FYI: Vietnam Spearheads Frontier Market Investing

posted 1 Oct 2014, 20:50 by Diep Ho
Oct 1, 2014

Investors are hungry for food and beverage deals in Vietnam.
Zuma Press

Boasting a young population and growing middle class, Vietnam continues to be a popular market for private equity investors.

Bullish about deal flow and exit opportunities, home-grown private equity firm Mekong Capital is in the process of raising $150 million for its fourth – and potentially largest – fund, LBO Wire reported this morning.

Given that deals there still lag in size compared to Asia’s other markets, particularly China, middle-market and local managers will likely continue to dominate the investment landscape, but global firms are keeping a close watch.

Private equity investment in Vietnam has varied widely year to year, topping $400 million in 2013 and 2011, but coming in at less than $100 million for each other year since 2009, according to data from the Emerging Markets Private Equity Association. According to EMPEA there was $497 million worth of private equity investment in Vietnam in 2013, far outstripping the capital committed to companies in other frontier economies in Asia such as Bangladesh, Sri Lanka or Myanmar.

Investors appear confident as inflation in Vietnam eases, interest rates fall and theeconomy continues to grow.

According to a survey of fund managers and other private equity professionals conducted by advisor Grant Thornton Vietnam in May,  more than half said they would increase the allocation of investment funds to Vietnam in the next 12 months.

Vietnam’s retail, and food and beverage industries continue to be hot sectors for private equity investments, with one of Asia’s youngest populations and a burgeoning middle class supporting both industries.

Last year, KKR doubled down on its investment in noodle and fish sauce retailer Masan Consumer Corp., committing an additional $200 million. The firm invested $159 million in Masan in April 2011.

Local Vietnamese restaurant operator Huy Vietnam Group Ltd. closed a $15 million Series B round backed by investors including AIF Capital Asia and Fortress Capital Asset Management this week. Other investors in the company include New Asia Partners, a Minneapolis-based private equity firm.

Foreign firms’ interest in Vietnam is also translating into exit opportunities for domestic private equity shops.

Standard Chartered’s private equity arm recently bought a stake in Vietnam’s largest rice seed distributor, An Giang Plant Protection Joint Stock Co., from VinaCapital Vietnam Opportunity Fund Ltd.

That came just weeks after Standard Chartered struck its first deal in Vietnam, for Mekong Capital-backed restaurant chain Golden Gate.

With its new fund, Mekong Capital plans to target slightly larger deals of about $10 million, a step up from target investments of about $5 million before. The Ho Chi Minh City-based manager largely invests in retail and consumer businesses, but will branch out into health care, especially private clinics and pharmacy retail outlets.