Foreign funds withdraw more money than pour into PE firms

VietNamNet Bridge – A lot of foreign funds have withdrawn their capital from private equity firms (PE), which is attributed to the fewer good investment opportunities.

Foreign funds, PE firms, capital, Vinacapital

Mekong Capital’s ownership ratio in The Gioi Di Dong has reduced to 25.8 percent

Mekong Capital and VinaCapital have withdrawn the investments with the incomes or dividends higher by 10-20 times than the initial investment capital. It would be a growing tendency in 12 more months, according to 67 percent of the businesses Grant Thornton polled in the fourth quarter of 2013.

Cash outflow…

Beginning to pour money into Vietnam in 2001--Mekong Capital, the typical investment fund in PEs, has made 26 investment deals so far in many different business fields.

The fund has withdrawn a part of its capital in The Gioi Di Dong, the biggest mobile phone distribution chain in Vietnam, reducing its ownership ratio from 32.5 percent to 25.8 percent, and all of its capital in Digiworld, MK Smart and Ngo Han.

The investment deal in The Gioi Di Dong proves to be the most effective one. The incomes from the sold equities, plus the dividends both have brought the profit which is 11 times higher than the initial investment capital.

Finance experts believe that the IRR (internal rate of return) of the fund in The Gioi Di Dong would be no less than 40 percent this year.

Mekong Capital has also announced the growth rates of 49 percent and 73 percent in the net profit of The Gioi Di Dong and Golden Gate in the first nine months of the year. It is expected that the IRR of Golden Gate would be 44 percent this year.

In the second quarter of 2013, the Vietnam Opportunity Fund (VOF) managed by VinaCapital also announced the capital withdrawal from Keating Capital, valued at $32.6 million, with the IRR estimated at 34 percent.

Andy Ho, Managing Director of VinaCapital, said the sum of money may be poured into the PEs in the fields of consumer goods, healthcare and pharmacy. VOF still has investments in five PEs, including IBS (building material manufacturer), which has seen the net asset value (NAV) up by 1 percent and Yen Viet (consumer goods) up by 0.4 percent.

…stronger than inflow

In order to make long term investment plans in PE, fund management companies need to raise new funds. However, it is a very difficult task for them now.

VinaCapital was steadfast with its plan to raise a new $300 million fund, an LPGP (Limited Partner and General Partner) which specializes in pouring capital in PEs

However, the plan, which was kicked off in 2012, has not gone far.

Similarly, Mekong Capital once planned to inaugurate MEF III fund in 2012 with the expected capital of $150 million, which would be injected in the PEs with high growth rates in the consumer goods sector. However, when asked about the fund recently, Chris Freund, Mekong Capital CEO, said the plan still meets a lot of challenges.

Why is the cash outflow stronger than the inflow? According to David Do, Managing Director of the Vietnam Investments Group, Vietnamese enterprises’ operation is now in the economic recession, which makes it difficult for investors to find good businesses to invest in.

K. Chi

Foreign funds, PE firms, capital, Vinacapital