Morgan Stanley forms joint venture in Vietnam

The US investment bank is to form a joint venture securities firm with State Capital Investment Corporation.
Morgan Stanley and Vietnam's State Capital Investment Corporation announced on March 19 they would form a joint venture securities firm in Vietnam.

The JV, SCIC Morgan Stanley Securities, will be based in Hanoi and will shortly apply for relevant licenses. It expects to start operations by the end of calendar 2007. SCIC Morgan Stanley Securities intends to provide investment banking products such as M&A advisory and capital markets underwriting, equity and debt sales and trading, equity and fixed income research, investment advisory, proprietary investment and custody services.

Capitalisation of the joint venture and ownership details between the partners were not disclosed. The two partners will hold equity in the joint venture together with staff. Sources close to the deal say SCIC will appoint the chairperson of the JV while Morgan Stanley will appoint the CEO. Morgan Stanley is expected to move some bankers to Hanoi to spearhead the business.

John Mack, chairman and CEO, Morgan Stanley says ôVietnam is important to our emerging market growth strategy. Working alongside SCIC, we look forward to contributing to the development of VietnamÆs capital markets and the countryÆs long term economic growth.ö

SCIC is a strategic investment arm of the government of Vietnam. It was created in 2005 to facilitate reforms of state-owned enterprises (SOEs) in the country. Sources close to the deal say the JV will also provide a fillip to Morgan StanleyÆs investment opportunities in Vietnam, both on the secondary market and principal sides.

ôWe believe that the MOU will lay solid foundations for the establishment of the first local investment bank in Vietnam,ö says Dr. Le Thi Bang Tam, chairperson of SCIC.

The economy in Vietnam has been growing consistently, recording GDP growth of over 8% in 2006. The country also enjoys the same favourable demographic profile as India, in that the majority of its population is young. These factors have combined to make it a compelling investment story.

Earlier this month, Indochina Capital became the first Vietnamese fund to list on the London Stock Exchange. The offering, led by Credit Suisse, was well received and upsized on account of the strong response.

An announcement in January 2006 which led to an expectation that rules in Vietnam will shortly be relaxed to allow foreign banks to own up to 20% of a local institution was welcomed. Deutsche Bank, HSBC and United Overseas Bank of Singapore all announced plans to invest in the country. HSBC already has a 10% stake in a local bank. It announced it would increase this as soon as regulation permitted. Deutsche Bank and UOB also announced agreements to acquire 20% of two other Vietnamese banks.

Morgan Stanley is obviously hoping the joint venture gives it an early mover advantage in a country which is fast becoming AsiaÆs flavour of the month, for both strategic and financial investors. However, reality remains that the promise lies in the future. Currently, the Ho Chi Minh Securities Trading Centre lists around 50 stocks, with two of these accounting for the lionÆs share of both market capitalisation and turnover. The stock market is vulnerable to the same global meltdown concerns the rest of Asia is facing. It remains to be seen whether Vietnam yields opportunities which reward the confidence of Morgan Stanley and the other investment banks zeroing in on the country - and in what time frame.
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