Vietnam: Vietnam Goes Mainstream

2006

Nick Freeman

Investment appetite in Vietnam continues to burgeon. A number of recent developments have cumulatively served to attract new investors to the country, as well as prompting existing investors to increase their activities.

The recent announcement that Vietnam has gained approval to join the World Trade Organisation, and Hanoi's hosting of the APEC summit in November, both helped in raising the country's profile on the world's stage considerably.

And the high-profile announcement that Intel is to invest US$1bn in a new chip assembly and testing plant, located near Ho Chi Minh City, is an important psychological milestone for Vietnam in its bid to attract large-scale and high quality investment projects. This plant, and a number of other 'big ticket' investments, is likely to result in the country attracting around US$8bn in aggregate investment pledges in 2006 - a record high not seen since the mid-1990s.

Beyond the direct investor community, portfolio investors are also becoming more active, as the scale and spectrum of assets grows. More than fifty companies are now listed on the Ho Chi Minh City stock market, with another dozen or so listed on the smaller Hanoi bourse. These are starting to include larger corporate entities, and the first banks. And the bond market is also growing, buoyed in part by last year's debut sovereign bond issue on the international capital markets.

In response to these developments, relatively considerable sums of money have been raised by various Vietnam investment funds in 2006, tapping increased interest by financial institutions seeking to gain some exposure to the country's growing economy. In most cases, such funds have raised greater sums than they had initially anticipated, reflecting strong investor interest by the world's money managers. On 1 December, Vietnam entered Standard & Poor's Frontier Composite Index.

For its part, the government is showing renewed vigour in pushing for reform of the state enterprise sector, including a faster pace of partial divestments in state-owned firms. This in turn should provide an additional pipeline of deals that will attract foreign investors to share sales in some of the more attractive companies in state hands. Meanwhile foreign banks are continuing to acquire minority stakes in the better private domestic banks, as they jockey for position, ahead of greater financial sector liberalisation.

No longer a relatively obscure host country, deemed more appropriate for specialist boutique investors with a strong appetite for risk, Vietnam is now regarded as a major player on the international business scene. The extent to which Vietnam can cement this newfound status will depend in large part on the government's ability to keep the economy growing in a robust and sustainable fashion, and also maintain economic reform momentum.

With a number of critical business laws passed or introduced in 2006 -including a new Enterprise Law, an Investment Law (which for the first time spans both domestic and foreign investors), and the country's first Securities Law - the next challenge will be to implement and enforce this legislation in an effective manner.

WATCHPOINT: Having displayed considerable promise, international investors are looking to see if Vietnam can really deliver.

 

About our company:

AFG Venture Group is an Asia and Australia based corporate advisory and consulting firm with over 20 years experience in creating alliances, relationships and transactions in Australia, South East Asia and India; including a 15 year history of corporate and equities advisory in Australia, undertaking merger, acquisition, divestment, fund raising and consulting for private and public companies.

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