Imagine starting a financial institution six years before any kind of stock or capital markets existed. Imagine considering starting that company in a country where the GDP per capita was $227 (€173) and there was no infrastructure for foreign investment, no democratic elections and no banking system, let alone corporate governance or international accounting standards. Imagine then, having the foresight to view this daunting task as a rare opportunity in an Asian frontier market in 1994.
That’s when the founding partners of the Dragon Capital Group pooled pioneering investors to launch a Vietnam access fund - Vietnam Enterprise Investments Limited (“VEIL”). This closed-end country fund was mandated to seek and invest in what would prove to be the country’s leading enterprises. Today, VEIL is Dragon’s largest fund and is widely recognised as the oldest listed Vietnam focused fund. Many of the original group from that 1996 launch remain invested today and have been reaping the benefits over the life of the fund.
Many family offices or MFOs might feel just as overwhelmed today as investors did in 1994 when considering frontier markets like Vietnam and Indochina. However, the situation is not as daunting if investors choose a partner who applies similarly high standards in corporate governance, compliance monitoring, risk management and has been providing investors with a sustained level of value growth over a period spanning both the typical boom and bust periods of frontier markets.
Dragon Capital’s journey has been fascinating, and required a multi- disciplinary approach starting with the “first wave” of private equity from 1994 to 1999 when demand for foreign direct investments were strong. There were no capital markets then and the Asian financial crisis in 1997/1998 wiped out every other Vietnam focused fund management company. But Dragon Capital prevailed and invested over the years in more than 70 companies, most of which were self- originated, and still retains seats on eight boards. These investments add up to in excess of $670 million and 50 of them have been successfully exited via different routes – primarily public listing and more recently trade sales.
The “second wave” of investing from 2000 to 2007 was heralded with the opening of the stock market and the development of Dragon Capital’s country funds by moving portfolio companies to the stock market and offering a wider array of products comprising debt, property and resources. The market capitalisation at the end of its first year was $75 million with five listed companies.
Many significant milestones were reached in this period. In 2002 the IFC, private investment arm of the World Bank, invested in Dragon Capital. They still hold a 10% stake. In 2003, along with a domestic investment partner, Saigon Commercial Bank, Dragon Capital was entrusted with the licence to establish Vietnam’s first domestic asset management company. The resulting VietFund Management Company provides fund management services targeted for Vietnam’s domestic investor base. In 2003 the Group expanded its platform beyond fund management and became a 30% minority investor in the Ho Chi Minh City Securities Company, where its key partner is an investment arm of the municipality of Ho Chi Minh City. In 2005, Proparco, a subsidiary of the development aid agency of the French Government, invested in Dragon Capital. They still hold a 5% stake.
Starting in 2008 the “third wave” of investing has come full circle back to Dragon’s private equity origins. With world stock markets in turmoil, the Government underwent the typical growing pains associated with an emerging economy and implemented a disciplined model of “growth with stability” in 2011. All areas of the economy are anticipated to benefit. The current market capitalisation is $30 billion with 700 listed companies.
Dragon’s country funds have been the vehicle of choice to access blue chip growth companies in Vietnam by the international investment community. Dragon’s business model focuses on creating platforms that enable investors to fully capture new growth opportunities. However, as longstanding residents in Vietnam, we’ve felt it was important to keep a pulse on the activities of our neighbors in Cambodia and Laos. Hence during the period 2006 – 2008, Dragon made several tranches of investments in Cambodia’s leading microfinance institution, PRASAC. This was followed in 2011 by an investment in Electricite Du Laos (EDL), the first public listed company on the Laos Stock Exchange.
As the world has begun to turn its attention to Vietnam’s neighbours in Cambodia, Laos, the Group drew upon its years of experience in Indochina to sponsor a budding private equity initiative - the Indochina Opportunities Fund (IOF). IOF is a joint venture between Dragon Capital and Frontier Investment & Development Partners (FDIP). This collaboration was a natural fit bringing Dragon’s own deep resources in Vietnam private equity with FDIP’s multi-faceted Cambodia team. The two are expected to contribute crucial synergies necessary to mapping these fledgling markets, and bring economies of scale to what is on the ground clearly viewed as a regional trading block.
IOF will be the first-ever private equity vehicle specifically focused on the Indochina region and its strategy will be to seek to capitalise on the increasing number of consumer and industrial opportunities in Vietnam, while harnessing the agricultural and natural-resource potential of Cambodia and Laos. IOF affords diversified investment risk across three countries, in a region that is currently demonstrating significant value when compared with the more established markets of Asia. Vietnam, Cambodia and Laos are all actively seeking access to foreign capital, management expertise and technology.
Dominic Scriven, Chief Executive Officer and Founder of Dragon Capital, comments: “We are very excited by our partnership with FIDP, which is one of Cambodia’s most promising private-equity groups. The fund we are building offers investors the chance to generate strong, risk-adjusted returns through exposure to frontier- market growth.
“Dragon Capital has a long history of delivering value in the region through our investment and risk-management expertise. Indochina offers a compelling mix of consumer-industrial and resource plays, given its geographic diversification and low entry points.
“Vietnam in particular is undergoing a very active new phase of reform to stabilise the economy and prevent the overheating woes of the past. This points to a significant turnaround in its economic fortunes that are expected to re-engage the country’s still-powerful growth drivers: ideal demographics, a large low cost but increasingly skilled labour force, a strong work ethic, political stability and ongoing FDI.”
To learn more about investment opportunities in Vietnam and the wider region, visit: www.dragoncapital.com
For more information please contact:
Dragon Capital Group Limited
1901 Me Linh Point, 2 Ngo Duc Ke, District 1, Ho Chi Minh City, Vietnam
T: +84 8 3823 9355 / F: +84 8 3823 9366
Dragon Capital Markets Europe T: +44 1225 731 402