GIC’s acquisition of a 7.7% stake in Vietcombank is interesting for what it tells us about the parties on both sides of the trade.
GIC, the Singapore sovereign wealth fund entrusted with the state’s foreign currency reserves, has said for many years it intends to shift its focus from the developed to the emerging world, but has not always put its money where its mouth is – perhaps understandably, given a spell of several years in which that would have been an unwise strategic allocation.
When GIC announced its latest results in July, covering the year to March 31, there was evidence that the long-promised shift was taking place. Developed market equities fell from 29% of the portfolio to 26%, while EM equities climbed from 18% to 19%.
There is a feeling that, tactically as well as long-term strategically, EM equities are starting to make sense again.
The Vietcombank purchase should be seen in that context. It fits exactly the themes GIC – and its fellow sovereign vehicle, Temasek – frequently advance about exposure to the rising middle class in developing Asia, and about gaining that exposure through the mechanism of financial inclusion.
The purchase involves GIC taking up about 85% of a new private placement of Vietcombank stock and is in theory worth $500 million on the open market, though the price paid has not been disclosed and was likely less.
Amit Kunal, head of the Direct Investments Group for southeast Asia within GIC’s sophisticated private equity and infrastructure division, says the purchase “reflects our confidence in Vietnam’s long-term growth potential”.
It’s no surprise, too, that Vietcombank should be the house GIC chooses to gain its exposure through. GIC is not the first foreign name to see the appeal of a bank that is known for having some of the strongest management and governance in the country; Mizuho bought 15% of the bank in 2011 and Credit Suisse – which acted as placement agent and financial adviser to Vietcombank on the deal – has been closely involved with the bank for years.
Vietcombank is not the biggest in Vietnam (it ranks only fourth by loans or deposits) but its 2015 results – net profits up 16.83% year-on-year, 12.03% return on equity, a falling NPL ratio of 1.84% and decent reserve coverage – convinced Euromoney to name it the best bank in Vietnam in our 2016 Awards for Excellence. International bankers who have seen the bank up close, and looked under the hood at its exposures, rate it highly.
Nghiem Xuan Thanh, chairman of Vietcombank, has ambitions that he needs international cooperation to fulfil, both in terms of capital and expertise. He is assembling an impressive armoury of international friends, and was notable that in his formal comment on the deal, he said GIC would help it achieve its goals “both locally and internationally”.
Whatever the plans, for the moment GIC will have been attracted by a universal bank with a strong presence in both retail and wholesale that gives it exposure to a market on the cusp of emerging and frontier, through the palatable vehicle of a proven local bank.
GIC’s management warned last year of a decade of low returns; to compensate, it’s going to need more deals like this one.