Time of huge-capital investments

Time of huge-capital investments

Very few investment deals in Vietnam have been announced over the last three years. Only the news about the capital withdrawals appear on local newspapers.

The Vietnamese market once witnessed the investment wave 6-7 years ago, when investment funds like IDG Ventures, Mekong Capital, Dragon Capital, VinaCapital, BankInvest poured money into private businesses

Meanwhile, very few investment deals have been announced over the last three years, except the ones in the technology or Internet sectors.

Mekong Capital, for example, has transferred 13 its investment deals since 2008. In September 2013, the fund sold 100 percent of stakes in Thong Minh MK and The Gioi So JSCs. There has been no announcement about its next affairs.

In 2012, VinaCapital’s funds withdrew capital from at least four projects, totaling $85 million. These included Savico Vinaland, Prime Group, Legend hotel and Long An seaport projects.

It is inevitable for investment funds to withdraw capital, if considering their mode of operation. In general, a fund has the operation duration of five years and the extension time of two years at maximum.

As for Mekong Capital, an investment fund has the “life expectancy” of 10 years, while the investment in a business usually lasts 7-8 years.

VinaCapital and Mekong Capital are considered the “early birds” in the Vietnamese market, which were present here in 2004-2005. Therefore, it is quite normal if they withdraw capital to close the funds.

But why is there very few investment activities made in the last 3 years, though the funds affirmed before that they would make long term investment in Vietnam? Is that because the funds have run out of money or there are fewer Vietnamese good businesses?

According to David Do, Managing Director of Vietnam Investment Groups (VIG), joint venture funds sustained a big shock in 2007 and 2008. A lot of investment deals in that period were unsuccessful, which has led to the delay in the establishment of new funds.

He said the Vietnamese economy has been meeting big difficulties in recent years, which makes it very difficult to find the Vietnamese businesses with good business models and high growth rates like the ones in 2005-2006 to invest in.

In fact, many other investment funds still stay in Vietnam, looking for their new opportunities. However, in the current conditions, they tend to set higher requirements on businesses, and would only agree to inject money when they can expect more preferences and more power to be sure that their investments do not bring loss.

This could be the reason why very few deals made recently.

Andy Ho, Managing Director of VinaCapital, said VOF fund plans to pour $100 million into four companies, including three in food and drink sector and one in communication sector. However, he admitted that the likelihood of the deals is low, at 20 percent.

Analysts noted that investment funds recently tend to pour money into the businesses with stable operation, which plan to expand the scale instead of start ups.

David Do from VIG also said Asian funds are still interested in the Vietnamese market. But now they prefer investing in grown up businesses, accepting modest profit rather than the start ups, though they promise higher profits.

vietnamnet