Investing in Vietnam
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CONFIDENTIAL: The information contained herein is being furnished on a confidential basis solely for your information and should not be provided to another party without our prior consent
January 2011
Table of Contents
Macroeconomic Primer: Current Headwinds 3
CInvesting in Vietnam: Current Attractions 9
Indochina Capital Corporation: Firm Overview 14
Indochina Capital Advisors: Equities Division 18
Indochina Land: Real Estate Division 22
Indochina Infrastructure: Infrastructure Divisions 26
APPENDIX I | Th G th St St E i F d t l 29APPENDIX I | The Growth Story: Strong Economic Fundamentals 29
APPENDIX II | Investment Themes: Equities Division 36
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Contact Us 40
Investment Strategy
Macroeconomic Primer
Indochina Plaza HanoiMixed-Use Development2011 Scheduled Opening
Current Headwinds &
Condominiums: 390Retail (NFA): 18,000 m2
Office (NFA): 14,400 m2
Indochina Capital Corporation | page 3INDOCHINA CAPITAL ADVISORS | page 3 of 22Indochina Capital Corporation | page 3
2011 Forecast/Medium-term Outlook
Balancing Growth & InflationThe ebb and flow of monetary policy between 2008-2010
Macro Primer
Policies that Drive GDP Growth in the Face of Inflation
7.40%
6 50% 6 50% 6 50%6.80%
25 00%
30.00%
7%
8% Real GDP (YoY) (LHS) CPI (YoY) (RHS)
6.50% 6.50%6.20%
3.90%
4.60%
5.30%
5.80%6.20%
6.50%
15 00%
20.00%
25.00%
4%
5%
6%
3.10%
5.00%
10.00%
15.00%
2%
3%
4%
Liquidity Driven Inflation Bubble
Monetary Tightening
Global Financial Crisis
Post-GFC Stimulus Recovery Pre-Party
Paralysis
0.00%0%
1%
Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010 Q4 2010
Inflation Bubble Tightening Crisis Stimulus y Paralysis
Credit growth in Q1 2008 escalated to 63% YoY, fueling import growth which surged 75% YoY in the same period.
To combat inflation, the government:
Successively raised the prime lending from 8.25% p.a. to 14% p.a.;
With inflation abating, the government unwound its monetary and credit tightening measures.
By yearend 2008 it
The knock-on effect of the GFC caused Vietnam’s quarterly GDP growth rate to dip to a decade low in Q1 2009.
On the back of the stimulus package, GDP growth in 2009 rebounded, as a result of resilient domestic consumption and further aided by a
In the run up to the National Party Congress in January 2011, there was a paralysis in the State Bank of Vietnam and governmental
Indochina Capital Corporation | page 4
As a result of loose monetary policies and rising global food prices, Vietnam’s headline inflation rose to 28.3% .
Compulsory bond issuance to domestic banks; and
Raised reserve requirements.
By yearend 2008, it had reduced reserve requirements to 6% and the lowered the prime lending rate to 8.5% p.a.
In turn, the government initiated a stimulus package amounting to US$8-9 billion
further aided by a recovery offshore.
Along with accelerating growth, the inflation rate began to pick up steam.
governmental authorities—and inflation pressures returned.
Source: Bloomberg
Sovereign Credit Ratings Vietnam downgraded in 2010
Macro Primer
EM Asia: Sovereign Credit Ratings
Moody's S&P Fitch Moody's S&P Fitch Definitions
Aaa AAA AAA SG SG SG Prime investment grade
Aa1 AA+ AA+ HK HKHigh grade and high Aa2 AA AA HK
Fitch, Moody’s and Standard & Poor’s downgraded Vietnam’s sovereign debt rating in 2010
The downgrades were driven by the following factors:
Ratings DowngradedEM Asia: Sovereign Credit RatingsRecent monetary tightening to ease inflation and currency pressures
qualityAa2 AA AA HKAa3 AA- AA- CN,TW TWA1 A+ A+ KR CN KR,TW,CN
Upper medium gradeA2 A A KRA3 A- A- MY MY MY
Baa1 BBB+ BBB+ TH THLower medium gradeBaa2 BBB BBB TH
Baa3 BBB- BBB- IN IN IN
g y g
Inconsistent economic policies that heighten the risk of a balance of payments crisis.
Instability in the VND’s foreign exchange rate and black market premium.
Ba1 BB+ BB+ ID Non investment gradeBa2 BB BB ID ID,PH,VN PH
SpeculativeBa3 BB- BB- PHB1 B+ B+ VN,SL,FJ SL VN,SL
Highly speculativeB2 B BB3 B- B- PK FJ,PK
SG=Singapore; HK=Hong Kong; KR=Korea; CN=China; TW=Taiwan; MY=Malaysia; TH=Thailand; IN=India; ID=Indonesia; PH=Philippines; VN=Vietnam
Accelerating inflation that surged to nearly 12% YoY in 2010, driven by increases in food prices due to local weather disruptions and hikes in global commodity prices.
Rising inflation led to official and informal depreciations of the local currency, where the black-market rate still persists around 8% above the outer band of the official exchange-rate IN=India; ID=Indonesia; PH=Philippines; VN=Vietnamthe outer band of the official exchange rate.
Limited foreign exchange reserves and bank asset quality/liquidity: with foreign exchange reserves running low at an estimated US$15 billion, down from the 2008 peak of US$23 billion, the government is in a weak position to shore up balance of payment concerns.
The primary impact of the rating downgrades is an increased cost of887
Price of 5-Year CDS (US$)Insuring Vietnam credit risk is lower than PIG nations
The primary impact of the rating downgrades is an increased cost of borrowing for the country and in-turn an increase in the cost of capital for Vietnamese corporations. This is evident from the following market indicators:
5-year credit default swaps, the cost of insuring against a credit default on Vietnam government bonds, have increased from their mid-September levels of 220 basis points to 330 basis points as of
616
462
330282
Indochina Capital Corporation | page 5
mid September levels of 220 basis points to 330 basis points as of the start of 2011.
Yields on 10-year government bonds have increased 80 basis points since September 2010 to 11.8% while overnight interbank rates spiked from 7% in October to 11% at the end of the 2010.
Greece Ireland Portugal Vietnam Spain
Source: Bloomberg, 17 January 2011
State-Owned Enterprise Balance Sheet & ProfitabilityTroubled Vinashin is an outlier compared to other SOEs
Macro Primer
Vietnam: State-Owned Enterprises - Balance Sheet: Size and Composition(% of GDP) 1/
Assets Equity Debt Equity/Assets 2/
2006 2007 2008 2006 2007 2008 2006 2007 2008 2006 2007 2008
Vinashin appears to be the exception, not the norm, from a balance sheet quality perspective.
Major economic groups (EGs) 48.0 48.7 52.3 23.8 22.8 22.7 23.4 24.5 26.7 49.6 49.5 43.4
> EVN (electricity) 14.1 16.2 13.8 5.5 6.5 4.5 8.6 9.4 8.0 38.8 40.2 32.8
> PETROVN (petroleum and gas) 15.1 12.5 19.1 10.2 8.4 10.6 4.8 4.1 7.9 67.4 66.9 55.6
> VNPT (post and telecommunications) 8.1 7.7 6.9 5.7 5.3 4.7 1.8 1.6 2.1 70.4 68.5 67.2
> VINASHIN (shipping/ship-building) 5.7 6.8 6.2 0.3 0.5 0.5 5.4 6.2 5.7 5.8 6.8 8.4
> VINACOMIN (coal and minerals) 2.2 2.8 3.3 0.9 1.0 1.0 1.3 1.7 2.1 39.2 35.1 30.4
> VINARUBBER (rubber) 2.0 1.8 2.2 1.0 1.0 1.1 0.9 0.8 0.6 52.1 54.4 49.8
> VINATEX (textiles) 0.9 1.0 0.8 0.3 0.3 0.2 0.6 0.7 0.5 29.1 26.3 29.6
Other EGs / special general corporations 11.1 12.4 … 4.4 4.4 … 6.5 7.7 … 39.8 35.4 …
Other general corporations 18.1 19.3 … 5.4 6.5 … 12.5 12.4 … 30.0 33.7 …
All EGs and general corporations 1/ 77.2 80.4 … 33.7 33.7 … 42.5 44.7 … 43.6 41.9 …
Vietnam: State-Owned Enterprises - Profitability IndicatorsVietnam: State Owned Enterprises Profitability Indicators(%; asset-weighted averages) 1/
Pre-tax Profit Rate Return on Assets Return on Equity
2006 2007 2008 2006 2007 2008 2006 2007 2008
Major economic groups (EGs) 20.2 21.0 14.9 9.5 9.6 7.4 17.2 17.8 15.1
> EVN (electricity) 5.8 7.4 2.8 1.9 2.3 0.9 4.9 5.8 2.8
> PETROVN (petroleum and gas) 36.0 32.2 24.7 15.5 16.5 11.4 23.0 24.7 20.5
> VNPT (post and telecommunications) 27.9 38.5 24.7 14.1 13.2 12.6 20.0 19.3 18.8
> VINASHIN (shipping/ship-building) 4.1 3.9 2.7 0.9 1.1 0.9 15.0 16.4 10.6
> VINACOMIN (coal and minerals) 8.9 7.9 11.2 12.4 9.6 13.3 31.6 27.5 43.7
> VINARUBBER (rubber) 39.2 32.2 29.8 23.6 22.2 15.1 45.2 40.7 30.2
> VINATEX (textiles) 1.6 2.2 3.3 2.3 2.7 3.1 7.8 10.4 10.4
Other EGs / special general corporations 3 0 3 3 2 9 3 2 7 3 9 1
Indochina Capital Corporation | page 6
Other EGs / special general corporations 3.0 3.3 … 2.9 3.2 … 7.3 9.1 …
Other general corporations 4.6 6.0 … 4.5 6.0 … 15.0 17.9 …
All EGs and general corporations 11.3 10.9 … 7.4 7.2 … 16.9 17.2 …
Sources: Ministry of Finance; National Steering Committee for Enterprise Reform and Development; and IMF staff calculations.1/ Combined, the EGs and general corporations account for about 80%of total state capital invested in SOEs (estimated at 43.7% of GDP at end-2007)2/ In percent.
Monetary PolicyBalancing Pro-Growth Policies to Contain Inflation and Stabilize the VND
Macro Primer
Credit Growth and Inflation (% growth year-over-year)
Following a few mid-year months of moderation, inflation picked up towards the end of Q3, largely attributed to the pass-through of the 2.0% devaluation of the Vietnamese Dong (VND) in August .
Inflationary Pressures have Returned
20%
25%60%Credit Growth
Annual Inflation
Credit Growth and Inflation (% growth year-over-year)Corollary between credit and inflationary cycles
Inflation escalated to 11.8% year-over-year by the end of 2010, primarily as a result of rising food costs (Duly noted, foodstuff represents 40.0% of Vietnam’s CPI basket, which is typical of an emerging market).
However, the reacceleration of Vietnam’s inflation rate is no surprise against the backdrop of strong demand-led pressures and the recent
10%
15%
20%
20%
40%
M S l
g p g pround of currency devaluation. For 2011, the government’s aims is to target an annual inflation rate of 7-8%, which may be achievable barring a commodity price spike.
Balanced Monetary Policy required for Stability
0%
5%
0%2006 2007 2008 2009 2010
Source: General Statistics Office
20 000
22,000$2,500,000M2 growthVND / US$ Unofficial Rate
Money Supply Liquidity in the market plays a critical role in the VND/US$ x-rate
Pressure on the VND is clearly rising, both from a fundamental level and from market forces.
Despite pro-growth talk from policymakers, the State Bank of Vietnam has prioritized macroeconomic stability and will likely continue the recently started monetary tightening cycle—the SBV hiked the base rate 100bps in mid Q4.
16,000
18,000
20,000
$1,500,000
$2,000,000
p
Credit growth will also play into reining in inflation and easing pressure on the VND. By the end of 2010, credit expansion stood at 29% across the banking industry. Compared to 2009 when lending ballooned 38.0% year-over-year due to stimulus measures, credit growth has significantly moderated but has still contributed to the rise in inflation.
Indochina Capital Corporation | page 7
14,000$1,000,000
Jan-
07
Apr
-07
Jul-0
7
Oct
-07
Jan-
08
Apr
-08
Jul-0
8
Oct
-08
Jan-
09
Apr
-09
Jul-0
9
Oct
-09
Jan-
10
Apr
-10
Jul-1
0
Oct
-10
Source: State Bank of Vietnam, Currency Traders
The SBV will also have to prioritize its currency regime in 2011, aligning its credit growth targets, interest rate policies, and OMO to bring stability to the VND.
Containing InflationThe #1 policy priority for the government
Macro Primer
30
Composition of Vietnam’s Consumer Price Index Increase
CPI Basket WeightingFood & Foodstuff represent 40% of the CPI basket
20
25
Food and Foodstuff
40%Healthcare
5%
Bev.and Cig.4%
Culture, Sport & Ent.4%
Other 3%
Post and Telecom
3%
15
Cha
nge
YoY
Household goods
Garment & Footwear
7%
Education6%
10
% C Building
materials10%
Transportation9%
goods9%
0
5
Indochina Capital Corporation | page 8
-5Food & Foodstuff Housing & Construction Materials Transportation Education Others CPI (Annual Avg)
Source: General Statistics Office
Investment Themes
Investing in Vietnam
Hyatt Regency Danang Resort and SpaLuxury Resort Complex2011 Scheduled Opening
Attractive Elements for Investing in Vietnam
Hotel Rooms: 200Condominiums:182Villas: 27
Indochina Capital Corporation | page 9INDOCHINA CAPITAL ADVISORS | page 9 of 22Indochina Capital Corporation | page 9
g
Vietnam’s Trailing P/E Ratio
Attraction 1: Low Valuation LevelsLow valuations despite strong EPS Growth
Investing in Vietnam
40
50
Vietnam s Trailing P/E RatioVN-Index P/E is at a 43% discount to its 5-year Average
Valuation multiples have compressed considerably from a heady 43x P/E in 2007 to highly attractive levels of around 11x trailing P/E ratios as of the end of 2010.
Valuations have trended down to a 4-year low
10
20
30 Period average P/E 19.77x
The relative valuation compared to other Asia Pacific emerging markets is particularly remarkable as Vietnam trades at a fraction of regional equity markets despite having similar or higher EPS growth.
Equity valuations have trended down to a 4-year low.
Our forward P/E projections for 2011 is approximately 9.5x for the
Regional Relative Valuations: P/E & EPSL l ti d it t EPS th
0Jan-06 Sep-06 May-07 Jan-08 Sep-08 May-09 Jan-10 Sep-10
31-Dec-2010 P/E11.28x
Our forward P/E projections for 2011 is approximately 9.5x for the VN-Index, in line with our 15% EPS growth forecast.
Valuations are appealing compared to historical multiples and other Asian markets.
Developments in the real economy are showing signs of improvement with GDP growth rebounding
India
IndonesiaMalaysia
Philippines
14
16
Low valuations despite strong EPS growthimprovement with GDP growth rebounding.
Against the backdrop of consistent economic expansion, the combination of low valuations and strong EPS growth has created a unique window of opportunity to gain exposure to Vietnam’s equities market.
It won’t be long before word gets out and the swell of liquidity
China
Thailand
Vi t10
12
2011
P/E
It won t be long before word gets out and the swell of liquidity reaches the shores of Vietnam.
In fact, we are already witnessing the initial indications of this with foreign trading volume as a percent of total volume creeping up from 5% in early 2010 to 15% by yearend.
In mid January 2011 net buying among foreigners further
Indochina Capital Corporation | page 10INDOCHINA CAPITAL ADVISORS | page 10 of 22Indochina Capital Corporation | page 10
Vietnam
810% 15% 20% 25% 30% 35%
2011 EPS growthSource: Bloomberg, January 2011
In mid-January 2011, net buying among foreigners further accelerated to approximately 20% of total trading.
Attraction #2: Final Privatization DriveWell-managed SOEs and the Crown Jewels to be “Equitized”
Investing in Vietnam
SOEs with an approved privatization plan
Agricultural Supplies Corporation Sai Gon Transport Mechanical Corporation
Agriculture and Rural Development Construction Corporation Song Da (Da River) Construction Corporation
Agriculture, Irrigation Mechanization, Electrification -Construction Corporation Southern Riverway Corporation
Animal Husbandry Corporation State Corporations Under Ministries
Prior to the last National Congress in 2006, there was a swell of SOEs that underwent privatization. However, most of the important privatizations occurred after the party summit—a cycle that is expected to occur again following the January 2011 congress.
Privatization process will resume in 2011
Bach Dang Construction Corporation Sugarcane Corporation No. I
Bank for Investment and Development of Vietnam (BIDV) Sugarcane Corporation No. II
Ben Thanh Corporation Thang Long Construction Corporation
Central Vietnam Corporation Traffic Works Construction Corporation
Construction Glass and Porcelain Corporation Urban and Industrial Zones Development Investment Corporation (IDICO)
Construction Materials Corporation No 1 Urban Infrastructure Development Investment Corporation
p g g y g
In recent years, the process has slowed, mainly due to overly inflated valuations and no real funding needs, as the state provides financial support to SOEs.
Vietnam’s fiscal deficit will remove SOE’s safety net; and the government’s valuation expectations are now more in line with those Construction Materials Corporation No. 1 Urban Infrastructure Development Investment Corporation
Construction Mechanical Corporation Vegetable, Fruit and Farm Produce Corporation
East Sea Fisheries Corporation Vietnam Airlines Corporation
Electrical Technical Equipment Corporation Vietnam Automobile Industrial Corporation
Ha Long Fisheries Corporation Vietnam Bank for Agriculture and Rural Development (Agribank)
Hanoi Construction Corporation Vietnam Cement Corporation
Vietnam Construction Investment Corporation for Water Supply
g pof the market, as the GFC has been a sobering experience.
There are at least 60 SOEs with approved privatization plans. These include some of Vietnam’s “Crown Jewels”: BIDV, Vietnam Airlines, Saigontourist and Hanoitourist.
N b f P i ti ti Hanoi Housing Investment and Development Corporation Vietnam Construction Investment Corporation for Water Supply and Drainage
Hanoi Tourism Corporation (Hanoitourist) Vietnam Engine and Agricultural Machines Corporation (VEAM)
Hanoi Trade Corporation (HAPRO) Vietnam Fisheries Corporation
Hanoi Transportation Corporation (Hanoi Transerco) Vietnam Forestry Corporation
Industrial Machinery and Equipment Corporation Vietnam Industrial Construction Corporation (VINAINCON)
Infrastructure Construction and Development Corporation Vietnam Insurance Corporation540
710 725
Number of PrivatizationsTrickled off in recent years but expected to pick-up
Irrigation Construction Corporation No. 4 Vietnam Machinery Installation Corporation (LILAMA Corporation)
Mekong River Delta Housing Development Bank Vietnam Medical Equipment Corporation
Northern Food Corporation Vietnam Mulberry, Silkworm and Silk Corporation
Northern Riverway Corporation Vietnam National Chemical Corporation
Sai Gon Agricultural Corporation Vietnam National Salt Corporation
Sai Gon Construction Corporation Vietnam National Tea Corporation125
250210 200 190
540
260
12575
240
80
Indochina Capital Corporation | page 11
p p
Sai Gon Real Estate Corporation Vietnam Paper Corporation
Sai Gon Tourism Corporation (Saigontourist) Vietnam Steel Corporation
Sai Gon Trade Corporation Waterway Construction Corporation
Source: Steering Committee for Enterprise Renewal and Development
75 80
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: European Chamber of Commerce, Inst. of SE Asian Studies
Attraction #3: Foreign Ownership LimitationsForeign limits are filling up with few quality names remaining
Investing in Vietnam
By yearend 2010, foreigners contributed approximately 15% of the total turnover of the VN-Index. As global markets have started to stabilize and valuations of Vietnamese equities have become attractive, foreign participation is poised to escalate in 2011.
Some of the key holdings of a Vietnam listed portfolio have already been fully subscribed by foreign investors. This includes: VinaMilk, Exim Bank, Sacombank and Asia Commercial Bank.
Foreign Ownership Limitations
p p p
However, there are limitations to foreign ownership of Vietnamese listed securities, with regulations varying among sectors.
In addition to those that have reached their foreign limit, there are a number of attractive selections in the healthcare, consumer staples and information technology sectors that have less than 10% remaining in their unused foreign quota.
Foreign ownership of Vietnam's equity market
SectorHo Chi Minh Hanoi Total
% allowed % owned % allowed % owned % allowed % owned
Financials 33.9 16.8 38.9 17.9 34.7 17.0
Consumer Staples 47.8 29.0 49.0 16.2 47.9 28.4
Industrials 49.0 16.8 49.0 5.6 49.0 11.8
Health Care 49.0 31.8 49.0 4.0 49.0 29.2
Materials 49.0 18.5 49.0 3.1 49.0 17.2
Energy 49.0 21.7 49.0 10.3 49.0 17.1
Consumer Discretionary 49.0 15.5 49.0 3.9 49.0 12.5
Information Technology 49.0 35.9 49.0 1.8 49.0 28.9
Utilities 49 0 10 2 49 0 6 6 49 0 10 1Utilities 49.0 10.2 49.0 6.6 49.0 10.1
Total 41.2 19.7 45.1 10.8 42.0 18.0
Select Stocks that have Reached the Quota
Ticker Short Name GICS Sector Name Cur Mkt Cap(US$ mm) Exchange Unused Foreign
Quota (%)Foreign Quota
(%)
Indochina Capital Corporation | page 12
VNM VINAMILK Con Staples 1,603 HCM 0 46EIB VIETNAM EXPORT BANK Financials 758 HCM 0 30STB SACOMBANK Financials 724 HCM 0 30ACB ASIA COMMERCIAL BANK Financials 1,082 Hanoi 0 30
Attraction #4: Value Creation despite Economic HeadwindsStrong value creation is being created amid a weak environment
Investing in Vietnam
The VN-Index moved relatively sideways during the first half of 2010 and was repeatedly challenged by Vietnam’s macroeconomic woes.
The downward pressure was most discernibly in H2 2010 as a result
Despite macro difficulties, several stocks have exploded
120%
150% BVHMSNVICVNIndex
Stock performance vs. VN-Index (2009 – 2010)Select stocks that have outperformed the VN-Index
BVH
p yof Vietnam’s accelerating inflation rate, vulnerable balance of payments position and devaluing currency. By yearend, the VN-Index dropped by 2% to 489 for the year, making it the 2nd worst performing market in the world behind Shanghai.
This is in stark comparison to other emerging markets, which re-inflated from the lows of 2009 on the back of a tidal wave of foreign
30%
60%
90%
de
MSN
VIC
ginflows: the MSCI Emerging Markets Index rose 102% over the course of 2010.
Despite the market downturn, several stocks listed on HOSE have significantly outperformed the market. There are stocks whose prices increased by more than 100% from 2009 to 2010: MSN (108%), BVH (113%), TBX (196%), VTL (170%) and HCC (108%).
-30%
0%
Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11
Source: Bloomberg
VN-Index
( ), ( ), ( ), ( ) ( )
Companies are still growing fast with profitable operations despite the aftermath of the global economic crisis and its effect on the local
Intrinsic values enhanced given excellent performanceCompany performance Several companies are performing well in a weak environment
TickerROE 2009
ROE 2010E
NPAT % growth
VIC 50% 34% 18%market.
They can sustain their earnings, growing by double digit rates (e.g. VNM, HAG and CII, etc.). The table on the right presents some of the companies who have the highest Return on Equity in the market.
These companies with very strong fundamentals may offer attractive
VIC 50% 34% 18%
VNM 42% 46% 39%
FPT 37% 27% 13%
HAG 28% 31% 78%
Indochina Capital Corporation | page 13
p y g yinvestment opportunities to long-term investors.
SJS 48% 37% 19%
CII 32% 31% 171%
Source: Bloomberg
EconomicsAbout Us
Indochina Capital Corporation
The Nam HaiLuxury Beach ResortO d 2006
Firm Overview
Opened 2006
Hotel Villas: 60Residential Villas: 40
Indochina Capital Corporation | page 14INDOCHINA CAPITAL ADVISORS | page 14 of 22Indochina Capital Corporation | page 14
About Indochina CapitalOne of Vietnam’s Most Established Financial Services FirmsAbout Us
Founded in 1999, the Indochina Capital Group is one of Vietnam’s leading financial services firms with diversified fund management and financial advisory businesses In 2010 Indochina Capital formed a strategic
Indochina Capital and its affiliates have a countrywide footprint with offices in Hanoi, Danang and Ho Chi Minh City. We are represented by over 200 professionals both expatriates and local Vietnamese to realize our
Fund Management & Advisory Services
advisory businesses. In 2010, Indochina Capital formed a strategic partnership with ORIX Corporation, one of Japan’s leading financial services firms.
Indochina Capital manages several funds, including three private, close-ended real estate funds with a total committed capital of approximately
professionals both expatriates and local Vietnamese to realize our investment activities.
Business Categories:
Real Estate Fund Management
E iti F d M t
Indochina Land
ended real estate funds with a total committed capital of approximately US$500 million from large global financial institutions, as well as a series of equities focused funds and managed accounts totaling US$58 million in funds under management.
Equities Fund Management
Advisory and Finance Services
Infrastructure Advisory and Investment
EquitiesIndochina Land
IndochinaLandHoldings
IndochinaLandHoldings 2
IndochinaLandHoldings 3
Equities
IndochinaCapitalInvestmentsSPC
IndochinaCapitalVietnam Holdings
Mekong Portfolio Investments Ltd
UW Indochina Vietnam V Ltd
US$42 mmClosedApr-05
PrivateLLC
US$265 mmClosedNov-06
PrivateGP / LP
US$180 mm ClosedOct-10
PrivateGP / LP
US$19.1 mmNAVDec-10
Private Segregated
US$23.5 mmNAV Dec-10
Public Listed LSE Main
US$6.1 mmNAVDec-10
Private Segregated
US$5.7 mmNAVDec-10
Private Segregated
Indochina Capital Corporation | page 15
Assets Under Management as of December 2010
Accounts Market Accounts Accounts
About Indochina CapitalFund Management & Advisory ServicesAbout Us
Indochina Land
Indochina Land, the group's real estate division, is Vietnam's premier real estate development and fund management firm, developing and financing real estate projects covering the full range of property types from multi-family residential and mixed-use commercial (retail and office) developments to hotels, resorts and leisure facilities. Indochina Land, the sponsor of Vietnam's first
Largest real estate fund manager in Vietnam primarily focused on residential, retail, hospitality and office sectors
Business Divisions
real estate fund, currently manages three private, closed-ended funds with approximately US$500 million of committed institutional capital, facilitating over US$2 billion in property development completed, under construction or in the development pipeline throughout Vietnam.
Recognized by Euromoney as “Best Developer in Vietnam” and Top 10 in Asia
Indochina CapitalIndochina Capital Advisors, Indochina Capital's equities division, manages a diversified portfolio of public and private securities in Vietnamese companies. These emerging corporates include listed
Personalized investment management services for individuals
d i tit tiIndochina Capital Advisors
public and private securities in Vietnamese companies. These emerging corporates include listed and prelisted companies, privatizing state-owned entities, and private companies and ventures. Indochina Capital Advisors offers personalized investment management services to individuals and institutions, which are provided with preferred access to the equities markets of Vietnam.
and institutions
Private Equity investments for institutional clients
Indochina Capital formed Indochina Infrastructure Management in 2008 to invest in and advise on Infrastructure advisory services
Indochina Infrastructure
infrastructure related projects in Vietnam. Indochina Infrastructure's core platforms include projects in environmental, transportation and social infrastructure sectors such as water treatment plants, seaports, and healthcare facilities. The division's key role is to bridge the gap between foreign technical expertise and investment capital and the broad network of local enterprises with attractive infrastructure investment opportunities. Indochina Infrastructure also provides advisory services to nongovernmental donor agencies working with Vietnamese authorities, helping to pioneer the framework for Public-Private Partnerships in infrastructure related investments.
Infrastructure advisory services focusing on environmental, transportation and social sectors
Private Equity facilities for institutional clients
Indochina Finance & Investment
Indochina Finance & Investment Limited (IFI) is the investment banking division of Indochina Capital, providing affiliated companies and third party clients with project financing, financial advisory, and market entry services. Typical clients are large- and medium-sized multinational corporations looking to execute cross-border transactions such as setting up a branch, distribution, or manufacturing base, or acquiring an existing business in Vietnam. The firm was contracted by Morgan Stanley, K ji Shi i d th i t lti ti l k t t lt t d d i
Finance arrangement services for affiliates and third party clients
Financial advisory services and market entry solutions for
Indochina Capital Corporation | page 16
Investment Kajima, Shimizu and other prominent multi-nationals as market entry consultants and advisors on investments in the Indochina region. In addition, IFI has arranged more than US$160 million of non-recourse project financing for Indochina Land developments and acquisitions.
market entry solutions for multinational corporations and domestic enterprises
Indochina CapitalBoard of DirectorsAbout Us
Dr. Marc Faber, ChairmanA well-known economist, author, and investment advisor, Dr. Faber is often noted for his “contrarian” investment approach. Dr. Faber is associated with a large number of funds and institutions around the world including the Iconoclastic International Fund, Baring Chrysalis Fund, Overlook Partner’s F d d th I P t ’ Gl b l St t
Peter R. Ryder, Chief Executive OfficerPrior to forming Indochina Capital from 1992–1998, Peter was a partner in two New York-based investment companies active in investing in Vietnam across various sectors, including real-estate, construction, IT, consumer services and products, banking and education. From 1983–1992 P t ith S l B th ’ l t tFund, and the Income Partners’ Global Strategy
Fund. Dr. Faber publishes a widely read monthly newsletter “The Gloom Boom & Doom Report” and he is the author of several books, including “Tomorrow’s Gold” which was a 2002 bestseller.
1992, Peter was with Salomon Brothers’ real estate finance group. As Director of the Asia-Pacific region in Tokyo (1987–1990), he was responsible for US$3 billion of investment in office, retail, residential and hotel projects. He was formerly the Chairman of the American Chamber of Commerce, helping to conclude the1991 US-Vietnam Trade Agreement.
Richmond (Rick) Mayo-Smith III, Managing DirectorPrior to launching Indochina Capital from 1991-1999, Rick operated an investment firm in HCMC and Hong Kong which advised clients, invested-in, and developed projects valued at over US$100 million in real estate, tourism, building materials, and food/beverages. During this time Rick also acted as an advisor to
Raymond Burghardt, Independent DirectorAmbassador Burghardt is a non-executive member of Indochina Capital’s board of directors. From 2001 –2004, he served as U.S. Ambassador to Vietnam. Ambassador Burghardt is also the Director of East-West Seminars at the East-West Center. He was formerly the Director of the American Institute in
During this time, Rick also acted as an advisor to Citicorp Capital and Morgan Stanley, with responsibility for sourcing deal flow in the Indochina region with an emphasis on Vietnam. Rick was the first Chairman of the HCMC American Chamber of Commerce in Vietnam.
Taiwan. In addition, he previously served in diplomatic posts in China, Philippines, and South Korea. Ambassador Burghardt’s earlier diplomatic assignments included the role of Special Assistant to President Reagan and Senior Director of Latin American Affairs on the National Security Council staff.
Ninh Quang Nguyen, Director of Government RelationsNinh has 15 years of experience with foreign investment, government relations, licensing and project management in Vietnam. Ninh currently is the General Director of Indochina Resorts Limited, the Vietnamese entity which owns our flagship resort, The Nam Hai, and has overall responsibility for local relations in the Central
Hiroyuki Sakai, Independent DirectorHiroyuki is Executive Vice President of ORIX Corporation, a Japanese integrated financial services group headquartered in Tokyo, and is overseeing its South East Asian private equity investments. Hiroyuki is also President and Director of ORIX (China) Investment based in Dalian, responsible for a range of
Indochina Capital Corporation | page 17INDOCHINA CAPITAL ADVISORS | page 17 of 22Indochina Capital Corporation | page 17
p yCoast and the South. Prior to joining Indochina Resort (Hoi An) Ltd, Mr. Ninh worked for My Duc Ceramics Joint Venture Company, a US$37 million foreign invested project funded by Morgan Stanley, which Mr. Ninh played an important role in establishing.
p ginvestment banking activities including real estate development. Hiroyuki has been with ORIX all his career having worked in China for 5 years in the 1980's as Director of a JV with CITIC, and in the USA for 13 years. Prior to returning to Tokyo in 2006, he was Deputy President of ORIX USA Corporation.
Indochina Capital Advisors
Montgomerie Links VietnamGolf Course & EstatesO d 2009
Equities Division
Opened 2009
Golf Course: 18-HolesVillas: 66
Indochina Capital Corporation | page 18
q
Equities Division
Indochina Capital AdvisorsListed Securities and Private Equity
Indochina Capital Advisors (“ICA”) offers investment management services to individuals and institutions via three distinct products:
ICA manages funds and client accounts and provides exposure to a diversified portfolio of attractive equity and equity-linked securities of Vietnamese companies
Executive Summary
Listed Equities Funds (Institutions)Private Equity Investments (Institutions)Managed Accounts (Individuals)
Our board members include Dr Marc Faber and Francois Bohn both
Vietnamese companies.
ICA has been engaged in providing investment management and advisory services since 2004. Our mission is to be the preeminent Vietnam-focused equities fund management company by generating strong investment performance across the equities asset class whileOur board members include Dr. Marc Faber and Francois Bohn, both
experienced emerging market investors. The two other board members who review our portfolio investments include Peter Ryder (CEO) and Richmond Mayo-Smith (Managing Director), both of whom have been investing in the Vietnamese market for nearly twenty years.
strong investment performance across the equities asset class, while providing exceptional customer service and delivering excellence in all that we do. Our vision is to grow our funds under management, including individual managed accounts, listed equities funds and a private equity program, establishing a sizeable and best-in-class operation managed
Our investors are provided with preferred access to the equities markets of Vietnam, which has recently emerged as one of Asia’s great success stories, as evidenced by consistent economic growth driven by both exports and domestic consumption. Vietnam, the world’s 13th most
by high-quality professionals with uncompromising integrity. Our investment spectrum covers listed equities, pre-IPO and OTC equities, as well as private equity. Preferred sectors are industries that target domestic consumption or are export-oriented, allowing us to capture Vietnam’s dynamic growth as an emerging market.
populous nation, has highly compelling investment fundamentals based on sustained economic growth, demographic dividends, socio-political stability and dynamic consumer growth. What attracts us, and our investors, to Vietnam are these underlying building blocks that create unique investment opportunities for investors that can effectively
Philosophically, we believe our Vietnam focus and world-class investment capabilities enable us to provide superior asset management and client services. Our guiding investment principles include active portfolio management, proprietary research, long-
Indochina Capital Corporation | page 19INDOCHINA CAPITAL ADVISORS | page 19 of 22Indochina Capital Corporation | page 19
q pp yintegrate local networks and knowledge with international investment best practices.
p g , p p y , gterm strategies and team oriented decision-making.
Indochina Capital AdvisorsManaged Accounts
Equities Division
Through our Managed Accounts services, we construct and manage a portfolio of equity investments, provide access to investment opportunities and monitor market developments Investors are offered
The Managed Accounts division is led by Mr. Nikhil Singh who has over 15 years of emerging markets equities investment experience and a strong track record He is supported by our long-serving portfolio
Managed Accounts
opportunities and monitor market developments. Investors are offered discretionary portfolio management services or exposure to our actively managed model portfolio.
ICA’s over-arching investment strategy for Managed Accounts is to focus on well managed companies with strong growth prospects that are
strong track record. He is supported by our long serving portfolio managers with extensive local and international fund management experience. Our Managed Accounts investment performance has outperformed the broader index over the past five years:
on well-managed companies with strong growth prospects that are priced at reasonable valuation levels and maintain significant trading liquidity. More specifically, we seek companies with the following characteristics:
D i t k t iti th i t i
Indochina Capital’s Track Record with Managed Accounts
ICA Managed Accounts VN-Index
2005 68.8% 28.5%
2006 173 0% 144 5%Dominant market position: the company maintains a commanding share of a particular sector or nicheHigh returns on capital: an economic returns model is built to ascertain the Return on Invested Capital of the firmAttractive sector fundamentals: the growth and profitability potential of the sector are thoroughly analyzed
2006 173.0% 144.5%
2007 45.5% 23.3%
2008 -53.0% -66%
2009 31.0% 56.8%
Average 54.3% 37.4%Appropriate levels of debt: methodical balance sheet analysis is performed to evaluate the risks associated with leverageEntry point at discount to intrinsic value: a variety of methodologies are deployed to determine the intrinsic value of the company
Average 54.3% 37.4%
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Indochina Capital AdvisorsPrivate Equity
Equities Division
Private Equity
ICA is currently performing due diligence on various private equity investment opportunities in the Indochina region, with an aim to launch a private equity fund in 2011 meanwhile providing investment
ICA is pursuing investments that fall into the following three categories:
private equity fund in 2011, meanwhile providing investment management services on a non-fund basis for institutional investors deploying capital into Vietnam. The preferred focus is privately negotiated direct investments and direct secondaries in equity or equity linked instruments in innovated high growth companies operating in the middle market sector of Vietnam The basic outline of our investment
Pre IPO & PrivatizationsIPO financing and privatization sponsorshipThe State Capital Investment Corp. manages the privatization process in Vietnam and has over 900 companies currently in its portfolio of which it plans to divest
middle market sector of Vietnam. The basic outline of our investment criteria follows simple bottom-up investment principles:
Business Characteristics Aligned and talented management team with proven expertiseM k t l d d i ifi t th t ti l
The IPO market has been extraordinarily active in Vietnam with 89 offerings in 2008 and 122 in 2009
Direct SecondariesICA maintains close relationships with private equity firms operating in the region and is well positioned to be a keyMarket leaders and significant growth potential
Fully developed products or service offeringsFinancial Characteristics
Meaningful revenues (US$10-25 million)High ROE and Strong EBIDTA performance (US$1-5 million)
operating in the region and is well positioned to be a key provider of liquidity for funds seeking an exit due to the end of a funds life or for other reasonsThere are certain benefits from this approach such as (i) management familiarity in working with financial investors and (ii) being the beneficiary of companies having been upgraded in the areas of governance and operationsUse of Funds
Working capital purposes, including expansion/developmentRecapitalization and/or balance sheet improvementStrategic acquisitions or production capacity investments
Transaction Structure
the areas of governance and operations
Growth & Expansion Capital FinancingFinancial and strategic support to established businesses with the potential for outstanding value growthTypically this is accomplished through a significant minority
Indochina Capital Corporation | page 21
Initial investment size in the range of US$5-10 million Meaningful minority ownership (10-49%)Senior equity/equity linked with protective governance provisions
Typically this is accomplished through a significant minority share to help a business to achieve growth ambitions, restructure shareholdings, release equity or change the balance of equity to debt
Investment Themes
Indochina Land
Real Estate Division
Indochina Capital Corporation | page 22INDOCHINA CAPITAL ADVISORS | page 22 of 22Indochina Capital Corporation | page 22
Indochina LandVietnam’s leading real estate fund manager and developer
Real Estate Division
Indochina Land is the real estate division of Indochina Capital, developing and financing real estate projects including residential retail office hotels resorts and leisure Today Indochina
Executive Summary
Indochina Land Holdings (ILH)
Capital Raised US$42 mm
Closed April 2005residential, retail, office, hotels, resorts and leisure. Today, Indochina Land manages three private, closed-ended funds with nearly US$500 million of committed equity, facilitating more than US$2 billion of projects in operations or under development in Vietnam.
Our core strategy is “residential plus” where we develop stand alone for
9 InvestmentsHotel/Resort: 32%, Residential: 39%,
Retail: 6%, Office: 6%, Land Bank: 17%
Geographic Diversification North: 4%, Central: 34%South 62%
Realized IRR on Investments Exited to Date 59%Our core strategy is residential plus” where we develop stand-alone for-sale residential projects or combine for-sale residential with other property types such as retail, office, hotels and resorts. This strategy allows us to capitalize on the significant imbalance between supply and demand in the residential sector. It also enables us to limit fund equity
Indochina Land Holdings 2 (ILH2)
Capital Raised US$265 mm
Closed November 2006
Hotel/Resort: 28%, Residential & Serviced injections and enhance our returns through the optimal use of pre-sale equity financing. Specifically for Indochina Land Holdings 3, our focus will be the residential markets in Hanoi and Ho Chi Minh City, which are projected to be the world’s top two fastest growing urban economies from 2008 to 2025 by PricewaterhouseCoopers.
11 Investments Apartments: 28%, Retail: 5%, Office: 3%, Land Bank: 30%, Other: 6%
Geographic Diversification North: 18%, Central: 43%,South: 39%
Commencing disposition cycle One partial exit to date
To realize our projects and promote our brand, we partner with some of the most prominent names in architecture and design, ensuring that we deliver quality projects and add value to Vietnam’s built environment. We have a team of approximately 30 investment professionals and 200
Indochina Land Holdings 3 (ILH3)
Capital Raised US$180 mm
Closed October 2010
Target SectorUrban Residential, Urban Mixed-Use with
significant Residential components combined with Commercial Retail and Office space
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pp y pproject-specific expatriates and local Vietnamese to implement our projects, making us one of the leading property developers in Vietnam and the region. We maintain an administrative office in Singapore in addition to project offices throughout Vietnam.
with Commercial Retail and Office space
Geographic Focus Hanoi and Ho Chi Minh City
# of Committed Investments 2
Indochina LandCountry-Wide Portfolio
Real Estate Division
Indochina Plaza HanoiMixed-Use Development
2011 Scheduled Opening
Condominiums: 390Retail (NFA): 18,000 m2
Office (NFA): 14,400 m2
Indochina Riverside TowersMixed-Use Development
Hyatt Regency Resort and SpaLuxury Resort Complex
2011 Scheduled Opening
Hotel Rooms: 200Condominiums:182
Mixed Use DevelopmentOpened 2008
Condominiums: 95Office (NFA): 6,200 m2
Retail (NFA): 4,600 m2
Condominiums:182Villas: 27
M t i Li k Vi tRi G d Th N H i
Indochina Capital Corporation | page 24
Montgomerie Links VietnamGolf Course & Estates
Opened 2009
Golf Course: 18-HolesVillas: 66
River GardenUrban ResidentialOpened 2009
Condominiums: 212Retail (NFA): 3,800 m2
The Nam HaiLuxury Beach ResortOpened 2006
Hotel Villas: 60Residential Villas: 40
Indochina Land Holdings 3Urban residential currently in investing period
Real Estate Division
In the past decade, Vietnam has emerged as one of Southeast Asia’s greatest success stories for economic progress, posting consistently positive GDP growth Vietnam’s political and social stability make it one
Global Institutional Investor Base
Despite the challenging investment climate, our core base of
ILH3
positive GDP growth. Vietnam s political and social stability make it one of the world’s safest countries and the global investment community has responded by pouring record levels of Foreign Direct Investment into Vietnam, particularly the manufacturing and services sectors.
What attracts us and our investors to Vietnam’s property market are the
p g g ,global institutional investors continues to recognize the potential of Vietnam’s real estate market.80% of the ILH3 Limited Partners have participated in our previous fund vehicles. The closing is a testament to our investors’ enduring confidence in the Vietnam real estate market and Indochina Land as a fundWhat attracts us, and our investors, to Vietnam’s property market are the
underlying fundamentals of rapid urbanization, consistently positive economic growth, compelling demographics and political stability. Because of these strong fundamentals, Vietnam’s property market offers high-yielding investment opportunities to investors who can effectively
in the Vietnam real estate market and Indochina Land as a fund manager and premiere property developer.Our investment strategy targets large scale residential projects in Hanoi and Ho Chi Minh City, whereby we will reduce the fund’s required equity commitment by introducing foreign and/or Vietnam-based co-investors.
integrate local contacts and knowledge with international development, finance, and management experience.
Our investment strategy for ILH3 focuses on the primary urban markets of Hanoi and HCM City, with a particular emphasis on urban residential
Investment Funds14%
Other2%
ILH3 Investor Composition
and urban mixed-use projects with residential. The pipeline deals that we have cultivated for ILH3 feature sites that have already been cleared or involve minimal relocation. Additionally, our projects are located in strategically attractive locations in both downtown districts as well as new urban areas.
Pension Funds50%
Family Offices19%
Indochina Capital Corporation | page 25
University Endowments
15%
Indochina Infrastructure
Infrastructure Division
Indochina Capital Corporation | page 26
Infrastructure Division
Indochina InfrastructureInfrastructure Advisory and Fund Management
Indochina Infrastructure Management was established in 2008 to advise and invest in infrastructure companies and projects in Vietnam. In line with the country’s economic growth the demand and need for
Fund ManagementThe Indochina Infrastructure team has concentrated on providing advisory services to international investors developers
Executive Summary
with the country s economic growth, the demand and need for infrastructure related investments in Vietnam has grown significantly.
An increase in population and general under-investment in infrastructure in recent years, combined with strong and sustained economic growth improved international integration and rapid urbanization has
advisory services to international investors, developers, multilateral institutions and government agencies in Vietnam. We currently offer a broad range of advisory services to companies looking to make investments in or do business related to infrastructure in Vietnam, including: deal sourcing, Public Private Partnership consultation financial arrangements (debt and equity) feasibility studiesgrowth, improved international integration, and rapid urbanization, has
resulted in increased pressure on existing infrastructure assets, strengthening the demand for infrastructure development in all sectors of the economy. Our infrastructure division focuses on investments in environmental, transportation and social infrastructure
consultation, financial arrangements (debt and equity), feasibility studies and market entry.
With the assistance of our new corporate partner, ORIX Corporation, we intend to resume our efforts to raise an infrastructure focused fund in
sectors such as water treatment plants, seaports, and healthcare facilities.
Indochina Infrastructure provides advisory services to foreign and local enterprises active in Vietnam’s broad network of infrastructure related
2011. The focus for the fund will be to invest in core platforms within the environmental, social and transport sectors, with a particular emphasis on sustainability and renewable resources.
Target Sectors
investment activities. The group advises governmental agencies on policy matters as well as local and foreign companies on their merger and acquisition strategies.
Environmental ServicesIndustrial Waste (solid and hazardous)Water supply and wastewater
Social InfrastructureEducation Healthcare
Indochina Capital Corporation | page 27
TransportPorts and logistics zonesBridgesHighways
Infrastructure Division
Indochina InfrastructureAdvisory Projects
Current Advisory Projects and Bids
World Bank / Ministry of Planning and Investment
Lead local advisor on a hallmark project to revise Decree78/108 governing Public-Private Partnerships in Vietnam’s infrastructure sector. In Q1 2010, along with our partners at the World Bank, we submitted a revised regulatory framework that is currently being applied to two pilot projects in the transport
Lead Policy Advisor framework that is currently being applied to two pilot projects in the transport sector and later to three other projects in the environmental sector.
US Trade Development Agency
Bidding to be a sub-contractor, responsible for the financial analysis and development of technical specification for a feasibility study on Danang Software Park. USTDA is considering the project proposal for funding.
Financial Advisor
FMO / WACO
We are acting as financial advisor on arranging a US$7 million loan for a water project in Long An Province. WACO (the developer) has agreed on FMO’s indicative terms for the loan. The Feasibility Study and Environmental and Social Assessment are currently being revised to meet IFC standards. The project is expected to reach financial close by Q1 2010.
Financial Advisor
p y
BIDV / Credit AgricoleHighway Project
In this assignment, we will be serving as joint financial advisors with Credit Agricole in arranging US$700 million loan for the Trung Luong – My Thuanexpressway (the middle portion of the new HCMC-Can Tho expressway). Two of Credit Agricole’s clients (construction companies) confirmed their interests in the project. Both have received ECA approval from their respective countries. Credit
Financial Advisor
Agricole is currently drafting indicative terms for the loans. Expectation is for the first US$300 million loan to be proposed for 2010 with the remaining US$400 million for second half of 2011.
World Bank / Ministry of
In the process of forming a JV with Mazars to bid for the project, which will provide support to the Ministry of Finance’s Project Management Unit in monitoring and qualifying a number of Local Development Investment Funds to
Indochina Capital Corporation | page 28
World Bank / Ministry of Finance
monitoring and qualifying a number of Local Development Investment Funds to receive ODA funding from the World Bank for their infrastructure projects. Our proposal was submitted in Q3 2010, and the contract award is expected to be announced in Q1 2011.
Financial Advisor
Investment Strategy
APPENDIX IAPPENDIX IThe Growth Story
Six Senses Con DaoLuxury Beach ResortO d 2010
St E i F d t l
Opened 2010
Hotel Villas: 35Residential Villas: 15
Indochina Capital Corporation | page 29INDOCHINA CAPITAL ADVISORS | page 29 of 22Indochina Capital Corporation | page 29
Strong Economic Fundamentals
Regional PerspectiveVietnam Leads Southeast Asia’s Economic Rebound
Growth Story
In the face of a global economic slowdown, Southeast Asia is demonstrating impressive strength and resilience compared to other parts of the world.
Vietnam’s Regional Comparison Vietnam achieved GDP growth of 5.32% in 2009, significantly stronger than many of its Southeast Asian neighbors. Along with China, India and Indonesia, Vietnam is leading Asia’s economic recovery and is one of the few countries in the world that has not experienced a year on year contraction in GDP
Southeast Asian Rebound
While there is indeed slower economic growth in Southeast Asia than in recent years, the global crisis has had less of a relative impact on the region, especially when compared to economies in the West.
Southeast Asia’s dependency on exports has negatively impacted GDP growth. However, the region’s banks are relatively healthy, and
experienced a year-on-year contraction in GDP.
While all ASEAN economies were effected by the global downturn, Vietnam produced steady GDP growth in 2009 and 2010, nearly rebounding to pre-crises levels. Growth in 2011 is expected to expand to 7.0%.
g , g y y,the allure of cheap labor, natural resources and low trade barriers, coupled with strong domestic demand, are attracting investors.
Southeast Asia’s resilience to the downturn was evidenced by a sharp rebound in GDP growth in 2010, a trend which is forecasted to continue with aggregate growth for the region estimated at 5.3% in 2011, according to the Asian Development Bank. Thailand
8.5%5.3%
Vietnam
6.7%
Low wages and high literacy rates are W ll d t d d
Country
GDP Percent Change Per
Year
‘091 ‘102
Asian Attraction: Economic growth in
Southeast Asia is has successfully rebounded
with from the global financial crisis
, g p
As the fastest growing economy in Southeast Asia in 2009, Vietnam’s economic growth has rebounded further in 2010 and will continue to
-2.2%
Southeast Asia’s auto manufacturing hub
15%
literacy rates are attracting electronics companies, with the domestic economy buoyed by an emerging middle class
.9%
6.2%
Well-educated and English-speaking
workforce make it a hotspot for
outsourcing centers
Strong manufacturing base moving up the
Vietnam: Consistently Strong Growth
economic growth has rebounded further in 2010 and will continue to lead the ASEAN pack in the years ahead.
Vietnam’s GDP growth rate reached 5.32% in 2009, outperforming projections from the Asia Development Bank and the International Monetary Fund.
For 2010 Vietnam’s GDP growth rate accelerated from 5 83% in 6 0%
Philippines
-1.2%
Malaysia
5.0%value chain
Indochina Capital Corporation | page 30INDOCHINA CAPITAL ADVISORS | page 30 of 22Indochina Capital Corporation | page 30
For 2010, Vietnam’s GDP growth rate accelerated from 5.83% in Q1 to 6.4% in Q2 and then further to 7.2% in Q3 and 7.3% in Q4, boosting yearend growth to 6.7%.
GDP Growth for 2011 is expected to exceed 7.0%.
4.5%
Indonesia
6.0%
-2.1%
SingaporeAs a major financial services center and export-led economy, the impacts of the global recession were acute but the rebound has been even sharper
Vast natural resources of copper, gold, coal and nickel fuel the economy
Source: DBS, November 2010
GDP GrowthManufacturing bounced back in 2010
Growth Story
Manufacturing Wholesale and retail trade Agriculture, forestry & fishery
Construction Transport, storage and communications Mining and quarrying
Hotels and restaurants Education and training Electricity, gas and water supply
Composition of Vietnam’s GDP
9.3%
8.2%
7.3%7.8%
8.4%8.2%
8.5%
8.0%
10.0% Real estate, renting and business activities Others GDP
5.8%
4.8%
6.8% 6.9%7.1%
6.3%
5.3%
6.8%
6.0%
4.0%
0.0%
2.0%
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Indochina Capital Corporation | page 31
-2.0%
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: Bloomberg
G G (% )
Comparative AnalysisVietnam is an Attractive Emerging Market Investment Destination
Growth Story
9%
12%
GDP Growth (% change year-over-year)Consistently one of the fastest growing economies in Asia
5-Year Avg (2006–2010)
10%
12%
Consumer Expenditure (% change year-over-year) Vietnam’s consumer society has emerged and is driving growth
5-Year Avg (2006–2010)
7.0%
3%
6%
8.4%
2%
4%
6%
8%
10%
0%
Source: HSBC, October 2010
T I t t D ti ti S R ki
0%
Source: HSBC, October 2010
A St t f M j A i C t iTop Investment Destination Survey RankingVietnam is the No. 1 investment target following the BRICs
Country 2010 2009 2008
Vietnam 1 1 1Indonesia 2 6 5 H K
Japan
< 14 15-24 25-39 40-59 > 60
Age Structure of Major Asian CountriesVietnam’s ‘demographic dividend’ will drive economic growth
do es a 6 5Mexico 3 3 2Argentina 4 12 8Saudi Arabia 4 10 10South Africa 6 4 8Nigeria 7 2 12 India
Indonesia
China
Singapore
Hong Kong
Indochina Capital Corporation | page 32
Malaysia 8 5 12United Arab Emirates 8 2 3Turkey 8 8 9
Source: Economist Intelligence Unit, September 2010 Survey
0% 20% 40% 60% 80% 100%
Vietnam
Source: U.N. Population Fund
Foreign Direct Investment in Vietnam (US$ Billions)
Foreign Direct InvestmentDisbursed FDI has Remained Steady
Growth Story
1500
2000
$60
$80 Registered FDIDisbursed FDI# of Projects
Foreign Direct Investment in Vietnam (US$ Billions)Disbursed FDI has held steady
Predictably, foreign direct investment (FDI) in Vietnam suffered a sharp decline during the global downturn, as multinationals were forced to turn their attentions inward, abandoning or postponing investment projects overseas to deal with problems at home.
Committed FDI has Declined…
500
1000
$20
$40
$p j p
In 2010, foreign investors registered US$19 billion in new FDI in Vietnam— a 14% reduction compared to 2009, and a steep drop from the real-estate driven boom of 2008, which ended with a record-setting US$71.2 billion of registered FDI.
However, the pie-in-the-sky FDI projects witnessed in 2008 (i.e.
0$-2006 2007 2008 2009 2010
Source: General Statistics Office
, p y p j (billion dollar real estate projects, etc.) have faded away.
Despite the decline in pledged FDI over the past two years the
…but Disbursed FDI has Increased
% of Foreign Direct Investment per SectorDespite the decline in pledged FDI over the past two years, the amount of FDI actually disbursed — not just committed —in Vietnam has remained remarkably steady through boom, bust and recovery.
Disbursed FDI in 2010 reached an estimated US$11.5 billion, a 10% increase compared to 2009 and, surprisingly, a near-identical number to the amount disbursed during the irrational exuberance witnessed in 2008 60%
80% Manufacturing Real EstateAll other Areas
% o o e g ect est e t pe SectoFDI into Tech Manufacturing
witnessed in 2008.
The composition of FDI projects is returning toward the previous standard, with the manufacturing sector attracting 46% of registered FDI and real estate receding to 34%.
A return to the status quo of the previous decade may seem the antithesis of progress but it is important to note that Vietnam’s
20%
40%
%
Indochina Capital Corporation | page 33
antithesis of progress, but it is important to note that Vietnam s manufacturing sector is not what it used to be: high value-added products like microprocessors and laptop components are supplanting low value-added T-shirts, handbags and plastic dishes.
0%2005 2006 2007 2008 2009 2010
Source: General Statistics Office
The Current AccountStructural trade deficit due to importation of intermediate products for export items
Growth Story
$90
Export / Import Turnover (US$ Billions)Quick rebound in exports following the Global Financial Crisis
$02000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Trade Deficit (US$ Billions)Structural deficit in current account
$30
$60
ExportImport -$12
-$6
Raw material imports for inputs into export products
$02000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: General Statistics Office
-$18
exacerbates the trade deficit
Source: General Statistics Office
Export Value of Non-Oil Export Items (US$ Billions)Vietnam has a diversified basket of export items and is moving up the Value Chain
$12 2006 2007 2008 2009 2010
Vietnam has a diversified basket of export items and is moving up the Value Chain
The contribution of computers and electronics to Vietnam's export
t i t dil i i i
$4
$8 turnover is steadily increasing, moving Vietnam up the value chain. This is
also reflected in the changing landscape of FDI, with new
investments targeting high-tech manufacturing sector
Indochina Capital Corporation | page 34
$0Textiles Seafood Footwear Computers/Electronics Electrical Wires/Cables Plastic Products Handbags/Luggage
Source: General Statistics Office
Emerging Middle ClassVietnam is also attractive as a consumer market
Growth Story
60 64
70-74
80+
FemaleMale
Demographic DividendPopulation of nearly 90 million
$1,024 $1,074$1,200
$1,200
$1,400
GDP Per Capita (US$)Rising incomes on par with economic expansion
Official incomes are hard to pin down in an opaque market like Vietnam, and GDP per capita in the urban areas is more than
20-24
30-34
40-44
50-54
60-64
Age
clas
s
$402 $440$552
$725$835
$400
$600
$800
$1,000 the urban areas is more than double the national average
5 4 3 2 1 0 1 2 3 4 5
0-4
10-14
millions populationSource: General Statistics Office
$0
$200
2000 2002 2004 2006 2007 2008 2009 2010f
Source: General Statistics Office
Modern Retail Space (sq m)Total Retail Turnover (US$ Billions)
500,000
600,000
HCM City Modern Retail Space
Hanoi Modern Retail Space
ode eta Space (sq )Growth in modern retail illustrates Vietnam’s ballooning consumer society
26%
28%$90 2008 2009 2010 Year-over-Year Growth
ota eta u o e (US$ o s)Vietnam’s emerging middle-class is driving retail sales
200,000
300,000
400,000
22%
24%
26%
$30
$60
Indochina Capital Corporation | page 35
-
100,000
2006 2007 2008 2009 2010 2011fSource: CB Richard Ellis Vietnam, November 2010
20%$-Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Source: General Statistics Office
Investment Themes
APPENDIX IIAPPENDIX IIInvestment Themes
Indochina Riverside TowersMixed-Use DevelopmentOpened 2008
Condominiums: 95Office (NFA): 6,200 m2
Retail (NFA): 4,600 m2
E iti Di i i
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Equities Division
Food & Beverage and RetailSalient component of Domestic Consumption
Investment Themes
Very important sector accounting for 47% of Consumptionand 67% of total retail sales
Excellent fundamentals across sector given (i) rising incomes
Ranked as the most attractive retail market in the world in AT Kearney’s 2008 GRDI study
13th most populous country, experiencing rising disposable
Food & Beverage Retail
g ( ) gallowing the Vietnamese to upgrade the quantity and quality offood and beverages they consume and (ii) the significantexport potential given produce cost differentials
Branded fruit and vegetable juice: Vietnam per capitaconsumption of 1 liter vs 2 liters in Thailand, 20 liters in the
0 S
p p y, p g g pincome
Retail sales to double from US$39 billion in 2008 to US$85 billion in 2012 according to RNCOS
Modern retail chains account for only 20% of distribution, as compared to 90% in Singapore, 60% in Malaysia, 51% in ChinaU.K. and 40 liters in the U.S.
Low per capita consumption of soft drinks at 9 liters per annumvs 15 in China and 70 in the Philippines
Region’s highest mass grocery retail sales forecast at 123% by2012 (BMI, 2010)
compared to 90% in Singapore, 60% in Malaysia, 51% in China and 34% in Thailand.
Highly fragmented market with maximum 3% market-share; conventional outdoor markets make up 90% of sales
Distribution opportunities given lack of nationwide supply chains and policy directive to formal retail channelsand policy directive to formal retail channels
$123$124
Per Capita Food ConsumptionFood consumption steadily rising on par with disposable incomes
60%60%
Share of Modern Retail in terms of Retail SalesHigh growth potential for modern retailers
$119
$120
$121
$122
$119
$120
$121
$122
$123
20%
40%
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$117
$118
$119
2008 2009 2010 2011 2012
Source: General Statistics Office
10%
0%2007 2017
Source: A.T. Kearney
Infrastructure and Healthcare Building blocks for successful development
Investment Themes
Significant growth potential, given a population of approximately 86 million in 2009, expected to be 99 million in 2018
One of the least urbanized countries in Asia with 1 million migrants to major cities a year for next 20 years
Given the long gestation period for project investments, this
Infrastructure Enablers Healthcare
Strong traditional medicines segment with potential to improve the non-prescription drugs market in the longer term.
Improvements in pricing and regulatory environment to boost foreign companies interest and investment in the country.
Health and welfare a priority among emerging middle-class.
g g p p j ,theme focuses on the eco-system of companies benefitting from the long-term building boom in Vietnam, and includes construction companies, building materials, equipment, design and other service providers
Given Indochina Group’s decade long experience in real estate ea t a d e a e a p o ty a o g e e g g dd e c ass
Vietnam has only one full service, international standard hospital (FV Hospital in HCM City).
development, opportunities in this sector are clear and strong relationships are already in place with target companies
Low housing space per capita: urban living space of 11 sqm per capita vs. 17 sqm in Thailand; pipeline of infrastructure megaprojects
$1112
Health Expenditure Forecast (in US$ billions)Increased spending on healthcare a byproduct of rising wealth
9293
Forecast for Population Growth (in Millions)Young and Growing
$6$8
$9
4
6
8
10
8788
8990
87
90
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0
2
2009e 2010f 2011f 2012f
Source: BMI 2010
842008 2009 2010 2011 2012
Source: General Statistics Office
Financial ServicesUnder-penetrated and deepening financial services sector
Investment Themes
Only 15% of Vietnamese have bank accounts and total deposits to GDP is half the Asian average
Rapid growth in system loans with CAGR of 21.9% between 2001 and 2009
The mortgage market is set to benefit from stabili ed real estate prices and lo er long term interest rates as the Vietnamese choose
Financial Services Penetration and Density increasing from very low base
The mortgage market is set to benefit from stabilized real estate prices and lower long-term interest rates as the Vietnamese choose to expand the diminutive living spaces they occupy (19% of Vietnamese live in ‘temporary’ structures, 40% of population occupiesunder 36 sqm while urban per capita living space stands at 11 sqm)
Life insurance as a percent of GDP stands at a meager 1% vs. China 2%, Singapore 6% and Hong Kong 8%; 95% of Vietnamese do not have insurance though 35% can afford the premiums
98%
% of Adults with Access to Financial ServicesLow penetration leaves room for growth
160%
Loans as a % of GDPIncreased leverage will spur further economic expansion
48%
59%63%
98%
77%
95%
131%
160%
29%
42%48%
57%70%
77%
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Vietnam China India Thailand Korea Singapore
Source: World Bank
India Vietnam Thailand Korea Singapore KoreaSource: General Statistics Office
Contact Us
P t R R dPeter R. RyderChief Executive OfficerT: (84) 43 930 6399E: [email protected]
Hawkins PhamInvestor Relations / CommunicationsInvestor Relations / CommunicationsT: (84) 83 910 4855E: [email protected]
Ho Chi Minh CityCapital PlaceFloor 106 Thai Van Lung StreetDistrict 1HCMC, Vietnam
HanoiOpera Business Center
Indochina Riverside Towers Danang, Vietnam
An Indochina Capital development
Opera Business CenterFloor 960 Ly Thai To StreetHoan Kiem DistrictHanoi, Vietnam
This presentation does not constitute an offer or solicitation to any person in any jurisdiction in which such offer or solicitation is not authorized orto any person to whom it would be unlawful to make such offer or solicitation. It is the responsibility of any person or persons in possession of thismaterial to inform themselves of and to observe all applicable laws and regulations of any relevant jurisdiction. Prospective investors should informthemselves and take appropriate advice as to any applicable legal requirements and any applicable taxation and exchange control regulations inthe countries of their citizenship, residence or domicile which might be relevant to the subscription, purchase, holding, exchange, redemption ordisposal of any investments. Information contained herein is believed to be reliable but no warranty is given as to its completeness or accuracyand views and opinions, whilst given in good faith, are subject to change without notice. Members of Indochina Capital and its affiliates, connectedpersons and employees may from time to time deal, hold or act as market-makers, advisers or brokers in relation to any investments orderivatives thereof or be otherwise interested therein
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derivatives thereof, or be otherwise interested therein.
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