TPG Capital, the private-equity firm run by David Bonderman and James Coulter, is seeking its first Vietnam investment in almost four years as the country's growing middle class offer growth opportunities.
TPG Growth fund, which manages $4 billion, is scouting for "emergent" companies with growth potential that want to leverage the fund's global expertise, Managing Partner William McGlashan said in an interview in Hanoi. The company previously invested in Masan Group Corp. and FPT Corp. in Vietnam.
"There are a lot of very exciting, developing companies that may not be on the radar because they don't have the scale of Masan and FPT yet," he said in the March 21 interview. "We want to find those kinds of opportunities: emergent, interesting scale companies that may not be pristine today."
A fifth of private-equity investors surveyed in a Collier Capital December report said they are turning to emerging Asian markets such Vietnam and Indonesia amid concerns that rewards in China are getting smaller with higher risks. The pivot toward Vietnam underscores foreign investors' attraction to its growing middle class and a population where more than half of the nation's 90 million people are under the age of 35.
"The beauty of this market is there's so much opportunity here for growth," said McGlashan, who was in Hanoi for the fund's first annual investor meeting outside of the US. "You have a consumer-driven economy with one of the youngest demographics in the world. You've got an opportunity to participate in a coming-out party here in Vietnam of biblical proportions."
Vietnam is set to become a target for deals as investors look to Southeast Asia as a primary destination and branch out beyond Singapore and Thailand, according to Ernst & Young LLP's 2013 outlook report on Asia-Pacific region released in January.
"Right now, Vietnam is looking for capital, as the financial sector is doing quite poorly," Kelvin Lee, Ernst & Young's transactions leader for Vietnam, said in the report. "In the Southeast Asia region, this is one place that needs private equity more than anywhere else."
Vietnam is "desperate" for foreign investment as economic growth slows, and the cost of entering the market has dropped, according to Ralf Matthaes, a regional managing director at market research firm TNS. The company has seen a "mild but serious" increase in interest from foreign investors this year after a drop in the last two years, he said.
McGlashan says he's not concerned that Vietnam's government is struggling to revive economic growth, which has lagged to its slowest in 13 years amid a credit slump.
TPG invested $35 million in Masan, a food and soy sauce maker, in 2009. That year, Vietnam's growth shrunk to 5.3 percent, then the slowest expansion in a decade. Masan's sales have more than doubled to 10.4 trillion dong ($497 million) last year, while net income more than tripled to 1.3 trillion dong.
KKR & Co., the private equity run by Henry Kravis and George Roberts, also invested in Masan in 2011 and doubled its investment this year with an additional $200 million.
In 2006, TPG also made a $21.5 million investment in FPT, Vietnam's largest listed telecommunications company, which it has since exited.
TPG is more interested in the performance and management of specific companies rather than the broader economy, McGlashan said.
"Vietnam right now is not a particularly popular place to invest for lots of reasons," said McGlashan, who will be based in Mumbai starting next month. "Since it's more about the micro than the macro, it represents a more attractive time for us to come looking for companies that we can partner with."
The fund is interested in pursuing investments in Asia in consumer, technology, financial services and health-care sectors, he said. He declined to say which industries the company is looking at in Vietnam.
The nation's economy is forecast to expand 5.5 percent this year, from an average of 7.3 percent annually in the decade starting in 2000.
The benchmark VN Index climbed 22 percent in the past three months, making it the best-performing Asian stock market in US dollar terms.
TPG and investors met last week with Deputy Prime Minister Hoang Trung Hai, McGlashan said. The company would like to see more "business rights" in Vietnam, including broader intellectual property protection.
"Ultimately, Vietnam is going to have to reform a lot of these controls if they want a robust capital market, liquidity and if they want the kind of partners that we represent to come in and help their companies mature and grow to global scale and quality," he said. "I'm optimistic they'll get there."
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