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Foreign funds say Vietnamese typically overvalue their companies
Foreign fund managers aren’t sealing many deals to invest in joint stock companies in Vietnam, but they remain optimistic about doing business in the country.
Less than ten investments in Vietnamese private enterprises have been announced by foreign funds so far this year. The funds complain that it is difficult to find good opportunities, because Vietnamese companies ask for too much.
It’s already one year since it set up in Vietnam, but DI Asia Industrial Fund still has not committed funds to any Vietnamese company. Shinichiro Hori, Dream Incubator Vietnam’s Director, says negotiations have foundered when the Vietnamese enterprises offered shares at unrealistically high prices.
Hori said DI has a list of 300 companies operating in every field but real estate and finance. Twenty companies have been short-listed. DI aims to invest in five to ten. “We hope we can reach agreements with two or three companies by the end of the year,” Hori said.
Unlike in previous years, two funds that specialize in making investment in technology firms, IDG and DFJV, have been quiet in recent months. DFJV’s last deal was purchase of shares in Technology Solution 24 Company in February.
The biggest investment deal so far this year is VOF Fund’s investment in Prime Group, a facing brick producer in VInh Phuc province.
In the last seven months, Mekong Capital has only invested $9.1 million in Nam Long Investment Company.
A fund which makes small investments on the order of $300,000 to two million, the Blue Waters Growth Fund (SEAF), has just finished its third investment so far this year, in Cong Hoa Polyclinic Company.
Why so slow?
Explaining the slowness of his fund’s disbursements, Hori from DI Fund says it is partially because Vietnamese enterprises do not know much about DI. Further, DI must compete fiercely with other investment funds, something he did not anticipate. He’s found, Hori adds, that Vietnamese companies typically overvalue their companies. Unlisted companies regularly assess their companies at 10-15 times their actual value, so it is very difficult to reach agreement during negotiations.
Andy Ho, Managing Director of VinaCapital Group, agrees, saying that companies with high profit and liquidity always ‘ask for the moon’, especially when many investment funds want to buy into the companies.
Ho adds that it is especially problematic to invest in equitised companies that are the subsidiaries of state owned enterprises. “There’s a risk that the holding company will change the business strategy of subsidiaries. Therefore, we only invest in big equitised enterprises.”
More money said to be flowing to Vietnam
Having returned from Europe and Japan after meeting investors, Vinacapital’s Ho says that foreign investors remain confident in Vietnam’s market. “They know their investments in Vietnam through our funds still can bring profit, more profit than investments in other developing countries,” he says. The enthusiasm they’ve expressed explains why VInaCapital has decided to establish two more funds, Vinaland 2 and VOF 2. The money for the two funds will mainly come from institutions, such as Japanese pension funds and American charitable foundations. Each fund will have $150 to 250 million in capital.
Most recently, the chairman of IDG Ventures said during a visit to Vietnam that two more funds will be established with the scale of $400 million.
The optimistic reports seem to bear out a forecast released by Grant Thornton in February 2010. The consulting firm interviewed 200 people with the power to decide to invest in Vietnam or are interested in making investments in Vietnam, showed that 87 percent considered Vietnam is more attractive than other countries, a 20 percent increase from the previous year. Two-thirds said they would increase investment in Vietnam.
The number of people who express confidence in the growth of Vietnam’s economy has increased sharply to 81 percent in the second quarter of 2010. Similar polls showed 59 percent confidence in May 2009 and only 36 percent confidence in November. Grant Thornton says retailing, healthcare, medicine and education have especially caught the attention of investors.
vietnamnet, Tuoi tre
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