Bird nests point to opportunities in Vietnam

Yen Viet sells nutritional products made from edible bird's nests, which are considered a delicacy in many parts of Asia. The company claims that consumers in China and Hong Kong use the nests as ingredients for traditional medical remedies. Vietnam-focused VinaCapital has found that the global market for the products made by Yen Viet reached $3.4 billion in 2010, "with supply sufficient to meet only half of demand." The firm was sufficiently convinced to purchase a minority stake through its Vietnam Opportunity Fund Limited for an undisclosed price.

The investment as private equity players are showing renewed interest in the market, in conjunction with the improving global economic landscape. According to AVCJ data, Vietnam reached its investment peak in 2007, when there were more than $902 million worth of investments, up from $360 million in 2006. The global financial crisis inevitably took its toll, with investment dropping to $99.7 million by 2009, but it rebounded to $230 million last year. Vietnam also saw fundraising reach $161 million in 2010, up more than a 1,650% from the previous year.

These figures may be minimal compared to the billion-dollar buyouts available in other markets, but the spike in activity highlights Vietnam as a next-destination investment target. The handful of firms that maintain a more pointed focus on the market have reported strong returns from smaller-scale investments along the lines of the Yen Viet deal.

VinaCapital, which has $1.7 billion in assets under management, boasts two recent success stories. In January the Vietnam Opportunity Fund Limited sold its stake in vodka producer Halico to Diageo for a 5.3x return on capital. Two months earlier the fund exited from instant coffee producer Vinacafe with a 3.3x return.

In December, Dragon Capital, another Vietnam specialist, fared even better, securing a 7x return and an IRR of 22% from the sale of its 75% stake in Hanoi's Landmark Apartment building. The firm also saw 5.1 times return on its partial exit from Vinamilk and last year divested its 10% stake in VP Bank at a 30% premium to the carrying value, generating an IRR of 21%.

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• Topics
• Southeast Asia
• Consumer
• VinaCapital