Capitalists love Vietnam -but where to invest?
26-JUL-2008 Intellasia | The Age
Jul 26, 2008 - 7:00:00 AM
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If there is one thing capitalists love, it is the opportunity to make money in socialist countries.
Stuck at the trading desk, Lancelot has never managed to get near Vietnam, but all his friends and acquaintances who have done so wax lyrical about it as a holiday destination.
These days it is also a serious investment destination, a developing nation with a population some four times that of Australia crowded into a landmass less than one-twentieth the size.
A few brave (in investment terms) foreigners have spent years finding ways to make money there under the liberalised government policies. Many a Vietnam-specific fund has been set up, finding no shortage of investor money keen to take a punt. The challenge then is to find suitable investments.
As a result, if you have a business in Vietnam with reasonable prospects, there are plenty of candidates willing to provide serious money.
So it has been for New Zealand brothers David, John and Paul Seton, who have doggedly persisted in Vietnam, despite their first attempts floundering. These days they are there through both the Australian listed, but NZ-based, Zedex Minerals and the Toronto-listed Olympus Pacific Minerals.
Zedex is the latest incarnation of what began as their Iddison Group Vietnam, metamorphosed (for the young folk whose attention span does not permit polysyllabism, read "morphed") into IT Capital and then re-emerged as Zedex in 2006.
At that stage it had a healthy 16.4% stake in its corporate cousin Olympus, as well as various exploration prospects, and was entitled to a 2% royalty over gold production from Olympus' Bong Mieu project (owned, of course, via the obligatory British Virgin Islands subsidiary) as a result of earlier deals.
Zedex raised US$5 million in a float from issuing 25 million shares at 20¢. Those shares represented less than 20% of its total shares. In fact, the largest shareholder on listing was a now-defunct British-listed investment fund called Ocean Resources Capital -and it seems to have acquired its shares by giving Zedex its rights to collect a US$3.5 million debt due from Gino Vitale's Burdekin Pacific (now Redbank Mines).
Coincidentally, Gino was bailed out on that by a loan from Macquarie Group, which has also been a cheerful lender and shareholder to Olympus and Zedex.
Zedex had barely been listed for six months when it and Olympus announced an agreed takeover -that even received David Seton, at that stage chief executive of Olympus, a five-minute interview on Bloomberg television to extol the virtues of Vietnam and his company.
Unfortunately, the deal fell over within weeks, because major shareholders of both companies felt the two would be better off separate.
Zedex, which has seen its stake in Olympus watered down to around 13.5% because the Canadian group raised capital with additional share issues, has now come back with a plan to bring the two closer together.
Shareholders will be asked at the annual meeting in Auckland late next month to approve a series of resolutions that will see it lift its holding in Olympus to more than 30%, making it the second-largest investor behind Dragon Capital (one of the previously mentioned Vietnam investment specialists) which increased its holding to about 38.5% in May.
Dragon's last parcel of 13 million shares -to lift its stake to that level -were done at C32.5¢, which was close to the stock exchange price when they were bought off market in May. The price has since sunk to just south of C20¢, a far cry from US$C1.00-plus a year earlier -but that's the story of sharemarkets around the world.
The deal Zedex has struck with Olympus investors for their stock is a share swap -two Zedex shares for each Olympus share and two options for each warrant in Olympus.
Zedex shares closed yesterday at 17¢, so effectively the host of Olympus investors, headed by Merrill Lynch associate Blackrock Investment Management and Macquarie Bank, are in line to sell their Olympus stock at close to twice its current market value if the price relativities are still around the same levels by the time non-associated investors tick off on the deal.
They also get into a far more liquid entity, given that a Standard & Poor's report on Olympus earlier this year identified only 113 stockholders. That probably won't get any better now that two investors have almost 70% between them.
Blackrock, if it keeps its Zedex shares, would become the second-largest shareholder, just behind VOF Investment (which is the Vietnam Opportunity Fund, another regional investment specialist). Macquarie will also likely be a significant holder because it gets 10.75 million shares in the deal and already held 5 million.
Zedex's third-largest investor, Dragon Capital, will have its stake watered down from 10.5% to about 7.5% but at least it still has its foot on the dragon's share of Olympus.
All of which suggests that the significant shareholders who 18 months ago killed the idea of Zedex and Olympus having closer economic relations, are either more sanguine about the latest pairing or have moved on.
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