Vietnam A Compelling Growth Story University of Michigan Business School February 2008 BIDV –...

Vietnam A Compelling Growth Story

University of Michigan Business SchoolFebruary 2008

BIDV – Vietnam Partners Investment Management (BVIM):a joint venture between Bank for Investment and Development of Vietnam (BIDV)

and Vietnam Partners LLC (VP)v5.9

Speaker: Mr. Bradley Lalonde

BIDV - Vietnam Partners Investment Management

Vietnam


Vietnam – The door is open.


Executive Summary

Vietnam has recently been regarded as a “New Asian Tiger” thanks to a rapid growth (second fastest in Asia) based on structural changes, political and social stability, and global integration of its financial markets.

The investment opportunities over the next 3-5 years will result from reforms made over the last decade:

1. Privatization of State-owned enterprises (SOEs), which is expected to accelerate over the next 36 months

2. Privately owned firms seeking growth/expansion capital

3. Vietnam’s capital market becoming an important source of investment funding and liquidity

The Vietnamese Economy and Investment Climate


Contents

Country Overview

A Growing Economy

Investment Landscape

Investment Opportunities


Country Overview

Favorable natural conditions bring competitive advantage

Location: Southeastern Asia, bordering the Gulf of Thailand, Gulf of Tonkin, and South China Sea, alongside China, Laos, and Cambodia

Area: 329,314 sq km; Coastline: 3,444 km

Natural resources: phosphates, coal, bauxite, chromate, offshore oil and gas deposits, forests, hydropower, soft-commodities

Geography: Extending 1,650 km north to south, only 50 km across at narrowest point

Climate: Tropical and semi-tropical

Source: CIA Factbook


Country Overview

Young population provides large labor force

Source: BIDV Securities Company

Vietnam's Population Tree (2005)

6000 4000 2000 0 2000 4000 6000

0-45-9

10-1415-1920-2425-2930-3435-3940-4445-4950-5455-5960-6465-6970-7475-79

80+

Population in '000

FemaleMale

84 million population; growing at 1.2 % per annum

Over 60 % of population below 30 years old

90 % literacy rate

Percentage of labor force/ total population increasing rapidly

GDP per capita (2006) 723 USD


Country Overview

Economic Structure

Contribution of Agriculture is decreasing.

Contribution of Industrial and Service sectors is increasing.

Today, the private sector contributes app 2/3 of total GDP !

Source: General Department of Statistics


Country Overview


Contents

Country Overview

A Growing Economy




A Growing Economy

846 SOEs equitized

600 SOEs equitized

204 SOEs equitized

611 SOEs equitized

Foreign ownership restrictions relaxed: 49% of listing companies except banks

Securities Law issued

US Bilateral Trade Agreement ratified

164 SOEs equitized

30% foreign ownership of joint stock companies allowed

Unified Enterprise Law issued

Law on Real Estate Business issued

212 SOEs equitized

Banking reform plan passed

List of goods and tax rates for implementing CEPT detailed

FX surrender requirements abolished

700 SOEs equitized

Unified Investment Law issued

Unified Investment Law and Unified Enterprise Law come into effect

Stock Market established

Constitution revised to give equal treatment to private sector

Implementing decision for US BTA issued

6th and 7th WTO working parties conducted

Land Law comes into effect

Commercial Law promulgated

Full realization of AFTA

Enterprise Law passed

5 year SOEs reform plan adopted

WTO negotiation team started working session in Geneva

Tariff rates for implementing CEPT officially announced

Competition Law passed

Law on Export and Import Duties issued

Official WTO accession anchors “rules of law”

2000 2001 2002 2003 2004 2005 2006

Vietnam has made tremendous progress on wide-ranging platforms


A Growing Economy

GDP growth exceeded 8.3% in 2007, the sixth consecutive year of growth above 8%

Target GDP growth of 9.0% in 2008

Vietnam has entered a period of sustainable high growth

Source: General Statistics Office; Economist Intelligent Unit

Asian GDP Growth 1999-2006

1.4

3.9 4.24.6 4.9

5.2 5.4 5.6 5.7

6.77.1

9.3

-

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

Japa

n

Tai

wan

Indo

nesi

a

Phi

lippi

nes

Tha

iland

Hon

g K

ong

Mal

aysi

a

Sin

gapo

re

Kor

ea

Indi

a

Vie

tnam

Chi

na

%


A Growing Economy

Economic Performance

FDI reached $20.3 billion in 2007. Two-way trade exceeds GPD by a factor of 1.5.

Source: General Statistics Office; World Bank Source: General Statistics Office

Export and Import 2000 - 2007


A Growing Economy

Economic Performance

Source: World Bank

Industrial Output 2002 - 2006

Source: General Statistics Office; Ministry of Industry


A Growing Economy

2008 might be another year of spectacular growth.


Contents

Country Overview

A Growing Economy




Definitions

Equitization - State Owned Enterprises (SOEs) issue joint-stock and/or sell shares to private investors (often less than 50% in the first round of privatization). The process typically takes the form of an auction, after which the SOE turns into a joint-stock company, in theory tradable on the local Over-The-Counter (OTC) market.

OTC stock – Securities of joint-stock companies after they have converted from private limited or SOE status. OTC securities can be traded on the less regulated and liquid OTC market, prior to a formal listing.

IPO – First time distribution of stock to over 100 investors; no formal exchange listing or new share issuance is required. An IPO often goes hand-in-hand with a company’s transition from private limited to joint stock company.

Foreign investor – Vietnam imposes ownership restrictions on foreign (non-Vietnamese) investors for listed, OTC companies and SOEs; generally 30-49% foreign ownership allowed in most sectors, except “strategic industries” (e.g. banks).

Local Terminology



Vietnam’s capital markets are developing rapidly

Sources: BIDV Securities Company; Bloomberg

A booming private sector is turning to the capital markets• Number of listed companies jumped from 32 in 2005 to 248 in 2007; over 6,000 OTC securities• Average trading liquidity up app. 5-times since mid-2006, to app. US$ 60 million/ day • Increasing breadth & depth of Vietnam’s capital markets due to:

– Ongoing equitization of SOEs – Improved regulatory framework of informal trading segments (OTC) - conversion to full listing– Private enterprises taking advantage of new access to capital –Proliferation of new securities companies

Fast growing market cap/ GDP, but remains low compared to other countries (1% in 2003 and 40% in 2007)



Sudden introduction of banks’ lending activities against securities

Introduction of capital gains taxes

Sticky foreign ownership restrictions

Flawed privatization mechanism (e.g. set minimum valuations)

Poor corporate governance remains a key concern

Issues negatively affecting the markets


Contents

Country Overview

A Growing Economy





Rich investment opportunities across all target groups

2,000 SOEs6,000 Cooperatives

88,000 Private Businesses

3,000 Equitized SOEs10,000 Private/ Joint Stock Cos

248 Exchange

Listed

Equitization

Formal Listing

Source: General Statistics Office, BVIM as 12/31/06



Transportation

Infrastructure

Fast growing private sector

Privatization

of former

SOEs



Accelerating equitization schedule creating strong SOE deal flow

* Estimated book values Source: General Statistics Office, as of 31/12/2006

SOEs to be equitized BV* Sector 2007 2008 2009 (in $mln)

Vietnam Airlines 360 Airlines ●Vietcombank 687 Banking ●Incombank 562 Banking ●BIDV 467 Banking ●VBARD 406 Banking ●Sabeco 340 Beverage ●Habeco 170 Beverage ● Vinasteel Steel ●HUD Construction ●Saigon Real Estate 63 Real Estate ●Vietnam Paper 65 Paper ●Haprosimex Trading ●

Number of SOE equitized

198411

769

1412

3060

2121

3610

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2001 2002 2003 2004 2005 2006 2007e

2001 2002 2003 2004 2005 2006 2007e

Number and size of equitized companies have increased significantly since 2001: 3060 SOEs have been equitized to date

Major state-owned corporations are scheduled for equitization in the next 3-5 years

Continued government review of equitization pipeline & methodology to benefit the disciplined investor in the long run



Private sector potential is significant and growing

Number of Private Companiesby Capital Size

71,001

55,32248,327

88,183

6,373

4,5663,443

8,388

6,629

4,638

2,906

8,998

0

20,000

40,000

60,000

80,000

100,000

120,000

2002 2003 2004 2005Under 5bn VND 5-10bn VND Over 10bn VND


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