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CAPITAL MARKETS

Vietnamese PE toils with investors

Private equity pioneers admit they’ve made mistakes. Now, they’re struggling to raise new funds, but they are not giving up. New sectors and revised exit strategies will be key to the next wave of deals.

Six years ago, Vietnam’s private equity sector was as hot as they come. Investors piled into one of the world’s great frontier states, a rapidly urbanizing nation of 90 million consumers all trying to get up the next rung on the ladder.

But that was 2007. Between then and now there has been a financial crisis and a European debt crisis. China accelerated; the western world slowed to a crawl. Vietnam suffered its own economic spasm. Inflation spiked from barely 5% in late 2009 to five times that level two years later. Economic growth slowed from nearly 7% in 2010 to 5% in 2012 and is tipped by the Asian Development Bank to top out at 5.2% this year.

And nonperforming loans continue to rise. In May 2013, State Bank of Vietnam governor Nguyen Van Binh warned that soured loans stood at around 10% of the total stock of lending (about $13 billion), rather than previous estimates of 6%. That number could yet rise further. "It’s not a pretty sight in Vietnam at all," mourns a Singapore-based fund manager with long-standing investments in the country.

Private equity in particular has been hammered.