President Clinton's lifting of the economic embargo on Vietnam buoyed the cautious interest some institutional investors have there.
Although there are few ways - and none easy - to invest there, Emerging Markets Investors Corp., Arlington, Va., expects to invest something less than 1% of its $2.6 billion in assets in Vietnam during the next few months.
The $41 billion Caisse de Depot et Placement du Quebec pension fund, Montreal, hopes to make its first Vietnam investments, possibly $20 million to $30 million, this year, said Germain Mathieu, president, Cadim Inc., a Caisse unit that deals with private developers and is overseeing the Vietnam interest for the pension fund.
Cadim is setting up a one-person office in Ho Chi Minh City, formerly Saigon, expecting to open it next month.
"We have four projects on the table right now," Mr. Mathieu said. "There are very specific negotiations going on." In all, he said, the Caisse would be a co-investor with Montreal-area companies seeking to build and operate infrastructure projects, including electric power plants.
Aside from the direct investments, he said the Caisse also is open to investing in Vietnam through closed-end funds, managed by others.
"We're testing the waters," Mr. Mathieu added. "It could be that I will not invest a penny. But we want to explore it seriously."
Credit Lyonnais Securities (Asia) Ltd., a Hong Kong unit of the Paris-based financial company, may revive an attempt to set up a Vietnam investment fund for institutions, encouraged by the ending of the U.S. embargo, said Carolyn Seah, marketing account executive in the New York office.
Credit Lyonnais aborted an effort to start such a fund about 11/2 years ago because "there wasn't much interest," she said.
Jonathan Slone, New York-based managing director, Credit Lyonnais Securities, is traveling in Vietnam to explore investment possibilities, she added.
The closed-end Vietnam Investment Fund, managed by Keppel Finance Corp., Singapore, a unit of the Keppel Corp. conglomerate, also in Singapore, is contemplating issuing a new tranche, in part because of the potential U.S. investor interest in light of the lifting of the embargo, said Janice Lim, investment manager. The fund, started in 1992, has $50 million.
The new issue "has not been approved yet by the board of directors, but the talk is about doubling the fund's size in the next few months" by issuing new shares, she said.
"We have gotten inquires from U.S. investors," Ms. Lim added, declining to name them.
At Montgomery Asset Management, San Francisco, which has some $1 billion invested in developing markets around the world, Tom Haslett, portfolio manager, said, "We're very positive on Vietnam."
"But we recognize it's a five- or 10-year story" away from attracting investors, added Mr. Haslett, who has been "visiting Vietnam on a regular basis to get up to speed and to build relationships and contacts."
No money manager or consultant interviewed expects anything more than a trickle of money from only the boldest investors. Of the institutions surveyed, Emerging Markets Investors is the only manager for pension funds expressing any commitment to invest in Vietnam soon.
"It is an attractive area for investors convinced that emerging markets are a promising area," said Babak Minovi, Emerging Markets Investors portfolio manager. But he pointed out Vietnam "has a lot of big pitfalls."
Consultants classify Vietnam as off the bottom of the charts in ranking emerging markets, considering it sub-emerging.
Now that the embargo is history and emotive issues about the former enemy have eased, the lack of investment vehicles is the main reason for muting investor interest.
Investors generally express more worry about Vietnam's lack of any capital-market, monetary or legal infrastructure than about its meager communications, transport and physical facilities.
"The impact of the end of the embargo is going to be very slight," said Thomas D. Stevens, senior vice president, Wilshire Associates Inc., Santa Monica, Calif., who last October was part of a two-day trip to Vietnam the consulting firm conducted for 14 money managers.
Vietnam still has a communist government, but its adherence to Marxist-Leninist dogma is tenuous. "If they develop a Chinese-style opening for the economy and foreign capital" - which investors are hoping - "then it will boom," said Peter Churchouse, director-Far East research and strategy, Morgan Stanley Inc., Hong Kong. "Vietnam is still communist," he added. "But in this part of the world, very little of Marxist-Leninism remains."
But Montgomery's Mr. Haslett added, "The Communists still dominate and they don't tolerate dissent. Don't think the government is giving away authority or influence."
Along with the Philippines, which has a similar population, Vietnam is the largest country in Southeast Asia, after Indonesia, with some 70 million people.
"It's an attractive area," Mr. Churchouse said.
But "the opportunities for institutional investors in the United States are very limited indeed."
There are only four ways to invest in Vietnam now, all presenting difficulty in acquiring an investment position, given the lack of a capital market in the country. The choices are: closed-end funds; direct equity investments; investments in companies in other countries doing business in Vietnam; and sovereign debt.
Mr. Haslett expects Vietnam to put in operation a bond market possibly this year and a stock market possibly by next year.
The debt market "will create a mechanism by which the government can have a monetary policy and real interest rates," he added.
Until then, one of the only ways to invest is through closed-end funds, all established in the last couple of years.
With the Singapore-based Keppel's Vietnam Investment Fund contemplating issuing a new tranche, Emerging Markets hopes to use this vehicle, or possibly another similar new closed-end issue that appears, for its first Vietnam allocation, said Mr. Minovi. The fund, which isn't listed on any stock exchange, has investors from Europe, Australia, Japan, Hong Kong and Singapore.
Another fund, the Vietnam Fund, trades on the Irish Stock Exchange, Dublin, and is probably the oldest, starting in 1991. It has raised $29 million and expects another $24 million in July from a previous issue, said Martin Adams, managing director, Vietnam Fund Management Co., Hong Kong. Lloyd's Bank Fund Managers (Guernsey) Ltd. administers the fund.
Until recently, the Hong Kong-based Vietnam Fund had invested only $360,000 in one project in Vietnam. But in the last few weeks, it closed on two other projects, bring total investments to $7 million, said Mr. Adams, who noted the fund also has offices in Hanoi and Ho Chi Minh City.
Its slow pace of investing indicates the difficulty of placing direct investments in private concerns or government-private joint ventures in the country, he said.
"We've looked at 250 transactions," he said. "The Vietnamese bureaucracy is a lot of fun; it's quite daunting. .*.*.
"We have to be very careful about how we structure a deal," he added. "In Vietnam there is no obvious exit route for investors."
Unlike the Singapore-based Vietnam fund, Mr. Adams said his fund has no plans to issue new shares, despite potential U.S. interest with the embargo's end: "We have enough to invest."
U.S. investors will have a hard time buying shares in the Vietnam Fund, Mr. Adams said, even though it is listed on the Irish exchange. "There's been, I think, only eight trades in the fund since it was started," he said.
"The shares are very illiquid."
Montgomery Asset's Mr. Haslett agreed shares are expensively priced and hard to buy: "The bid-and-ask spread is so big you can drive a truck through it."
Mr. Adams confirmed the premium on trades typically has been 40% to 45%.
"Eighty percent of the fund is held by 10 institutions, mainly European life insurance companies, emerging-market specialist managers, and other closed-end funds," Mr. Adams added.
Genesis Investment Management Ltd., London, and the Hanover Reinsurance Group, Hanover, Germany, are the only shareholders of the Vietnam Fund Mr. Adams would identify. The other 20% of the fund is held by other institutional investors. In all, he said, half of the fund is owned by investors in Britain and half by those in continental Europe.
Neither the Singapore-based nor Hong Kong-based Vietnam fund has sold any investments to experience how difficult it may be.
Another country fund is the closed-end Beta Viet Nam Fund, managed by Indochina Asset Management Ltd., which is majority owned by Beta Funds Ltd., London, an emerging markets investment manager, said Peter Scott, chief executive of Beta Funds. The Beta fund, which was launched in September, has $65 million.
Mr. Scott said its investors include the Shell Pension Trust of Shell Transport & Trading Co. PLC, London; Investors Group, based in Winnipeg, Manitoba, one of Canada's largest mutual fund companies; and Skandia Insurance Co., Stockholm.
Mr. Scott declined to say how much of the fund has been invested yet in Vietnam, where it has offices in Hanoi and Ho Chi Minh City.
The Beta fund is registered in Guernsey and trades on the Irish Stock Exchange.
"With a market like this, so much in the initial stage of development, the capitalization isn't enough to warrant $65 million in investment funds," said Julia Bonafede, senior associate, Wilshire, commenting on the closed-end funds in general. "That's of concern to institutional investors."
The Singapore-based Vietnam Investment Fund, is part of the Keppel Corp. Ltd. Keppel Corp. "has lots of projects in Vietnam," Mr. Minovi said.
The Vietnam investment Fund's Ms. Lim said the fund has authority to be a co-investor in projects in Vietnam developed with the Keppel Group. But despite its wide contacts in Vietnam, Keppel Group has had a hard time developing business projects in the country, indicating the difficulty even for the most experienced of doing business there, Mr. Minovi added.
"So far it has less than a half-million dollars invested out of a fund of $50 million," he said.
Ms. Lim confirmed investing "is slow" but declined to release any details.
Another way to invest in Vietnam is to buy equity directly in existing companies or joint ventures.
"There are private companies in Vietnam, even though it has been a communist country," Ms. Bonafede said. "Most are family owned. It's been a very entrepreneurial society."
Said Morgan Stanley's Mr. Churchouse: "The big opportunity is in the direct investment side. Quite frankly, though, there are a mass of problems: bureaucracy, corruption, foreign exchange."
"I wouldn't recommend direct investing to anyone," said Mr. Minovi. "You really need a strong presence in the country."
Another company interested in investing in Vietnam is Standard Chartered Equitor Group, a Hong Kong unit of the London-based Standard Chartered PLC, according to a spokeswoman in its Chicago office. John Brinsten, an executive in Standard Chartered Equitor's Hong Kong office, has been looking at the issue, the spokeswoman said.
The third way to invest in Vietnam is by investing in companies in other countries that do business there.
Montgomery's Mr. Haslett, among some other investors, suggests indirectly investing in Vietnam by buying stocks of companies based in Thailand, Singapore, Malaysia, the Philippines and other countries where firms do business in Vietnam.
But at best they suggest these so-called Vietnam plays can only give an investor a slight representation of its sub-emerging economy because so little of any of the companies' revenue comes from operations in the country.
"The amount of business these companies derive from Vietnam is minuscule, 5% to 10%. So it's not a true Vietnam play." Yet these companies "are hyped as Vietnam plays. So when the embargo was lifted, these stocks went up" probably more than justified, Mr. Haslett said.
He added, "You don't buy these companies on the basis of Vietnam .*.*. The primary criteria for evaluating these companies is their stand-alone business in their own country. We view their Vietnam business as a kicker."
One such play Mr. Haslett suggests is International Container Terminal Services Inc., a Philippines-based company. It controls most of the port activity in the Philippines and owns 55% of a 11/2year-old joint venture with a Vietnam state-owned company seeking to run and develop the ports in Ho Chi Minh City. An investment in the company represents a play on the potential boom in the Vietnamese economy, causing a wave of port activity with exports and imports.
Another play is Kian Goo Can Factory, a leading Malaysian producer of packaging material for the beverage industry. It is positioning itself to supply packaging to Vietnam or make it there, Mr. Haslett said.
"These are an indication on how a lot of Southeast Asian companies are positioning themselves for future growth," he said.
Among other possible Vietnam plays is MBF Holdings Berhad. It is a big Malaysian conglomerate whose stock trades in Kuala Lumpur and which owns 82.23% of Vietnam Power Co. Ltd., according to a report by Standard & Poor's Co., New York. Specifics on its Vietnamese revenue were unavailable, although it would be tiny compared to that of the rest of MBF's operations.
A fourth way is through sovereign debt, issued largely in Russian rubles and some other European currencies.
The debt trades about 60% of par. "But it probably won't be paid at par after debt negotiation," said Mr. Haslett. "So, we take the view that there isn't much upside left in this market."
He and others weren't sure how much Vietnamese debt is outstanding, saying only it's a relatively small amount trading in an illiquid market.
At Morgan Stanley, Mr. Churchouse characterizes Vietnam to where China was a decade ago.
Emerging Markets' Mr. Minovi suggests Vietnam "is probably a step or two behind where Russia is today."
"Vietnam is not unlike China," said Mr. Haslett, "where the old guard doesn't want to give up control and the new, younger guard wants to open the economy."
At this point, said Jennifer Goldman, vice president, World Congress Management Inc., Boston, "I think you'll find very very few investors have any interest right now in Vietnam," because of the lack of financial infrastructure and unclear lines of authority among government authorities as ministries jockey for control.
Nevertheless, her group is putting together one of the first post-embargo conferences on the business and investment opportunities in Vietnam, inviting nine Vietnamese government officials to speak at the gathering in May in Washington.