Vietnam proved a graveyard for investors in the 1990s but several years down the line the next advoc...
Vietnam proved a graveyard for investors in the 1990s but several years down the line the next advocate of a bull market has emerged.
The PXP Vietnam fund, awaiting licensing in Vietnam, is marketing a blue-chips-only investment plan. PXP, which intends to be a totally institutional, five-year, closed-end and Dublin-listed vehicle, would be the first ever Vietnam fund to take the blue-chip approach.
Its managers hope institutional investment breakthroughs will herald noticeable growth in private investor activity in the country. This is currently almost non-existent.
All but one of the first wave of investment funds to enter the country in the 1990s ended up nursing heavy losses. Some 70%-80% of the $200m invested in Vietnam by seven pioneer funds during the 1990s was lost.
One reason commonly cited for this is that there were very few investment opportunities beyond high-risk start-ups. A lack of investment exit opportunities, because of the long delay in launching the Vietnam stock exchange, and significant corruption were other key factors.
The sorry performance led to another $200m raised by the funds never being invested. Big names like Lazards and Templeton fled before their reputations were sullied.
Vietnam's stock market finally began trading in July 2000 but still has only 21 listed companies, with combined market capital of just $163m, according to PXP Vietnam Asset Management director Kevin Snowball.
However, he says: 'The Vietnamese are making the exchange a bigger priority. For instance, we hope to see two local commercial banks listed soon. They alone would boost the stock market cap by 40%.
'Then there is Vinamilk, the dominant state dairy products company, which we hope to see equitised soon. Its potential market cap is slightly bigger than that of the entire current stock market.'
PXP has raised 60% of its $25m target for the fund. Snowball adds: 'Capitalisation will have to reach $1bn before people start putting Vietnam on their radar.
'But we are encouraged the Asian Development Bank and State Securities Commission are talking of 100 companies listed by 2005 with capitalisation of 4%-5% GDP ' $2bn at today's prices. Vietnam's macro story, with GDP growing at around 7%, is possibly second only to China's.'
As a blue-chip fund, PXP will not buy companies capitalised at below $5m, a difficult criterion. Of current listed firms, just three have a cap of more than $20m, while there are none between $10m and $20m.
The clear winner from the first wave of funds is Dragon Capital's Vietnam Enterprise Investments Limited (Veil), launched in 1995. The $65m closed-end fund completed its third fundraising in late 2001 and a fourth has been scheduled. Private investors account for 4% of its capital.
Listed in Dublin and traded over the counter in London, Veil is the largest investor in the Vietnam stock exchange other than the government.
Dragon says the fund succeeded by concentrating on local businesses rather than foreign-invested enterprises. In the five years to August 2002, Veil's net asset value rose 32.9%.
New listings could boost market size.
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