Investors re-bitten by Vietnamese bug

Foreign interest has prompted renewed deal activity from the country's largest private sector conglomerates: Masan and Vingroup.
Vietnam: colour back in its cheeks
Vietnam: colour back in its cheeks

Contagion may be the current watchword for emerging markets, but out on the frontier, it appears to be business as usual in Vietnam where investment activity has picked up again.

The country stands out as an isolated bright spot against a backdrop which saw the MSCI Emerging Markets Index report its worst weekly losses since February, as investors fretted about the strength of the US dollar, trade wars and crises across Argentina and Turkey.

Foreigners turned net buyers in Vietnam last month, overturning three months of net losses. The VN Index had fallen from a peak of 1,204 on April 9 to a low of 893.16 on July 11. Since then, the index has re-bounded 12.9%, and crossed the psychological 1,000 mark again to close at 1,008.39 on Friday.

Local fund managers like PXP Vietnam Asset Management believe this will "catalyse a year-end rally" as investors buy back into the country's multi-year growth story, market liberalisation and potential MSCI EM inclusion.

This renewed positive momentum has also prompted the country's largest private sector conglomerates to re-activate their fundraising plans with deals for Vingroup and Masan overnight on Thursday. 

The former offering comprised a $125 million tap of a $325 million 3.5% exchangeable bond by resort operator Vinpearl into parent Vingroup. When the original five-year non-call two-year deal was launched in June, it was Vietnam's debut dollar-denominated exchangeable.

Sole bookrunner Credit Suisse re-opened the deal at par compared to a secondary market price of 101.75%. During Friday's trading, the offering slipped slightly to 101% to 101.5%, in line with the wider equities market, which was also softer.

The same day witnessed another record being broken after KKR executed the country's largest ever block trade in Masan Group via Credit Suisse and Viet Capital Securities. The 54.8 million share deal, which accounted for 4.7% of Masan’s outstanding share capital, netted VND4.8 trillion ($209.23 million) for the private equity group.

Priced at a 5% discount to the VND93,900 spot close, it represented the outer end of a 3.51% to 6.5% indicative price range. Nonetheless, it was still the tightest discount on record after Vincom Retail's 6.9% discount in early February. 

KKR chose a good time to make its exit since Masan has outperformed the overall market since both turned in July. The stock typically acts as a leading indicator for the overall market and had risen 26.8% off its trough to Thursday’s close.

On Friday, it held its own in a falling market, staying above its VND89,200 block price to close at VND91,000.

KKR will have also been pleased. It has more than doubled the VND40,900 per share it paid 18 months ago.


This kind of behaviour is normally a warning signal to other investors. In this case, however, bankers say that other institutions were comforted by the fact that KKR still holds stock in Masan Nutri-Science, which it purchased at the same time as its Masan Group stake for $150 million. The private equity group has a long history with Masan after initially purchasing a 10% stake in Masan Consumer back in 2011.

Bankers said that the top five accounts took 85% of the block trade, with an overall split of 80% foreign and 20% domestic. They highlighted that one noticeable aspect of this trade and other recent primary market offerings is the growing participation of South Korean, Chinese and Thai funds.

The country’s equity market is fast turning into the most diversified across Asia. It mirrors the wider economy and the huge role that multi-nationals like Samsung Electronics play as they move their supply chains across the border from China.

Indeed the background to KKR’s block lies with South Korea’s SK Corp, which purchased a 9.5% stake in Masan Group in September at VND100,000 per share.

SK Corp is gaining a seat on the board and the two companies have also announced a strategic partnership across a number of sectors where they have synergies such as meatpacking.

Masan had originally sounded out the public equity markets about the 109.9 million share block of Treasury shares during the first half of the year.

At this point, however, investors were still licking their wounds after the market turned and they were nursing losses on IPOs such as Techcombank, a 20%-owned Masan Group subsidiary, which had listed right at the top of the market.

Bankers said that a number of institutions had been waiting for the Treasury share deal to resurface when the market turned and had been disappointed when news of the SK Corp deal broke. Those accounts formed the basis of the KKR offering.

Key for the market will be whether it can retain its momentum if other groups step up to raise cash and drain liquidity.

Where Masan is concerned, most analysts have a buy recommendation, although it too is getting close to many of their target prices. Further outperformance may depend on analysts raising their earnings per share in the face of the group’s strong growth as it lifts margins and profits through the premiumisation of its product range.


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