New Vietnam fund feeds off IPO rush

Changes to taxation for new listings should boost prospects for PXPÆs third Vietnamese equities fund.
Ho Chi Minh City-based PXP Vietnam Asset Management is launching its third domestic equities product, the Vietnam Lotus Fund, in time to capitalise on an expected rush by many local companies to list on the nationÆs two bourses, which could see their combined market capitalisation rise from $3.3 billion to $5 billion by January.

Kevin Snowball, director at PXP, says when the Ho Chi Minh City Stock Trading Centre was founded in 2000, the government gave companies a two-year corporate income tax break of 50% for the first two years after listing. But the government has recently scrapped this benefit as of January 1, 2007.

ôWeÆll see a rush by companies to list before the deadline,ö he says. Market players estimate 20-50 companies are jostling to accomplish their listings by the end of this year. Snowball reckons 30 may succeed, if all goes well, noting that to date, the most to have listed in any given month is 9. There are now 49 listed companies and one listed fund in the HCMC and Hanoi exchanges.

The move to go public should boost the stock marketÆs capitalisation, which has already grown rapidly from its humble beginnings to $3.3 billion today. The important IPO is that for Asia Commercial Bank, which could raise $1 billion as the countryÆs first blockbuster deal. ACBÆs 30% foreign ownership limit has already been reached, with shareholders including Standard Chartered Bank, the International Finance Corporation, local investment firm Dragon Capital and an investment unit owned by Jardine Matheson.

PXP is not alone in launching funds to take advantage of the marketÆs fast growth: Dragon Capital has just closed its third fund, and this year has seen the launch of the $100 million London-listed Vietnam Opportunities Fund. Mekong Capital, a private-equity firm, is rumoured to be preparing a new fund as well. Meanwhile investment banks such as Citigroup, Deutsche Bank and Merrill Lynch are offering participation notes to give offshore clients a taste of Vietnam.

PXPÆs assets under management have grown in line with the market. Its first fund, the PXP Vietnam Fund, launched in November 2005 with $5 million. Its target was to invest 70% of the fund in listed companies with a minimum market cap of $5 million and 30% in companies preparing to list. It now has $60 million under management.

Then the firm launched the Vietnam Emerging Equity Fund, which focused mostly on pre-listings as well as international companies that derive most revenue from Vietnam activities, with some exposure to listed companies with a minimum market cap of $10 million. That fund size went from $14 million to $56 million.

Now the Lotus Fund will serve as a blue-chip fund targeting listed companies with a minimum market cap of $20 million, with a target fund-raising of $100 million. Its goal is not just to jump on the immediate bandwagon to go public, but to capitalise on PXPÆs expectation that the government will begin to list minority shares in big companies beginning next year.

One reason for the tax change may be to clear the decks and get most of the private-sector companies to list quickly, so that Hanoi can begin to work on big caps among public banks, oil and gas concerns and perhaps the airline.

And the government is also expected to allow limited foreign ownership in protected sectors perhaps as early as next year.

Hanoi has also recently passed legislation allowing foreigners to obtain a local fund management license. PXPÆs funds are domiciled abroad and its clients are exclusively foreigners. The Lotus fund will list in Dublin and the investment management company will be a 10-year closed-end fund based in the Cayman Islands.

It will charge a 2% annual management fee, plus a performance fee of 20% with a hurdle rate of 8%. The administrator and custodian have yet to be announced; Freshfields Bruckhouse Deringer is providing legal counsel in Hanoi, and Charles Adams, Ritchie & Duckworth is the legal advisor on Cayman law.
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