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ietnam’s Growing Pains
By Yoolim lee and Beth thomas
Photographs by Kevin German
Foreign capitalists have fallen out of love with the communist country, even as homegrown entrepreneurs learn to flaunt their wealth.
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scooters jostle with imported cars for space on Ho Chi Minh City’s crowded streets.
photographs by Kevin german/Luceo images
guyen thanh trung brings Vietnam’s only privately owned plane level at 24,000 feet over the Central Highlands towns of Pleiku and Dalat before swinging right and bringing the eight-seat Beechcraft King Air 350 in for a smooth landing at Ho Chi Minh City airport. Trung is familiar with the landscape: Thirty-five years ago he was a Viet Cong agent and fighter pilot who recalls dropping two bombs on the headquarters of the Americanaligned southern regime in the city then known as Saigon, one of the last skirmishes before the end of his country’s civil war. Today, Trung, 62, is on a mission that symbolizes his country’s transformation: He’s the personal pilot for Doan Nguyen Duc,
an entrepreneur who is one of Vietnam’s richest men. Duc, 46, estimates that his empire, which includes Hoang Anh Gia Lai Joint-Stock Co., Vietnam’s biggest listed property company, gave him a personal wealth of 28.4 trillion dong ($1.48 billion) at the end of 2009. “Duc owning a private jet is very good for Vietnam’s economy; it shows that Vietnamese people can also be successful like businessmen in other countries,” Trung says. “This is a time for dynamic entrepreneurs.” Foreign investors in Vietnam—a land that beckoned outsiders with great fanfare in the 1990s—are having a bumpier ride than Duc and his pilot. Indochina
Capital Advisors Ltd. last year decided to liquidate a London-listed Vietnam equity fund that had lost 50 percent of its value. In November, San Francisco–based hedge fund company Passport Capital LLC demanded the return of uninvested cash from a fund that bought Vietnamese and Cambodian property. The Ho Chi Minh City Stock Exchange’s benchmark VN Index, Asia’s best performer in 2006, plunged 66 percent in 2008 as inflation followed by global recession destroyed confidence in Vietnamese investments. The index rose 57 percent in 2009. It’s up 5.3 percent this year to March 8. Investors who still have the stomach to stay in Vietnam are quietly bullish. It’s
still possible to make money in this land of 86 million people provided you’re willing to do homework, find the right opportunities and ignore the market froth, says Mark Mobius, chairman of Templeton Asset Management Ltd., which had $24 million of investments in the country as of February. “Investors should see the real value of specific investments without being driven by pure sentiment,” Mobius says. “The private sector continues to grow and has become more important to the development of the economy.” That new realism follows a decade of unbridled enthusiasm for Vietnam. Following the shift to a market-oriented economy in 1986, foreign direct investment commitments in Vietnam went from zero to a peak of $60.3 billion in 2008, almost three times Vietnam’s foreign exchange reserves at the end of 2008. Gross domestic product
Vietnamese stocks have been more volatile than those of companies in developing nations worldwide.
500 Vietnam Stock Index MSCI Emerging Markets Index
100 4Q ’04 ’05
3/8/10 ’06 ’07 ’08 ’09
Index: Dec. 31, 2004 = 100. Source: Bloomberg
expanded at an av- Former viet cong fighter pilot nguyen erage annual rate thanh trung comof 7.2 percent mands Duc’s plane. from 2000 to 2009, making Vietnam the fastest-growing economy in Asia after China and Cambodia, according to figures from the International Monetary Fund. The government forecasts GDP growth of 6.5 percent for 2010. “Vietnam was viewed as the final frontier of Asia,” says Son Nam Nguyen, managing partner of Vietnam Capital Partners, who advised global investors on more than $30 billion in financing as the former head of Citigroup Inc.’s investment bank in Vietnam. “No one wanted to miss out on the next China.” Instead, investors bought into a bubble as higher prices for commodities drove up the cost of living. Inflation peaked at 28.3 percent in August 2008. The central bank raised interest rates three times in 2008 to 14 percent to slow inflation. Some investors grew tired of the roller coaster. Shareholders of the Indochina Capital Vietnam equity fund in September voted to shut it down after its net asset value had plunged to $243 million by June 30, 2009, from an original value of $500 million in March 2007. Passport Capital, which held a 13 percent stake in property fund JSM Indochina Capital Ltd., won shareholders’ backing to replace three of the London-listed fund’s directors and begin the return of uninvested cash. From its inception in June 2007, JSM Indochina,
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increased 11-fold to 476 as listed on London’s Alternaof March 8 from 43. While tive Investment Market, Dung, 60, has said he welhad fallen 70 percent on comes more investment, Nov. 18, 2008. It was down he has yet to deliver on 29 percent at the end of promises to privatize October 2009, when Passmajor state-owned comport called for shareholder panies, including Vietnam action. Bill Nolan, managAirlines Corp. Foreign ining director of sales and vestors, which are limited marketing at Passport Capto 30 percent holdings in ital, declined to comment vinacapital ceo Don lam local banks, have won through a spokeswoman. helps manage $1.7 billion in some gains when setting “Historically, because of vietnamese investments. up new businesses: In Sepbad experiences with inflatember 2008, HSBC Holdings Plc and tion and currency depreciation, people Standard Chartered Plc won approval to are very quick to lose confidence,” says operate wholly owned units in Vietnam, Manu Bhaskaran, a Singapore-based partthe first of five such licenses. ner and head of economic research at Foreign investors can find themselves Centennial Group Holdings, which proat sea in the local culture, says Don Lam, vides advice on emerging markets. “The chief executive officer and a founding global financial system still has a risk of partner of VinaCapital Group. Lam, who new shocks, and in that kind of context, was born in southern Vietnam but grew countries like Vietnam are vulnerable.” up in Canada, says his Vietnamese managThe volatility may slow Vietnam’s deers typically spend 18 months to build revelopment as an equity market. Since lationships with owners before striking Prime Minister Nguyen Tan Dung came any partnership. “About 80 percent of my to power in July 2006, the total number deals, when they close, it’s over dinner,” of companies Farm work still he says. “That’s why it’s so important to listed on Vietaccounts for about have a senior Vietnamese team to negotinam’s two stock half of all jobs ate without interpreters.” Lam—who exchanges has in vietnam.
purposely doesn’t use dye on his gray hair and sometimes wears rimless eyeglasses to appear older than his 42 years—says he shuns business lunches, since many Vietnamese nap in the afternoons. VinaCapital’s $774 million Vietnam Opportunity Fund has invested in companies that focus on consumers, including Vietnam Dairy Products Joint-Stock Co., the country’s third-biggest stock by market value; Kinh Do Corp., the nation’s No. 1 candy maker; and Vietnam Export-Import Commercial Joint-Stock Bank. The firm had $1.7 billion invested in Vietnam as of March compared with $10 million in 2003.
erard lee, ceo of Fullerton Fund Management Co., the Asian fund management unit of Singapore’s Temasek Holdings Pte, is one of several investors who say Vietnam, with its political stability, ready pool of cheap labor and years of economic growth, reminds them of the superpower to the north. “Vietnam has a lot of the characteristics of China,” Lee says. “So it’s good to do all the heavy lifting and homework in Vietnam, because we believe we will be richly rewarded in years to come.” Fullerton’s $30 million Vietnam Fund, which primarily invests in local equities, lost 30.4 percent from its inception in April 2007. In the 12 months to March 8,
FDI has risen from $1 billion in 1993, the year before the U.S. lifted its trade embargo.
Foreign direct investment, in billions
Figures are for disbursed FDI, or the amount foreign companies actually spent. Source: Vietnam’s General Statistics Office
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trung Dung, left, discovered that few of vietnam’s consumers were able to use electronic payment methods.
the fund is up 68 percent, according to data compiled by Bloomberg. Since opening its first representative office in Vietnam in 2005, Temasek— which doesn’t disclose the value of its Vietnam portfolio—has invested in the country through its holdings in Minh Phu Seafood Joint-Stock Co., transportation company Vietnam Sun Corp. and Kinh Do, according to stock exchange filings. “Vietnam fits well with our overall themes of investing in transforming economies and the growing middle income group,” Derek Lau, Temasek’s chief representative in Vietnam, says. That bullishness is partially in recognition of how far the country has moved away from its founding collectivist ideals. On April 30, 1975, a North Vietnamese tank rammed through the gates of the presidential palace in Saigon, an act symbolizing the control of the country by communist forces. In the chaotic
years that followed, about one million Normal relations with the West and Vietnamese abandoned the country by Vietnam’s entry into the World Trade foot or took to the South China Sea for a Organization lured many Viet Kieu, or precarious journey to freedom. During overseas Vietnamese, back to their the next decade, the brain drain contribhomeland. Trung Dung, an Internet enuted to Vietnam’s economic isolation. trepreneur, returned to Ho Chi Minh In 1986, Pham Van Dong, the first City in 2006, 22 years after he abandoned prime minister of the Socialist Republic the country in a boat. of Vietnam, introduced limited private Dung, 43, says he was impressed by a ownership of companies. The Doi Moi bustling city in which countless scoot(Vietnamese for renovation) program cut ers and motorcycles jostle for space state subsidies, lifted price controls and alongside bicycles and rickshaws as eventually opened the door to foreign ‘investors should see the real value of investment. Eight specific investments without being driven years later, U.S. by sentiment,’ templeton’s President Bill Clinmark mobius says. ‘the private ton lifted the U.S. sector continues to grow.’ trade embargo against Vietnam and in 2000 became the eager young people work hard to realize first American leader to visit Vietnam their dreams. “It was chaotic,” Dung since the war ended. says. “It felt like the Silicon Valley of As Western investment came to Viet1995.” Using some of the money he nam, per capita income almost tripled made from selling his San Ramon, Calito $1,042 in 2008 from $375 in 1999, alfornia–based electronic commerce firm lowing millions of Vietnamese to afford OnDisplay Inc. in 2000, Dung founded some of the motorcycles, home appliMobiVi Co., a similar venture. ances and clothing produced in local Today, MobiVi is helping transportation factories for global consumers. companies, merchants and banks settle
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Foreign companies also encounter institutional corruption in Vietnam, according to Berlin-based Transparency International, an advocacy group that monitors business conditions. Its Corruption Perceptions Index, which rates executives’ views on the integrity of global business environments, ranked Vietnam 120th out of 180 nations in 2009, behind China, Thailand and Indonesia. “Bribery is illegal but comworkforce. Intel Corp. is schedsamsung electronics employees build telemonplace,” wrote Transparuled to open a $1 billion factory visions at a ho Chi ency International in its study in Ho Chi Minh City this year, minh City factory. of Vietnam in 2006, its most while General Electric Co. has a recent full report on the country. “Despite $61 million power generation component nearly two decades of reform, bureaucracy plant under construction. Samsung Electronics Co., the world’s second-largest mo- and red tape characterize large parts of social and business life, and having the right bile-phone maker, opened a $670 million connections—and money—are crucial to handset factory near Hanoi in October, 14 getting things done.” years after it started a television manufacHenry Nguyen, managing partner of turing plant in Ho IDG Ventures Vietnam in Ho Chi Minh Chi Minh City that ‘vietnam is the most dynamic consumer City, is one of the entrepreneurs hoping helped establish the growth story within the asia region,’ says to profit from Vietnam’s emerging midcompany as VietDavid thai, the entrepreneur behind dle class. His company’s $100 million nam’s No. 1 TV prohighlands Coffee, a Western-style chain fund is nurturing some 40 technology, ducer. Microsoft often referred to as vietnam’s starbucks. Corp. outsources dig- media, telecommunications and gaming companies with a typical investment In January, Thai spent more than $2 mil- ital animation and modeling for its comhorizon of 10 years for each holding. A puter games to Vietnam. lion to open Vietnam’s first Hard Rock black-and-white photograph of Ho Chi In September, the government said it Cafe in Ho Chi Minh City. “Vietnam is the Minh—the communist guerrilla leader might revoke the license for a high-profile most dynamic consumer growth story within the Asia region,” says Thai, who pre- tungsten mining project owned by Dragon referred to as “Uncle Ho” by the Vietnamese—playing pool overlooks IDG Capital Group in Ho Chi Minh City bedicts that the country’s retail market will cause the facility failed to start production Ventures’ conference room, while angrow as much as 30 percent annually in the other wall features the logos of the 39 on schedule. A Dragon Capital fund acfive years to 2015. “It doesn’t have the companies that the fund supports. The quired a controlling stake in the mine same population as China and India, but names include those of owned by Toronto-based it’s not crowded in terms of competition.” VinaGame, Vietnam’s Tiberon Minerals Ltd. for biggest online game comC$251 million ($247 milutside the country’s two pany, and Vietnameselion) in 2006, with two main cities, though, Vietlanguage search engine state-controlled partners nam’s economy is slowly company Socbay.com. holding the remainder. “We making a transition from ru“These companies will beare currently working with ral subsistence. Agricultural and forestry come the Googles of Vietall stakeholders to ensure work still accounts for about half of all jobs nam in the next five in Vietnam, employing 22 million people as the project is swiftly put years,” says Nguyen, 37, back on track and toward of July 2008, according to figures from the who is married to Nguyen construction and operaGeneral Statistics Office of Vietnam. From Thanh Phuong, a daughter tions,” says Dominic Scriven, 2000 to 2008, manufacturing jobs doubled henry nguyen’s iDg fund of Prime Minister Dung. CEO at Dragon Capital. to 6.3 million, making up 14 percent of the backs local online startups. payments electronically. Dung says there’s plenty of growth ahead in a country where fewer than 1 percent of the people hold credit cards and only 1 person in 10 has a bank account. “What I learned is that it doesn’t matter how smart you are,” Dung says. “It takes time to understand the local market.” On the ground floor of MobiVi’s office block, there’s a Highlands Coffee outlet. The cafe chain, often referred to as Vietnam’s Starbucks, was established in 2002 by David Thai, a former refugee who was raised in Seattle. Thai’s cafes cater to a high-end clientele that can afford Western prices: A small latte costs 44,000 dong, or about $2.25, the equivalent of a beef noodle soup dinner for two. The 80 Highlands outlets are equipped with air conditioners, flat-screen TVs and Wi-Fi connections.
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entrepreneur Duc’s plaza hotel in Danang offers a bird’s-eye view of the city.
She is currently chairperson of Viet Capital Fund Management, a Ho Chi Minh City–based asset manager. Duc, the tycoon with a private plane, started in business by making wooden school desks and selling them door-todoor in Ho Chi Minh City in 1993. Eventually, he began buying land in the capital and nearby Danang in anticipation of a construction boom. Since 2006, his flagship Hoang Anh Gia Lai—named after his daughter—has been diversifying into rubber plantations, hydropower and mining in neighboring Cambodia, Laos,
Myanmar and Thailand. Duc also owns the 23-story HAGL Plaza Hotel in Danang, which offers a bird’s-eye view of the city. is property developments have attracted foreign investors such as Korea Investment Trust Management Co. “We thought Duc’s strategy to supply affordable high-end apartment buildings for Vietnam’s burgeoning middle class was pretty smart,” says Bae Seung Kwon, Ho Chi Minh City–based head of Vietnam equity at Korea Investment, which manages $800 million in Vietnamese stocks. Korea Investment is
one of the biggest shareholders of Duc’s property company, with a 2.6 percent stake as of mid-March. Duc himself has become a symbol of Vietnam’s emerging class of Western-style entrepreneurs. When he bought the plane, there was no luxury-goods tax on such purchases. He has since ordered an $18 million Embraer Legacy 500 jet from Brazil’s Empresa Brasileira de Aeronautica SA that will be delivered in 2012. This time, Duc will have to pay a $5.4 million new levy on the deal. “They had to set the tax level for private jets after I bought the jet,” he says with a smile. With that, Duc departs for the war-era Rex Hotel in central Ho Chi Minh City, where Vietnam’s highest-profile capitalist keeps a suite in the building that was used as a U.S. military press center during the American fight against communism. ≤
Yoolim lee is a senior writer at Bloomberg Markets in Singapore. email@example.com beth thomas is chief of the Vietnam bureau of Bloomberg News in Hanoi. firstname.lastname@example.org With assistance from Joyce koh in Singapore. To write a letter to the editor, send an e-mail to email@example.com or type mag <go>.
Finding vietnam Funds
you can use the Fund screening (Fsrc) function to find funds that invest in vietnam. type FsrC <Go>, tab in to the field, enter VIETNAM and click on the vietnam geographic Focus item in the list of matches that appears. the number of funds that match your criteria will be displayed under matches in the lower-right corner of the screen. click on the results button to display the list of funds. to add data columns such as 3-year returns and total assets to the display, click on the actions button on the red tool bar and select edit Display. tab in to the field at the top of the edit Display window, enter TOTAL, click on total return 3y ann and press <go> to add the column. enter TOTAL again in the field, click on Fund total assets (mil) and press <go>. click on the update button.
click on a column heading to rank the results by that criterion.
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