With high-growth GDP and stable exchange rate, the Vietnam economy has incredible potentials in many industries, more and more foreign investors focus on this opportunity and harvest great profits. Vietnam government also provides encouraging tax packages for some investment. Vietnam`s internet space is still in “early stage” but have significant demand from the 700 million population, as a result this is good chance for venture capital to step in. Two structures for venture capital setup will be discussed in the market entrance plan. There are also types of risks that we should not ignore.
After the Sixth Party Congress of Communist Party of Vietnam 1986, the “Renovation” economic reform package has replaced the centralized planned economy. Vietnam then began introducing market elements which is similar to the Chinese “Reform and Opening-up Policy”, and also rewarded by incredible economic results. In 2007, Vietnam acceded as the 150th member of the World Trade Organization (WTO). Vietnam is the second-fastest growing economy from 2000 to 2008, they achieved around 8% gross domestic product (GDP) growth. The GDP was $106. 43 Billion US dollar in 2010 which had tripled within 25 years, it slowed down after 2008.
The Asian Development Bank (ADB) recently said Vietnam`s GDP growth would slow to 5. 7% in 2012, but GDP growth for its Hanoi and HoChiMinh City could still be around 10%. In Vietnam, interest rate is decided by their central bank SBV (State Bank of Vietnam), SBV keeps lowering the interest rate in 2012. According to the Business Times publication on Wed, Apr 11th, 2012, the ceiling for deposit interest rate at commercial banks is dropped to 12%, annual interest rate on refinancing services and overnight bank bill rate is also adjusted, to 13% and 14% respectively.
Shorty after that, all major banks in Vietnam, such as Orient Commercial Bank (OCB), Agribank and HSBC Vietnam, adjusted their term deposit rate. SBV Governor said there would be further interest rate “slash” if the inflation rate remains at double digits. The Vietnam currency is Vietnam dong (VND). Since 1992, Vietnam Government has implemented a “Crawling Peg” exchange rate regime which anchored its currency to US dollar. And Vietnam adjusts the dong`s reference rate gradually due to changing market condition.
But from the graph below illustrates that Vietnam devalued its currency against US dollar to protect their export and attract more foreign investment. Furthermore, dong`s exchange rate to Australian dollar is subject to more variables such as the exchange rate between Australian dollar and US dollar. Illustrate this opportunity to long-term investors such as pension funds, insurance company or fund-of-fund who will finance the capital commitment or further investment.
A Vietnam internet space Venture Capital Fund is then founded with investors and Macquarie bank (general partner) who provides experienced and entrepreneurial management. Macquarie bank earns 2. 5% basic management fee and 20% of the return over 8%. Limited partners (investors) will have the ownership of the fund or the investment portfolios. Market price for Vietnam internet is still unaffordable for many people, so some low price Australian internet providers such as TPG are ideal co-investors, as they can also provide better expert, technology and equipment if necessary.
And their low price internet usage package will be welcomed by a huge demand. The offshore fund structure is most commonly used by venture capital business around the world, it benefits management by helping appeal to large pool of foreign capital, enjoying tax and regulation package, but this structure may make due diligence more difficult (without Vietnam personal network) and bring limitations to the investment.