Private Equity (PE) investment in Vietnam remains a significant driver behind its economic growth. According to the 17th survey on PE Investment, released by Grant Thornton in April, the majority of respondents (84 per cent) were positive about Vietnam’s economy. 

Investment outlook

Respondents expressed optimism towards Vietnam’s investment outlook with regard to the acceleration in the level of investment activities, while the country has risen to be the most preferred destination for PE investors in Southeast Asia. In terms of attractive industries, as home to around 95 million people and with an expanding middle and upper class and increasing disposable incomes, Vietnam still expects consumerism-driven industries to be performing well in 2018. 

There was a significant increase in respondents’ confidence in investment activities in Vietnam in 2018 compared with 2017. While 86.7 per cent of responses (the same as in the last survey) foresaw an increase in the level of investment activity in Vietnam, the number of respondents who chose “Significant increase” rose from 8.7 per cent to 28.9 per cent. 

Foreign direct investment (FDI) continued to be the major driver for the economy, as registered FDI reached a record high of approximately $35.9 billion in 2017, a 44.4 per cent increase compared with 2016. The largest contribution came from the processing and manufacturing sector (44.3 per cent), while Japan and South Korea continued to be the largest source of capital, contributing 25.4 per cent and 23.7 per cent, respectively, of total registered FDI. Foreign indirect investment (FII) also reached a ten-year high, with foreign investors’ net long value on Vietnam’s stock exchanges reaching $1.2 billion in 2017.

FDI disbursement will likely enjoy double digit growth in 2018, stemming from the large amount of registered FDI in 2017. Moreover, several trade agreements, including the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the Regional Comprehensive Economic Partnership (RCEP), and the EU-Vietnam Free Trade Agreement (EVFTA), are expected to come into effect in 2018 and will be key drivers of FDI.

The general outlook for Vietnam’s economy is expected to continue to be positive. GDP is targeted at 6.5-6.7 per cent in 2018 and inflation forecast to remain under 4 per cent; higher than the figure of 3.5 per cent in 2017 due to the risk of rising commodity prices. 

Vietnam continued to be the most attractive destination for investors when compared with neighboring countries. Twenty-eight per cent of respondents chose Vietnam as their No. 1 destination, followed by the promising investment spots Myanmar and Indonesia, chosen by 15 per cent of respondents.

With an optimistic view of Vietnam’s economy, we are looking forward to steady growth in PE investment over the coming 12 months.

Investment consideration

Source: Grant Thornton Vietnam, April 2018

Investment obstacles

Though the investment outlook has potential, investors harbor significant concerns over inconsistent and opaque investment regulations and policies as well as on the issue of corruption, the survey found. 

The government has been making considerable efforts to improve the business and investment climate. In September 2017, the Ministry of Industry and Trade issued Decision 3610a/QD-BCT simplifying administrative and investment procedures by removing 675 investment conditions, which accounted for 55.5 per cent of the number of existing conditions. The government also opened up certain sectors for foreign investment through M&As and joint ventures. Nevertheless, barriers to investment remain, most significantly the changing and opaque business and investment regulations and processes. 

While there are no discriminating laws against foreign investors, foreign investors find investment opportunities undermined by the lack of transparency in processes dealing with the government and authorities, and in many cases the complex licensing procedures require investors obtain approval from several ministries, agencies, and provincial authorities. There are also differences in procedures and interpretations of investment laws and regulations (US Department of State - Vietnam Investment Climate Statement, June 2017). 

In relation to corruption, Vietnam’s Corruption Perceptions Index (CPI) increased from 33 to 35 points in 2017 and ranked 107th out of 180 countries; an increase of six spots from 2016 according to Transparency International (TI). This shows that steps taken in anti-corruption practices have had some effect. However, ranking 107th out of 180 in the global index means that one of Vietnam’s critical challenges is still fighting corruption. 

Restrictions on foreign investment remain an issue. Despite the government’s efforts to lift foreign ownership limits, there are still strict foreign ownership limitations for certain listed companies and service sectors that are attractive to foreign investors. 

Industry attractiveness

With the growth of the middle-income class among its population of 95 million people, food and beverages (F&B) remain the prominent industry in terms of rapid growth and foreign investment inflows, followed by the healthcare and pharmaceuticals and retail sectors, which are in strong correlation with Vietnam’s potential consumption market. 

Private investment in the F&B sector has remained active over recent years. The most active investors have come from South Korea, Japan, Singapore, and Thailand, as well as domestically. Major deals include the CJ Corporation from South Korea buying 64.9 per cent of the Minh Dat Food Co. and 71.6 per cent of the Cau Tre Food JSC, Kido from South Korea acquiring 65 per cent of the Tuong An Oil JSC, Earth Chemical from Japan acquiring 100 per cent of the A My Gia JSC, and Daesang from South Korea buying 100 per cent of the Duc Viet JSC.

Investment in education and interest in the sector is growing strongly. With a strong social and ethical value system that emphasizes the importance of education and with rising disposable incomes, more and more families can now afford high-quality education, such as private tuition, private schooling, and English language training. The past two years have witnessed a significant number of PE-backed investments into the education sector, notably Mekong Capital investing $4.9 million into the Yola Education JSC, EQT Capital Partners investing in the ILA English language Training Center, and TPG acquiring stakes in Vietnamese concerns.

Despite not being highly rated, we expect that the renewable energy sector, especially the solar energy sector, will attract a good level of investment in 2018 thanks to the government’s incentives to attract investments. Notably, a favorable electricity price of 9.35 US cents per kWh will be applied for a 20-year term to solar power projects reaching commercial operations before June 30, 2019. Hence, it is expected that investment into solar power projects will need to speed up to meet this date. 

Source of transactions

According to the survey, 62 per cent of respondents expect to be “net buyers” in 2018, a decrease of 8 per cent compared to our last survey. Additionally, more investors expect to be neutral between long and short positions in 2018. Thirty-three per cent of PE respondents rated “Private/family owners” as the most significant source of deals this year, compared to only 24 per cent last year. SOE divestments, as expected, were a significant source of deals in 2017. The government successfully raised around $6.4 billion by divesting stakes in SOEs in 2017, according to an official report. The proceeds were 2.4 times higher than the target set by the National Assembly. 

Outstanding deals include the divestment of 53.6 per cent in the Saigon Alcohol Beer and Beverages Corporation (Sabeco), with proceeds of $4.8 billion, 3.3 per cent in Vinamilk for $390 million, and 49.65 per cent in the DIC Corporation for $80 million. 

The government plans to equitize 64 SOEs and divest from 181 this year, which account for 50 per cent and 44 per cent, respectively, of the 2017-2020 target. These do not include a dozen companies that were on the list to be equitized or divested from in 2017 but did not succeed. In the first quarter of 2018 alone, capital raised from the initial public offerings (IPOs) of SOEs reached $940 million, including several major names such as the Binh Son Oil Refinery (BSR), with $245 million, the PetroVietnam Oil Corporation (PVOil), with $184 million, and the PetroVietnam Power Corporation (PV Power), with $308 million. Other anticipated names for 2018 are the Hanoi Beer Alcohol and Beverage Corporation (Habeco), Vietnam’s largest State-owned shipping corporation Vinalines, and Vinafood II. These figures, together with our survey results, show that SOE equitization and divestment will still be a major story in 2018.

Vinh Ha Nguyen, Advisory Partner/(Grant Thornton Vietnam survey team)

VN Economic Times