Deal focus: KKR's Vietnam macro proxy

KKR expects Vinhomes to be at the forefront of Vietnam’s industrial infrastructure roll-out. The state-owned company made its name as a luxury property developer, but helping provide the factories, warehouses, and terminals that will be built to meet the needs of multinationals rethinking their supply chains is very much on the agenda. Nearly half of the company’s land bank is in Quang Ninh, a coastal province adjacent to China.

“This extends from the ongoing development of the Vietnamese economy, given the supply chain disruptions we are seeing in the region. We think they can be a mid to long term beneficiary of those disruptions,” says C.K. Yan, a Singapore-based director in KKR’s private equity team. “What makes Vinhomes special is its ability to secure strategic land bank and I think the same can happen with industrial real estate.”

KKR and Temasek Holdings recently invested VND15.1 trillion ($650 million) in Vinhomes with a view to leveraging urbanization and industrialization trends it first saw play out in China 20 years ago. The private equity firm started tracking Vinhomes prior to its 2018 IPO and participated in the annual investor tour last year. Previous engagement with the management team plus final due diligence checks completed by third-party on-the-ground resources made KKR comfortable enough to push ahead with the transaction despite the restrictions of COVID-19.

Yan acknowledges that the fact the investment happened at all is in part testament to how Vietnam has handled the outbreak. There have been fewer than 300 infections among a population of 100 million and no deaths have been associated with the virus. The economy has been open since the middle of April and Vinhomes resumed construction and marketing that month.

In addition to its land bank, KKR was impressed by Vinhomes’ execution capabilities. The company launched three megaprojects in 2018 and 2019 – Vinhomes Ocean Park, Vinhomes Smart City and Vinhomes Grand Park – each of which has around 45,000 units. The company agreed sales of 60,100 units in 2019, up 296% year-on-year. Overall revenue came to VND51.6 trillion in 2019, up from VND38.7 trillion a year earlier, while net profit rose from VND14.8 trillion to VND24.3 trillion.

Future residential developments are likely to be more mass-market in nature, but it’s not just about the properties themselves. “It’s their ability to build entire ecosystems around these developments – schools, hospitals, infrastructure, and malls,” says Yan. “This really helps cities urbanize.”

Vinhomes is Vietnam’s leading integrated real estate developer and a subsidiary of Vingroup, the country’s largest private enterprise with interests ranging from automotive to agriculture to healthcare. It is in keeping with KKR’s Southeast Asia strategy of working with established counterparties, often across multiple transactions. For example, the firm has invested in Vietnam’s Masan Group three times, twice in its consumer division and once in its animal feed business.

“It’s a template for the journey and we hope to replicate it,” Yan adds.

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• Topics
• Southeast Asia
• Expansion
• Real estate
• Vietnam
• KKR
• Temasek Holdings