Why are foreign investment funds divesting?

06-Oct-2017 Intellasia | Nha Quan Ly | 6:00 AM Print This Post

Since the beginning of the year, large investment funds such as Mekong Capital and Dragon Capital have continuously withdrawn capital from many large Vietnamese companies. Why?

The latest information from Mekong Capital said that Vietnam Azalea Fund (VAF) under Mekong Capital has completed its withdrawal of 100 percent capital from Loc Troi Group at a price of 68,000 dong/share, raising the total capital divestment value to more than $12 million.

With the latest capital withdrawal from Loc Troi Group, Mekong Capital’s funds have earned total $79 million from its capital divestments in the first three quarters of 2017.

Earlier, in the first three quarters of 2017, Mekong Capital’s funds had completed its fully capital withdrawals from Vietnam-Australia International School (VAS) and partial capital withdrawal from Mobile World Investment Joint Stock Co.

Particularly, Mekong Enterprise Fund II divested 100 percent capital from VAS in April at a total value of $25 million, yielding a gross return of 4.5 times and an IRR of about 25,8 percent for its 6 year investment at VAS.

Then, Mekong Enterprise Fund II also continued to sell its stake in Mobile World JSC (coded: MWG). This partial capital mdivestment in September of this year generated over $18 million in revenue for Mekong, recording an IRR of 62.6 percent and a gross margin of over 133 times for the total number of sold shares.

Last year, the fund also made four capital divestments from Phu Nhuan Jewellery Co, FPT Group, Intresco, Nam Long Group and some other saperate capital withdrawals from Mobile World JSC.

Formed in June 2007, VAF is managing $64 million pledged capital, mainly in investments and unlisted companies. The fund has made seven investments including PNJ, FPT Corp, Intresco, Nam Long, Masan Consumer, Loc Troi and Traphaco. After the divestment from Traphaco, Traphaco will be the sole remaining investment of the Fund.

Another investment fund namely Dragon Capital, has also continuously made similar moves. Recently, VietNam Enterprise Investments Limited has sold a total of 146,300 shares of PetroVietnam Technical Services Joint Stock Co (PVX), equivalent to 0.03 percent of charter capital. Grinling International Limited also sold 403,700 shares, reducing its holdings from 4,058,350 shares (0.91 percent) to 3,654,650 shares (0.81 percent).

These are the investment funds in the Dragon Capital Group. Thus, these investors have sold 550,000 shares, reducing ownership from 22.43 million shares to 21.88 million shares, corresponding to 4.88 percent and are no longer a major shareholder of PVS since September 21, 2017.

Apart from PVS, these investors have also offloaded 470,000 KBC-coded shares of Kinh Bac Urban Development Corp thereby reducing the holding in KBC from 5.04 percent to 4.94 percent and are no longer majority sharesholder since September 25, 2017.

Reportedly, since early September so far, Dragon Capital has offloaded 200,000 shares of Hoa Phat Group Joint Stock Co (coded HPG), reducing the holding from 42.2 million shares to 42 million units, equalling to a ratio of 4.98 percent stake.

In early June, Dragon Capital Fund also offloaded 940,000 sharesof SSI Securities Co, reducing the holding rate to 4.9 percent stake and is no longer a majority shareholder. Earlier, in early May, DC Developing Markets Strategies PLC under Dragon Capital also sold 1.5 million SSI-coded share of the total holding of 2.75 million units, reducing the holding to 0.26 percent.

Commenting on the selling trend of investment funds, some securities experts said that the market is now in the peak so the funds tend to offload to take profit and this is quite common. However, it is worth noting that many investment funds, strategic shareholders, which have been in strong attachement to enterprises for decades, the current capital withdrawal is noteworthy. It is possible that the development of these businesses has reached the saturation, and they are looking for new businesses in the early stage of development with better profitability expectations.

Earlier, a fund manager said that some businesses seemed to be moving away from their core business. Meanwhile, the development strategy, investment expansion into other areas are always more risky, while profit potential is not very clear. This is the point forcing investment funds to ponder always.


Category: Stocks

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