JPMorgan lends $175 mil to Vietnam food maker Masan

The US’s largest bank, JP Morgan, has lent a subsidiary of food maker Masan Consumer US$175 million for three years to invest in its consumer business, news website VnExpress reported.

Masan Industrial earlier borrowed from the bank two years ago and is set to repay its matured debt of $108 million. The new loan carries a lower interest rate than the previous one, the company said without disclosing numbers. Of the loan, $150 million is guaranteed by the Multilateral Investment Guarantee Agency, a World Bank affiliate, making Masan the first Vietnamese private business to be backed by it.

To get the guarantee, a business has to go through risk assessment by MIGA based on project viability, the sector and its importance to the host country, financial viability, potential for earning export proceeds in freely usable currency, and environmental impacts.

Masan Consumer is the market leader in fish, soya, and chili sauces and the second largest producer of branded instant noodles in the country. It shares were up 1.7 percent to VND90,000 at the close on July 12. But the stock is down 11 percent for the year. This year the company targets 35-50 percent growth in after-tax revenues from VND2.781 trillion ($131.1 million) last year.


Vietnam should study Temasek model to boost state firms

Vietnam should consider following the model of Singapore’s Temasek Holdings Pte and Malaysia’s Khazanah Nasional Bhd. as it seeks ways to boost productivity at state-owned enterprises, McKinsey & Co.’s country head said. “It could be very interesting to look at successful stories that Malaysia and Singapore had,” Marco Breu, McKinsey’s chief executive officer in Vietnam, said in an interview. “They created this arms-length view between the government and the SOEs, this entity which then started managing them professionally with only business incentives in mind.”

Singapore created Temasek in 1974 to nurture the development of state corporations including the national phone company and airline. Khazanah was set up in 1993 with a similar mandate. Temasek managed S$215 billion ($169 billion) in investments as of March 31, while Khazanah’s net asset value reached 86.9 billion ringgit ($27 billion) at the end of 2012.

Vietnam is trying to raise competitiveness and efficiency at state companies as economic growth slows after the Communist Party said in 2011 that unprofitable government-controlled firms had become a burden. Prime Minister Nguyen Tan Dung approved a master plan in February to spur its companies to focus on core businesses and accelerate public share sales.

The Singapore and Malaysia models allowed the state investment firms to introduce common corporate governance practices and impose higher management standards. They have successively sold shares in former state companies and then reinvested the proceeds outside their home countries.

Role models

Temasek’s biggest holdings now include shares in Singapore Telecommunications Ltd., Southeast Asia’s biggest phone company; DBS Group Holdings Ltd., the region’s biggest bank; U.K. lender Standard Chartered Plc; and Industrial & Commercial Bank of China Ltd., the nation’s largest bank.

Khazanah owns stakes in some of Malaysia’s biggest listed companies, including electricity producer Tenaga Nasional Bhd., mobile-phone company Axiata Group Bhd., lender CIMB Group Holdings Bhd. and hospital operator IHH Healthcare Bhd. The investment firm sold Proton Holdings Bhd., the national carmaker and owner of luxury sports-car maker Lotus, last year.

Breu also mentioned Kazakhstan’s Samruk-Kazyna, the sovereign wealth fund that controls assets accounting for about half of the country’s economic output, as a model.

Hidden inefficiencies

Vietnam’s sovereign credit rating was cut one step to B1 in December 2010 by Moody’s Investors Service, which cited concerns including “debt distress at Vietnam Shipbuilding Industry Group,” or Vinashin. Standard & Poor’s followed the same month, placing Vietnam three levels below investment grade.

The country targets 5.5 percent economic growth this year, which would be its first period of three straight years of growth below 6 percent since 1988, according to International Monetary Fund data. The government is trying to fix a banking sector weighed down by bad debt, which the central bank said was 7.8 percent of outstanding loans at the end of 2012.

Governments have difficulty giving state-owned companies more independence because they often serve as vehicles for state policies, Breu said.

“In SOEs, you will find a lot of hidden inefficiencies because they might not have been managed according to business principles,” Breu said in the July 2 interview. “Many times they function as a way to keep unemployment down.”

Without mechanisms to retrain workers, “it is very hard to all of a sudden say cut it 30, 40 percent,” he said. Breu declined to say whether McKinsey is advising Vietnam’s government, saying the company has a policy not to comment on its clients.

Small steps

Vietnam has taken small steps to replicate entities like Temasek with its State Capital Investment Corp., which was formed in 2006 to manage government shareholdings and operates under the Ministry of Finance, said Alan Pham, chief economist at VinaCapital Group. SCIC’s role should be expanded, he said.

A Temasek-like organization would have difficulty functioning within the fragmented power structure in Vietnam, said Jonathan Pincus, an economist with the Harvard Kennedy School’s Vietnam Program in Ho Chi Minh City.

“The problem is every level of government controls entities that are commercial in nature.” he said in a phone interview. “You have SCIC and the Ministry of Finance trying to be Temasek, but nobody wants to give them any assets.”

Vinashin, the state-run firm that had planned to build and export $1 billion of ships in 2009, almost collapsed in 2010 because it over-diversified and failed to manage its cash flow and debt properly, according to the Ministry of Transport.

Prime Minister Dung faced a call for a confidence vote in the National Assembly in late 2010 for his handling of Vinashin. Dung, who apologized for the shortcomings in a televised broadcast in October 2012, eventually faced the vote last month and passed with 67 percent support from lawmakers.

Market volatility

A stock market slump has slowed down Vietnam’s equitization process, Dominic Scriven, the CEO of Ho Chi Minh City-based fund manager Dragon Capital, said on behalf of the Capital Market Working Group at a conference last month.

The Ho Chi Minh City Stock Exchange’s benchmark VN-Index (VNINDEX) has lost 7.7 percent from this year’s June 7 high. The gauge has rallied 18 percent this year, at least 7 percentage points more than any other Southeast Asian benchmark tracked by Bloomberg.

Vietnam Airlines Co., the national carrier, has selected banks to manage an initial public offering, CEO Pham Ngoc Minh said April 9. He didn’t give a time frame for the sale.

One in five publicly traded companies may post losses this year, State Securities Commission Chairman Vu Bang said last month. Investors are awaiting the results of the government’s plans to resolve non-performing loans and restructure banks and state-owned enterprises, he said.

Productivity improvements

Productivity in manufacturing and services must improve by 50 percent for Vietnam’s economic growth to return to more than 6 percent, Breu said, citing a McKinsey report published last year. Vietnam can’t rely on the two other drivers of economic expansion – the labor force and urbanization – for growth, he said. South Korea achieved such productivity improvements during the 1970s, as did China more recently, he said.

“Unless you fundamentally change SOEs, reform these things, you will end up more at 4.5 percent to 5 percent growth,” Breu said.

Thanh Nien

Credit Suisse buys 13.64% of Hoang Anh Gia Lai

HA NOI (VNS)— Credit Suisse (Hong Kong) Limited announced it had purchased over 73.3 million shares of property developer Hoang Anh Gia Lai (HAG). The deal was for the purpose of hedging transactions it had entered into with its off-shore clients, the business said earlier this week. The amount of shares/fund certificates held by Credit Suisse Hong Kong after the transaction is equal to 13.64 per cent of Hoang Anh Gia Lai’s outstanding shares. It made Credit Suisse the second-largest shareholder after Doan Nguyen Duc, the Vietnamese company’s chairman. Before the transaction, the investor held only 12 per cent of HAG shares.-VNS

VinGroup sets high business target

HA NOI (VNS)— Property developer VinGroup (VIC) said it was commited to delivering 8,000 apartments in the Royal City and Times City projects in Ha Noi this year despite low demand given the sluggish real estate market.

At the company’s annual meeting of shareholders on Saturday, VinGroup chairman Pham Nhat Vuong said VinGroup would not reduce the prices of their apartments as had other companies, but would keep the old prices to protect the interests of the customers who had purchased their apartments. “There are many ways to raise capital given difficult conditions, so slashing apartment prices when the market is in a downturn can affect other clients’ interests,” Vuong said.

The Times City project has completed the first phase with 12 towers, nine of which have been sold while the other three are still not open for sale. VinGroup also plans to launch its two major shopping malls in Ha Noi this year, Vincom Mega Mall Royal City in July and Vincom Megal Mall City Times in December, while seeking new promising projects in Ha Noi, HCM City, Nha Trang and other localities for investment. “There will be many opportunities for investors with cash in the current context,” Vuong said.

Last year, VIC’s net revenue was over VND7.9 trillion (US$376.2 million), an increase of 242 per cent over the previous year. Its after-tax profit also jumped 72 per cent over 2011, totalling nearly VND1.85 trillion ($88.1 million).

In the financial sector, VinGroup successfully issued international convertible bonds worth $300 million while attracting another $200 million from the global private equity fund Warburg Pincus into Vincom Retail. This year, VIC projects planned to earn a pre-tax profit of around VND10 trillion ($476.2 million) and to have net revenue of VND12.2 trillion ($581 million).

The group has also approved a plan for debuting shares overseas through an initial public offering on an international stock exchange in the future. Two foreigners were elected to VIC’s board of directors during this meeting. They were Joseph Raymond Gagnon, managing director at Warburg Pincus, and Marc Villers Townsend, managing director at CBRE Vietnam, an independent board member. VIC shares rose slightly yesterday, closing at VND70,000 ($3.33) a share. — VNS

Warburg Pincus invests $200m in Vincom (Reuters)

Warburg Pincus LLC, the private-equity owner of Neiman Marcus Group Inc., will lead a consortium to invest as much as $325 million in Vietnam’s Vingroup Joint Stock Co., the firm’s first Southeast Asia deal since 2010.

The group will spend $200 million for about 20 percent of the Hanoi-based company’s Vincom Retail property unit, Vingroup said in a statement. The New York-based firm may invest an additional $100 million, Vietnam’s largest shopping mall owner said.

Warburg Pincus, which raised $11.2 billion in May, joins a wave of private-equity firms betting on the country’s emerging middle class and real estate market recovery. The deal rivals KKR & Co.’s $359 million investment in a unit of Masan Group Corp. in January and will help Vingroup accelerate planned shopping mall developments

“There’s very good chemistry between the two companies,” Le Thi Thu Thuy, Vingroup’s chief executive officer, said in an interview. “We want to leverage Warburg-Pincus’ experience and take Vingroup to the next level. We want to internationalize this company.”

Vingroup plans to offer shares in Singapore this year and Warburg Pincus will invest as much as $25 million as part of today’s agreement, she said. Vingroup also plans an international bond sale, she said, without giving a time frame.

Warburg Pincus will gain positions on Vingroup’s board of directors as part of today’s transaction, according to the statement.

KKR Deal

A fifth of private-equity investors surveyed in a Coller Capital report in December said they are turning to emerging Asian markets including Vietnam and Indonesia as investments in China become risker.

KKR in January more than doubled its stake in Masan Consumer Corp., a Vietnamese fish sauce maker, making it the country’s largest private-equity deal. TPG Capital, the private-equity firm run by David Bonderman and James Coulter, said in March it was looking for its first Vietnam investment in nearly four years.

Warburg Pincus’s only investment in Southeast Asia was in Singapore’s Quest, an engineering services company, in 2010, according to its website.

Warburg Pincus Buys Vincom Retail for US$200 mln

 May 31, 2013 (Vietnamica) — On May 29, Warburg Pincus, the consortium led by U.S. buyouts fund, unveiled its plan to buy 20 percent of Vincom Retail, the retail unit of Vietnam’s Vingroup JSC (HOSE:VIC) for US$200 million (Dan Tri, May 29).

Warburg pledged to invest more US$25 mln in Vingroup’s first initial public offering (IPO) in the international market. In the future,  an additional US$100 million will be poured in Vincom Retail for expansion and retail property-related deals.

Vincom Retail is the country’s largest owner and operator of shopping malls with seven assets valued around $1.1 billion.

On May 28 session, VIC hit ceiling price of $3.6 per share and nearly 850,000 shares were transacted (VietFin, May 29)

Masan’s investor plans to swap shares

HA NOI (VNS)— US investment fund KKR’s arm may transfer its stake in Masan Consumer to shares of the parent company Masan Group (MSN) in a new issuance.

The fund earlier this year spent US$200 million to buy 45.68 million shares of Masan Consumer, gaining an 8.7 per cent stake in the company.

Masan Group holds a dominating 77.3 per cent stake in Masan Consumer.

A Massan representative said the type of securities issued for the swap will be MSN shares or depository receipts on the basis of common shares.

The number of new MSN shares will be calculated based on the comparision between the ownership of the US investor in Masan Consumer and the volume weighted average price of MSN shares at the time of the issuance. It must also assure KKR’s expected internal rate of return.

Masan Group also plans private placement of shares to Jade Dragon (Mauritius) Limited – a subsidiary of Goldman Sachs – and Dragon Capital’s Vietnam Resource Investments (Cayman) Limited.

In addition, Masan Group intends to issue 100-200 million convertible bonds in the international market. Bond yields will reach up to 8 per cent a year.

The conversion price has not been set, but it will be at least VND100,000 per share.

The bonds may be listed on the Singapore Stock Exchange or other foreign stock exchanges chosen by the board. — VNS