Vietnam Private Equity Report: Q2/2015

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TPP is Still Controversial as Few Have Seen the Details

July 1, 2015.

Positive outlook

Positive outlook is voted by 72% of PE respondents thanks to various positive news during the first half of 2015. Especially, significant legislation changes and increasing opportunities for foreign investments have boosted investors’ confidence in the recovery of the economy.

There are a lot of positive signs towards the continued recovery of the economy.

In the first quarter, GDP growth rate was 6%, a milestone that Vietnam has not been able to meet since 2011. The statistics released in Q2-2015 showed GDP growth of 6.44%, further confirming recovery of the economy.

In terms of inflation, CPI index was well under control at c.4% and c.1% in 2014 and H1-2015 respectively. Other favourable factors include stable interest rates at 8% – 10%, and the credit growth being relaxed from the tight 12% – 14%, and now expected to grow at 15% – 18%.

With the AFTA, TPP, and EVFTA likely to be completed within 2015 – 2016, Vietnam also sees many opportunities for cross border trading and investments.

On legal framework, two significant positive changes have been introduced during H1-2015. The first is the Public Investment Law followed by a decree on Public Private Partnership in Q1-2015 strengthening the legal framework for partnering principles between government and enterprises in infrastructure investment. The second is the increase in the foreign ownership limits to 60% in publicly listed companies.

Nevertheless, there still exists long standing problems including slow reforms of SOE’s, inadequate infrastructure, corruption, and Government red tape. As a result, total of neutral and negative sentiments have remained unchanged, at 28% of survey participants.

Investment outlook

Investment activities

Most respondents forecast investments to increase. The anticipation is based on several factors.

Firstly, it is due to the recovery of the economy that is boosting consumer confidence, and potential for growth across industries.

Secondly, when joining global and regional partnerships such as the Trans Pacific Partnership Agreement and the Asian Free Trade Area (AFTA), it provides many investment opportunities that benefit both local businesses and foreign investors.
Thirdly, the improvement in legislation that shows a positive commitment for investors. The government is addressing the need of reform in both private and public sectors. This is providing opportunities for investors to make investments in strong-local enterprises which have good operating systems, market share, and trained workforces in place. These chances are so large that tapping to high entry barrier firms such as SOEs and financial institutions. It is expected that total values of M&A deals could beat the 2012’s records of US$5.2 billion in 2015, and reach US$20 billion between 2015 and 2018.

These are some of the reasons why 86% of respondents selected “Significant increase” and “Increase” when asked about their forecast of investment activities in Vietnam, over the next 12 months.

With regards to the attractiveness of neighboring countries, respondents indicate that Myanmar is the most attractive destination, with 45% selecting. Indonesia came second with 27%. The ranking orders are slightly different from ASEAN Business Outlook Survey conducted by the American Chamber of Commerce in Singapore in May 2015 when US investors voted Indonesia as top and Myanmar in the third place. Vietnam took the second position as in their last survey, but obtained more positive views in terms of satisfaction level with lower business costs, cheaper labor cost, reduced housing and office leasing costs.


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