Andy Ho, since April 2007, over 20 years investment experience

Independent board: 5 independent members, diverse, non-executive Board of Directors

Reduced Fees2: Management fee, 1.25% with a step-down tier structurePerformance fee, 12.5% with a fee cap, compounding 8% hurdleManager uses one-quarter of performance fee to buy VOF shares

TER3 1.7%

Classified: Public

15 |Source: Bloomberg, VinaCapital1. Total return basis, past 5 financial years up to 30 June 20192. Financial year, year-to-date to 31 August 2019

VOF cumulative performance over the past 5 years in line with market1

-2.8%

13.5%

42.5%

65.9%

-2.6%

19.3%

43.8%

50.4%

-1.4%

4.4%

26.5%

0.4%

-10%

0%

10%

20%

30%

40%

50%

60%

70%

1Y 2Y 3Y 5Y

VOF VNIndex MSCI EM

VOF FY2020 YTD2: -2.7%

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VOF delivers performance at lower volatility to peers over last 5 years

16 |1. Source: Bloomberg, VinaCapital.2. Total return basis, past 5 years from 30 June 2014 to 30 June 2019.3. Volatility measured as standard deviation

Higher performance

Low

er v

olat

ility

Return (%)

Five-year return/volatility3Volatility (%)

0.0%

5.0%

10.0%

15.0%

20.0%

-5.0% 0.0% 5.0% 10.0% 15.0%

VOF(Return: 10.7%)

VN Index(Return: 8.5%)

VNM ETF(Return: -2.8%)

Peers average(Return: 6.1%)

Top quartile performance at lower risk / lower volatility

Classified: Public

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VOF investments classification by entry type over time (FY2017 – FY2019)

44.5%

21.1%

17.4%

1.3%

11.7%

4.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

50.0%

Private Equity Equitisations PrivatePlacement/Pre-IPO

Real Estate Stock purchased onStock Exchange

Cash & Others

% N

AV

by

Ent

ry M

etho

d

FY2017 FY2018 FY2019

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18 |1. As at 31 August 20192. Investments and divestments over FY2019 from 30 June 2018 to 31 August 2019.3. PE: Private Equity, EQ: Equitisations, PIPE: Private Investment in Public Equity, PP: private placement

VOF top 10 holdings – most entered via privately negotiated means1

Investee company % of NAV Sector Entry method

1 Hoa Phat Group (HPG) 11.1 Construction materials Private Equity

2 Khang Dien House (KDH) 9.3 Real estate & construction

Private Equity

3 Airports Corporation of Vietnam (ACV)

8.5 Infrastructure Equitisations

4 Phu Nhuan Jewelry (PNJ) 7.3 Consumer discretionary Private Equity

5 Vinamilk (VNM) 6.0 Food & beverage Equitisations

6 Eximbank (EIB) 4.8 Financial services Private Placement

7 Quang Ngai Sugar (QNS) 3.4 Food & beverage Share purchase

8 Coteccons (CTD) 2.5 Real estate & construction

Private Placement

9 Orient Commercial Bank (OCB) 2.4 Financial services Private Equity

10 Ho Chi Minh City Development Bank (HDB)

2.2 Financial services Pre-IPO

58.6

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Privately-negotiated investingOur principles and approach

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VinaCapital’s approach to private equity investing

Target

IRR 20-25%

Performance commitment

Corporate governance,

ESG

Downside protection

Exit plan

(IPO or Drag)

Milestone disbursements

Management involvement

We target growth companies, through privately negotiated opportunities not widely available to the market.

Early Stage

Growth Stage

IPO / M&A Exit

VOF focuses on growth stage companies with strong fundamentals

TargetIRR 20-

25%

Privately negotiated deals follow a structured, institutionalized investment process.

Classified: Public

Deals by sourcing type

● VinaCapital has dedicated almost 80% of our effort investing into these opportunities.

VinaCapital’s investment focus

● Private investments: privately negotiated transactions, PIPEs / placements, pre-IPO, equitisations, and private debt w/ equity kicker.

● Sectors that contribute to the domestic economy and benefit from rising wealthand consumption (e.g. consumer staples, property and real estate, construction materials, financial services, education, entertainment, healthcare, logistics.)

● Investments are not widely available to the market (e.g. retail investors), usually are proprietary deals that we have initiated.

● Over time, investments may migrate to the listed portfolio through an IPO and listing process or exit through an M&A process.

Source: VinaCapital research. Deal pipeline since inception, over 200 deals sources and evaluated.21 |

Private / family owners

75%

SOE divestments

9%

Public markets

14%

Secondary buyout deals

1%

Corporate divestments

1%

+200deals

Classified: Public

1 Track record is from the VinaCapital Vietnam Opportunity Fund (“VOF”). Valuation as of 31 August 2019.IRR: Internal Rate of Return, MOIC: Multiple on Invested Capital

Novaland

USD22.2 million

2015 - Present

Fully Realized

IRR: 27.4%, MOIC: 1.5x

PNJ – Phu Nhuan Jewelry

USD25.4 million

2007 - Present

Partially Realized

IRR: 14.6%, MOIC: 3.7x

Hoa Phat Group

2007 - Present

USD 85.7 million

Partially Realized

IRR: 12.8%, MOIC: 2.2x

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Privately negotiated investments – investing in brand, scale, and distribution

Brand Scale Distribution

Kido Group

USD46.1 million

2005 - 2015

Fully Realized

IRR: 38.2%, MOIC: 2.1x

Hoan My - Healthcare

USD10.1 million

2009 – 2013

IRR: 38.3%, MOIC:2.3x

Fully Realized

Vietjet Air

USD38.4 million

IRR: 87.6%, MOIC: 2.1x

Fully Realized

2016 - 2019

Classified: Public

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2019 has seen VOF enter the main international media on a regular basis

Others have done far better. The VinaCapital Vietnam Opportunity Fund is up

by nearly 80% over the same period. The fund has been easily accessible

since listing on the London Stock Exchange in 2016.

A growing number of specialist funds invest in

Vietnam. One of the more accessible is

VinaCapital’s Vietnam Opportunity Fund, an

investment trust. Whether bought in US dollars or

sterling, the fund currently trades on a 14pc

discount to its net asset value.

Classified: Public

Khanh VuDeputy Managing Director

• 8 years at VinaCapital, currently investment director and member of VOF’s investment committee.

• Over 15 years of managerial experience in corporate finance, asset management, investment banking, and risk and compliance. Previously at Macquarie Bank based in New York and Sydney.

• Masters degree from University of New South Wales, Sydney.

Supported by a 10-member research team, including CFA charter holders or MBA qualified

VOF investment team

Andy HoChief Investment Officer and Managing Director• 13 years at VinaCapital,

Portfolio Manager of VOF and Chief Investment Officer of VinaCapital.

• Former Director of Investments at Prudential Vietnam, management positions at Dell Ventures and Ernst & Young in both the US and Vietnam.

• MBA from MIT Sloan School of Management, BS from the University of Colorado, USA; Certified Public Accountant.

Duong Vuong, CFADeputy Managing Director

• 5 years at VinaCapital, currently responsible for VOF’s capital market and PIPE investments.

• 22 years of experience including the last 11 years in Vietnam.

• Former Research Head at PXP Vietnam Asset Management, Senior Investment Analyst at ADIA in Abu Dhabi and Banks Analyst for Merrill Lynch in London.

Loan Minh DangDeputy Managing Director

• 14 years at VinaCapital, responsible for private equity investments and sourcing.

• Former Audit Manager for KPMG Vietnam and on the Management and Financial Accounting team at Unilever Vietnam.

• MBA from University of Hawaii; Vietnamese Certified Public Accountant and UK ACCA member.

Comprehensive analysis of 80 companies across 11 different sectors, accounting for about 75% of the total market capitalisation.

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Dieu Phuong NguyenDeputy Managing Director

• 14 years at VinaCapital, responsible for private equity investments and sourcing.

• Former Audit Senior for KPMG Vietnam.

• UK FCCA member.

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Looking ahead: opportunities and challenges

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Consumer Discretionary

43%

Healthcare19%

Consumer Staples

14%

Materials14%

Industrials5%

Information Technology5%

Private equity investment opportunities1

21 private equity-related deals under reviewed. Consumer discretionary remains our primary area of interest (43% of our total pipeline) given strong fundaments, rising middle-income levels.

Pipeline by sector2

1 Private equity-related investments in the pipeline are from 1 January 2018 to 31 August 2019.2 Percent of total number of private equity-related deals that are in the pipeline from 1 January 2018 to 31 August 2019.

Pipeline by transaction type2

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USD626mPrivate Company

(Equity/Quasi-equity)71%

Private Placement/PIPE

24%

Pre-IPO5%

USD626m

Classified: Public

Selected current private equity pipeline

27| 1 Each investment assessment criteria is rated from 1-5, with 1 being the lowest and 5 being the highest.

PROJECT NAME INVESTMENT SOURCING & STATUS INVESTMENT ASSESSMENT1

Project Newton Materials – Plastic Packaging(Public Unlisted Company)

• USD21.4m• 35.9% stake• Equity

• Sourced through limited process• Finalizing transaction documents

Industry/Competitive AdvantageFinancial PerformanceValuation & Deal TermsManagement Team

Project AndesIndustrials – Steel Structure(Private company)

• USD30m• 28% stake• Convertible Bond

• Sourced through limited process• Investment committee/due

diligence stage


Project Tea Mask Healthcare – General Hospital(Private company)

• USD26.5m• 30% stake• Equity


diligence stage


Project TwinsHospitality – Convention Center(Private Company)

• USD15m• 20% stake• Equity


diligence stage


Project TaipeiMaterials – Plastic Packaging(Public Unlisted Company)

• USD13m • 21% stake • Convertible Bond

• Sourced through limited process• Term negotiation


Project HazelnutF&B – Food Chain(Private company)

• USD15m• 30% stake • Equity

• Sourced through limited process• Term Negotiation


Classified: Public

How we structure and controlStake and structure Minority interest Controlling interest

Full due diligence FinancialLegalOperationalESG

FinancialLegalOperationalESG

Board Board appointment and minority representation

Board appointment and control

Management Enhance professional management team

Change of professional management, appointment of human resources

Rights and protections Performance commitmentsDrag and tag along rightsCash or share top-upPut option, etc

Controlling rights

Deal types Growth capitalManagement buy-out

Distress and special situationsRoll-up platform strategy

Target IRR (USD terms) and MOIC

20-25% & 2-3x MOIC over 3-5 years

20-25% & 2-3x MOIC over 3-5 years

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Due diligence takes longer but allows us to negotiate stronger terms

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Challenges to private equity investing in Vietnam

1. Valuation

2. Profit commitments (with contractual penalties)

3. Tax differences (between internal books vs. external books)

4. Sensitive land issues (both land as a commercial asset and development asset)

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Environmental, Social and Governance factors in investing

VinaCapital is a signatory to the UN’s Principles for Responsible Investing

Private investments follow the ESG evaluation and assessment framework set by the IFC / World Bank

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ESG’s rising importance… VinaCapital has been an early leader in due diligence

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VinaCapital17th Floor, Sun Wah Tower115 Nguyen Hue, District 1, Ho Chi Minh City, VietnamTel: +84 28 3821 9930Fax: +84 28 3821 9931Email: [email protected]: www.vinacapital.com

Ho Chi Minh City | Hanoi | Danang | Singapore

VINACAPITAL VIETNAM OPPORTUNITY FUND€¦ · VN Index, VND terms Vietnam Index… the past 12...

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