REG - VinaCapital Vietnam - Half-Year / Interim Report
26/03/2024 07:00
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RNS Number : 2116I VinaCapital Vietnam Opportunity Fd. 26 March 2024
VINACAPITAL VIETNAM OPPORTUNITY FUND LIMITED
(a non-cellular company incorporated in the Bailiwick of Guernsey under The
Companies (Guernsey) Law, 2008, on 22 March 2016 with registered number
61765.)
VinaCapital Vietnam Opportunity Fund Limited ("VOF" or the "Company") is
pleased to announce its unaudited results for the six-month period from 1 July
2023 to 31 December 2023.
More information on the Company is available at: https://vinacapital.com/investment-solutions/offshore-funds/vof/overview/
(https://vinacapital.com/investment-solutions/offshore-funds/vof/overview/)
The information contained within the announcement is deemed by the Company to
constitute inside information as stipulated under the Market Abuse Regulations
("MAR"). Upon the publication of this announcement via Regulatory Information
Service ("RIS"), this inside information is now considered to be in the public
domain.
Interim Report and Condensed Interim Financial Statements
for the period 1 July 2023 to 31 December 2023
CHAIRMAN'S STATEMENT
Dear Shareholder,
Investment Performance
Over the six months to the end of December 2023, the Company's net asset value
per share was broadly unchanged. Taking account of the dividend paid in
December, the total return(1) was 1.9% in USD terms and 1.0% for sterling
investors. The share price total return(1) (in sterling terms) was 7.9%.
Over the same period the VN Index fell by 1.0%, again on a total return basis.
Dividend
Our policy is to pay out dividends of approximately 1% of NAV per share, twice
each year and normally declared in March and October. In October 2023 we
declared a dividend of 7.0 cents per share which was paid in December. In line
with the performance of the Company over the first half of the financial year,
the Board has declared an unchanged dividend of 7.0 cents per share which will
be payable to shareholders on 13 May 2024.
Gearing
In March 2024, the Company agreed to extend its USD40 million secured
revolving credit facility with Standard Chartered Bank for a third year and
the facility will now run until March 2025. The facility has provided a useful
source of short-term liquidity for the Investment Manager as it manages the
Company's cash flows on both implementing and realising investments in private
equity and other illiquid instruments.
Marketing and the Discount
As I set out in the annual report, we continue to promote the Company via a
number of channels, assisted by our joint brokers, Numis Securities Limited
and Barclays Bank plc and our distribution partner, Cadarn Capital. A
variety of information is available to existing and potential investors with
the aim of stimulating demand for the shares: a detailed fact sheet is issued
each month and regular updates on the Vietnamese market and economy in both
written and video form are posted to our website. I again encourage you to
sign up to be notified of new publications at https://vof.vinacapital.com
(https://vof.vinacapital.com) if you have not already done so.
In common with much of the closed-end fund sector, the discount was under
pressure for the period under review. The Board uses share buybacks as the
principal tool for managing the discount and, over the six months to 31
December 2023, approximately 3.8 million shares were bought back, which was 2%
of shares in issue at the start of the period. As a result of this action, the
discount over the period remained in the range 17-20%. The discounts at which
shares were bought back resulted in an increase in the NAV of approximately
3.0 cents per share to the benefit of continuing shareholders. Over the
first couple of months of 2024 the discount has come under further pressure as
a significant institutional shareholder reduced its exposure to Vietnam
following a review of its portfolio. The Board redoubled its efforts to use
the buyback to provide liquidity and 2.2 million shares were bought back in
January and February. As I write this, the discount has stabilised in the
range 20-22%.
We will continue to publicise the long-term potential of investment in Vietnam
and the benefits of the Company's unique approach to investing and will
continue to use share buybacks to provide liquidity and to seek to narrow the
discount where we believe that these are in the best interests of
shareholders.
1 An Alternative Performance Measure: see Glossary for further details
Investment Management Fees
The Board recognises that there is downward pressure on investment management
fees in many parts of the world. However, we also recognise that Vietnam is a
developing market and the types of investment which the Company typically
makes require a high level of resources, both in negotiating investments and
in managing existing holdings.
Balancing these pressures, in March 2023 we agreed a reduction in the fees
that VinaCapital charges for the management of the Company and the changes
were set out in full in the Annual Report for the year to 30 June 2023. The
revised fees came into effect on 1 July 2023 and have been in operation for
the whole of the period under review.
The Board
Since the retirement of Thuy Dam last year, the Board has had lower female
representation than best corporate governance practice requires. We are
currently in the middle of a recruitment exercise which aims to redress the
balance and I hope to make a further announcement in this regard in due
course.
Audit Tender
PricewaterhouseCoopers CI LLP has been the external auditor of the Company for
the past eight years and, in compliance with best practice, the Audit
Committee put out the audit to competitive tender in the latter part of
2023. Following a rigorous tender process, the Board of Directors has now
approved the appointment of Ernst & Young LLP as the external auditor of
the Company for the financial year ending 30 June 2024. Full details of the
audit tender process will be disclosed in the Company's annual report and
financial statements for the year ending 30 June 2024.
Annual General Meeting
All of the Resolutions proposed at the AGM held on 6 December 2023 were passed
(or, in the case of Resolution 14, not passed) in line with the Board's
recommendations and I would like to record my thanks for shareholders'
continuing support.
With Resolution 14 - that the Company should cease to continue as currently
constituted - the Company's second largest shareholder, representing
approximately 23% of the votes cast at the AGM (11% of the total issued share
capital), voted in favour. I had met representatives of the shareholder prior
to the AGM who indicated that they wanted to see the Board introduce a
performance conditional tender mechanism ("PCTM"). I presented arguments why
the Board believes that a PCTM would not be in the Company's or the other
shareholders' interests but the shareholder was not persuaded and voted
against the Board's recommendation. In accordance with the AIC Code, the Board
has reflected further and its views on a PCTM are set out below.
The principle underlying a PCTM is that if the performance of an investment
company falls below a set level over a particular period, the Board will allow
shareholders to tender a proportion of their shares at or close to NAV. In the
case of VOF (and, indeed, the vast majority of other investment companies) the
shares are likely to be trading at a wider discount than would be offered in
the tender so, were this to happen, the tender would likely be fully
subscribed. The reasons that the Board does not think that a PCTM is
appropriate for VOF can be summarised as follows:
· The most relevant benchmark which is available in Vietnam is the VN Index.
This is not representative of all of the opportunities available for
investment in Vietnam (for example 10 very large companies make up 42% of the
VN Index). Given the concentration of large companies, the index can show
volatility as a result of specific issues with one or more of its
constituents.
· VOF's portfolio is made up of unquoted investments as well as quoted shares.
Consequently, even if the VN Index was representative of all quoted companies
in Vietnam, VOF's performance would still differ by virtue of the unquoted
elements whose performance would not correlate with the VN Index. As a result
of these two factors, the Board does not generally benchmark the Investment
Manager's performance against the VN Index.
· If it were possible to devise an index against which VOF's performance could
be fairly measured and VOF's performance was such that a tender was triggered,
the Company would be forced to sell investments in order to satisfy the
tender. The Vietnamese listed equity markets only offer limited liquidity and,
when it became known that VOF was selling a significant part of its portfolio,
the prices of the shares which VOF was likely to sell would fall in
anticipation. Further, if the Company's unquoted investments were to be put on
sale at relatively short notice they would, in general, be likely to be sold
at a substantial discount to their true value. Such sales would not be in
shareholders' best interests.
· In practice, it would be the most liquid shares which would have to be sold
meaning that the remaining portfolio would be made up of the less liquid
stocks, including the unquoted investments. As a smaller
company with less liquid investments, after any tender it is likely that VOF's
share price would trade at a higher discount to the stated NAV than it does at
present, again to the detriment of shareholders.
· The Board is also concerned that the Company's many retail shareholders whom,
we believe, are supportive of the Company would not participate in a tender.
This might act to their disadvantage when compared with institutional
investors whom, the Board believes, would all tender their shares, both pro
rata to their holdings as well as seeking to participate in a mix and match
facility for shares not tendered by other shareholders.
In conclusion, although a PCTM may be appropriate for poorly performing
companies investing in quoted securities in liquid markets, the Board believes
that the mechanism would not be appropriate for VOF, which has a significant
proportion of unquoted stocks in its portfolio. That having been said, the
Board is highly focused on the relative and absolute performance of the
Company and would take appropriate action if it felt that the Investment
Manager was not doing a good job or if the Board were to believe that future
returns from the Company's investment strategy are unlikely to be attractive,
neither of which is the case at the time of writing.
Outlook
Throughout much of 2023, sentiment in the Vietnamese stock market was
overshadowed by liquidity problems in the real estate market. As mentioned in
the Investment Manager's report there are signs that the worst of this has now
passed: liquidity is beginning to return to the market and confidence is being
restored. In the first two months of 2024 the VN Index has risen by 9%, one
of the best performing markets in the region. Against this background, the
Board is cautiously optimistic about the prospects for the full year to 30
June.
I would like to thank shareholders for their support in voting against the
discontinuation of the Company at the AGM in December. The Board believes
that performance over the five years before the next discontinuation vote in
2028 should justify that confidence.
Huw Evans
Chairman
VinaCapital Vietnam Opportunity Fund Limited
25 March 2024
INVESTMENT MANAGER'S INTERIM REPORT
Macroeconomic Highlights
A challenging start to the financial year
We started the second half of the calendar year with a guarded sense of hope.
This also marked the first half of our financial year, commencing 1 July 2023.
Market consensus, as well as government forecasts, were banking on an
optimistic outlook to the calendar year, with a base-case recovery led by
exports and tourism reaching pre-Covid levels, and optimism that stronger
export orders to the US and developed markets would help bring Vietnam's GDP
growth rate back to its 10-year historical average.
However, these hopes were soon dashed and much of that optimism gave way to
uncertainty as lingering doubts over the strength of the economic recovery
clouded the economic outlook, while sector specific issues including the
ongoing challenges concerning the real estate sector and corporate bond market
persisted. Investors were also left wondering how much longer the impasse on
project approvals would continue given the reluctance by the government to
approve major real estate, land or infrastructure projects. Furthermore, the
ongoing fall-out from the anti-corruption initiative, which has led to several
high-profile arrests and disciplinary actions on government and business
leaders, has left a sense of uncertainty among some foreign investors.
That being said, during the year, the government did seem to try their very
best to support key sectors in the economy, evidenced by a slew of laws and
decrees being issued and implemented into policy, several of which deal with
problems concerning the real estate market, corporate bonds, interest rates,
public spending and domestic consumption. These efforts are commendable, and
longer-term will certainly help in the recovery of key sectors of the economy.
Resilient GDP growth despite challenges
In the short term, however, the headwinds proved too strong and for 2023,
Vietnam posted a modest GDP growth of 5.05% year-on-year ("y-o-y").
A drop in manufacturing output and exports had an impact on Vietnam's growth
given that the economy is among the most trade-dependent in the world with
total exports plus total imports equivalent to almost 200% of GDP.
Additionally, weak consumer confidence resulted in a downturn in consumer
spending and the challenges that have dogged the real estate market continue
to dampen domestic investor and consumer sentiment.
Within this modest GDP growth figure, the fourth quarter of the calendar year
saw an unexpectedly strong economic recovery, with GDP rising 6.7% compared to
the weak 3.3% y-o-y growth in the first quarter of the calendar year.
Looking ahead however, we expect Vietnam's GDP growth to rebound to 6.0% to
6.5% in 2024, driven by a recovery in manufacturing and export activity, a
modest acceleration in domestic consumption, further improvements in
international tourist arrivals, and the resumption of public spending on
national infrastructure projects. Furthermore, a combination of new land law
reforms and accommodative monetary policy with lower interest rates should
also support the real estate sector recovery.
Our Chief Economist provides a wrap-up of the key economic highlights for 2023
and outlook for 2024 in a report which is available on our website VOF
Corporate Literature - VinaCapital
(https://vinacapital.com/investment-solutions/offshore-funds/vof/corporate-literature/)
.
Recovering demand in exports
The deceleration of Vietnam's manufacturing sector output to just 1.6% y-o-y
growth in 2023 (vs. 8% growth in 2022) is the single-biggest factor weighing
on the country's modest GDP growth for the year. In 2023, US firms reduced
their inventories at the fastest pace over the last decade, cutting their
orders for "Made in Vietnam" products.
There are clear signs that the destocking process which weighed on Vietnam's
exports to the US is now coming to an end. By the end of summer, there appears
to have been a rebound in exports, particularly for consumer electronic
products and evidenced by a ~4% average month-on-month (m-o-m) growth starting
in August, which is a very high level.
By the end of the year, Vietnam posted a record trade surplus of more than
USD28 billion, but admittedly on declining exports (USD356 billion, -4.4%
y-o-y) and import figures (USD328 billion, -8.9% y-o-y). Both FDI
disbursements and registrations were strong for 2023, with over USD23 billion
(+3.5% y-o-y) for disbursements, and USD36 billion (+24.4% y-o-y) for
registrations. The trade surplus and FDI disbursements contribute
significantly to Vietnam's foreign reserves and in turn has provided support
for the local currency, the VND.
Looking ahead, we expect manufacturing activity in Vietnam and exports -
especially exports to the US - will rebound in 2024, as the inventory
destocking process mentioned above is now coming to an end. Specifically, we
expect Vietnam's manufacturing output to rebound to 8-9% growth in 2024, which
will certainly help lift the country's GDP growth. However, this is still
lower than the double-digit growth rates that Vietnam's manufacturing sector
typically achieved pre-Covid. The anticipated lower growth is due to the
potential impacts of a possible modest recession or slowdown in the global
economy in late 2024 and changes in consumer purchasing patterns, which could
lead consumers in developed markets to cut down on spending.
We think that the freshly inked Comprehensive Strategic Partnership that
Vietnam has signed with the US will further cement Vietnam's position in the
US "friendshoring" orbit. Furthermore, Vietnam was the only country that both
Joe Biden and Xi Jinping visited in 2023!
Return of foreign tourists
The other factor supporting Vietnam's economy in 2023 has been the rebound in
domestic tourism. With a population slightly over 100 million, Vietnamese have
taken to traveling domestically particularly during weekends and holidays as
many high-quality offerings have emerged with the rapid development of the
country's many coastal and secondary cities. While domestic tourism is booming
post-Covid, overall foreign tourist arrivals have stabilised at around 70% of
pre-Covid levels over the last several months (versus circa 60% for the rest
of Asia), with almost 13 million foreign arrivals during 2023.
However, the full recovery in tourism continues to be held back in part by the
lack of Chinese visitors. Chinese tourists, who accounted for 30% of the
foreign tourist arrivals in Vietnam pre-Covid, have not returned to Southeast
Asia en masse despite China's post-Covid reopening earlier in 2023. Chinese
tourist visits to Vietnam have only reached 30% of the pre-Covid levels, in
contrast to the approximately 90% recovery of non-Chinese tourists, and
tourist arrivals from countries such as South Korea, the US, and Europe have
recovered to surpass pre-COVID levels. Encouragingly, as we headed into the
Lunar New Year in early 2024, we have seen a growing number of Chinese
tourists visit, and there has been a surge in visitors from India thanks to
the extensive network of flights between Vietnam and India.
We expect the tourism sector to continue to recover in 2024. Steps have been
taken to relax visa requirements to encourage more visitors and drive further
growth. Tourism directly contributes about 8% of GDP, while indirectly that
contribution figure could double and so a recovery in tourism will be a strong
positive for Vietnam's growth.
The growth of retail sales, stripping out the impact of inflation, dropped
from 15.8% in 2022 to 7.1% in 2023 (or 10% in nominal terms), one of the
lowest figures for growth over the past 10 years; nearly all retail sales
growth in 2023 can be attributed to a recovery of Vietnam's tourist arrivals.
Were it not for this recovery in the tourism sector, consumption in Vietnam
would likely be flat on a year-on-year basis.
Domestic consumption remained weak in 2023, as confidence was undermined by
widespread layoffs in the manufacturing industry at the start of the calendar
year, and further impaired by the slowdown in manufacturing activity and
exports, as well as the persistent challenges that have dogged the real estate
market and corporate bond activity. Furthermore, the high interest rate
environment that dominated much of 2022 into 2023 meant that depositors were
earning a disproportionately high rate of interest - at times over 10% p.a. -
simply by leaving cash in 6-month to 12-month term deposits. Given market
performance and uncertain economic conditions, keeping money on deposit was
attractive during this period.
According to Vietnam's General Statistics Office, industrial employment was
essentially unchanged year-on-year by November 2023, and factories flipped
from laying off workers to expanding their workforces by October, according to
Vietnam's PMI survey. That said, factory wages were up by less than 5%
y-o-y, according to the Vietnamese Government Statistics Office and other
sources, which is lower than the typical 7-10% y-o-y wage growth and reflects
overall weak conditions in the labour market.
However, there are indicators that this period of weakness may be coming to an
end. As noted above, factories have started to re-hire workers and public
sector salaries are slated to increase from the middle of 2024, suggesting
that domestic spending will be stronger in 2024 than in 2023. Furthermore,
under a low interest rate environment, we expect retail spending growth rates
to improve as consumer confidence returns.
Consumer sentiment and spending will get a further boost from the nascent
thawing of the country's "frozen" real estate market. The highly publicised
slowdown in Vietnam's real estate market negatively impacted consumer
sentiment to a degree that is out of proportion to the reality of the issues
that the market is facing. This is because in Vietnam, as with many countries
in Southeast Asia, an individual's wealth is closely tied to real estate
assets and transactions. Consequently, we believe that a modest thawing of the
real estate market should disproportionately boost consumer sentiment this
coming year. The government is actively addressing the challenges facing the
country's real estate sector.
As mentioned in previous Investment Manager's reports, the consumer is the
biggest beneficiary in Vietnam as competition to deliver goods and services to
them at competitive prices is enormous. Furthermore, the rapid adoption of
technology to facilitate ordering, deliveries and payments, means that gross
margins are squeezed in all parts of the supply chain. The bottom line is that
domestic consumer companies will find it very hard to maintain a sustainable
and profitable edge against an increasing tide of foreign competitors and
products without having clear and compelling selling points to attract
consumers.
FDI accelerates as multinationals look to de-risk from China.
FDI is one of Vietnam's most important growth drivers, and Vietnam's FDI
inflows (USD23 billion in disbursements for 2023, +3.5% y-o-y) have benefitted
more than any other country's from the US-China trade war. Three of the main
advantages Vietnam has in attracting manufacturing FDI inflows looking ahead
are: (1) the availability of a high-quality, low-cost workforce; (2) Vietnam's
geographic proximity to Asia's high-tech industry supply chains; and (3) the
"friend-shoring" appeal, which means that it has minimal risk of facing high
tariffs from the US. These factors have drawn multinationals to invest in
Vietnam and has led to a long-term increase in exports, especially of
high-tech products.
The country continues to hold strong appeal in attracting high-tech
manufacturing in 2024, following US President Biden's visit to Vietnam and the
elevation of the Vietnam-US relationship to a Comprehensive Strategic
Partnership in September 2023. This is reflected in a series of announcements
from leading technology firms, including Apple's recent declaration of its
intention to relocate key iPad engineering resources to Vietnam. Additionally,
one of the biggest opportunities Vietnam has, is the possibility of developing
a semiconductor ecosystem, which has been the subject of a good amount of
discussion lately. After nearly 20 years since the first wave of semiconductor
companies arriving, including Renasas from Japan in 2004, and Intel from the
US in 2006, Vietnam is set up for the next wave of development thanks to the
upgrade of its ties with the US and recent visits by executives from the
Semiconductor Industry Association, which represents the industry in the US,
and Nvidia from Taiwan, the world's largest chipmaker in terms of market cap.
Companies like FPT Corporation (HOSE: FPT, USD5.1 billion market cap, 7.1%
NAV) stand to benefit from this technology and semiconductor pivot towards
Vietnam and have announced that their semiconductor division will look to
competitively produce power chips. There is a noticeable shift away from
traditional labour-intensive sectors, as Vietnam becomes a focal point for
emerging industries like semiconductors and advanced areas of technology.
Overall, Vietnam has a unique position in the world's evolving geopolitical
landscape, which benefits investors because multinational companies that set
up a factory in Vietnam need not worry about being able to sell their products
into the US market, nor their ability to access production inputs from China -
since Vietnam is being actively courted by both countries.
The resiliency of the VN Dong at the beginning of 2023, despite a surge in the
value of the US Dollar, allowed Vietnam's central bank to cut policy rates
during 2023. The value of the VN Dong was supported by a surge in Vietnam's
trade surplus from 3% of GDP in 2022 to 6% of GDP in 2023, and a 3.5% y-o-y
increase in disbursed FDI inflows. Consequently, Vietnam's central bank cut
policy interest rates by 150 basis points earlier in 2023, in contrast to the
100 basis points of rate hikes by the US Federal Reserve. Local lending rates
dropped to 8 to 9%, down from the late 2022 peak of 12 to 13% and approached
the record lows of 7 to 8% seen in 2021.
We do not expect the SBV to make any big changes to policy interest rates in
2024. That is partially because we do not expect another surge in the value of
the US Dollar in 2024, which was the main reason why the SBV hiked policy
interest rates in late 2022, in order to protect the value of the VND. The SBV
then was able to cut policy interest rates in 1H2023 which enabled a stable
USD-VND exchange rate for the year. These lower interest rates are expected to
attract investment flows into the real estate market and reduce funding costs
for enterprises, which, in turn, should help support the continuation of
economic growth into 2024. The net result was that the USD-VND exchange rate
ended up depreciating by 2.7% last calendar year.
Risks and challenges for the year ahead
Geopolitical uncertainties: The level of geopolitical tension in the world is
high. Furthermore the outcome of the US election in November 2024 may bring
further uncertainty. Against this background, Vietnam has cultivated strong
economic ties with the USA, China, its other near neighbours and other
developed countries which should enable it to steer a path through
uncertainty.
Economic growth: The main risk to our moderately positive outlook is the
possibility of a slowdown in global growth, which would naturally cause the
demand for "Made in Vietnam" products to slow or decline. The value of the US
Dollar would likely appreciate in such a scenario, as it typically does,
driven by "safe haven" buying. This would limit the ability of Vietnamese
policy makers to respond to a slowing Vietnamese economy by slashing domestic
interest rates, given that Vietnamese policy makers have already taken rates
down to very low levels over the past year.
That said, the Vietnamese Government would have ample ability to respond to
such a crisis through fiscal stimulus, which would include a surge in
infrastructure spending. In early 2023, Vietnam's Government guided its
intention to increase infrastructure spending by about 50% to about USD30
billion or 7% of GDP last year (up from 4% of GDP in 2022).
Early indications are that infrastructure spending did increase to around
USD25 billion (or 6% of GDP) in 2023, and that the Government plans a similar
level of spending in 2024. Critically, the Government's past prudence permits
it to significantly ramp up spending if it wanted to. The State Treasury of
Vietnam has nearly USD40 billion of undisbursed funds deposited in the
country's commercial banks - most of which was earmarked for infrastructure
projects in past years but was not spent - and Vietnam's Government
debt-to-GDP ratio is below 40%, which is very low compared to most emerging
and developed market countries around the world.
The Vietnamese government implemented several minor measures to boost the
economy in 2023, including a temporary cut in the country's VAT rate from 10%
to 8%, and a cut in the environmental tax on petrol. However, these measures
probably equated to a total of about 0.5% of GDP. A planned increase in public
sector salaries next year will probably equate to another circa 1% of GDP of
stimulus to the economy through consumer spending. All of that said, we
expect that, if needed, the Government could do much more to support the
economy.
Moderate inflation: We expect CPI inflation in Vietnam to average 3-4% in
2024, which is similar to the level in 2023. However, it is important to note
that inflation in 2024 will depend a lot on oil prices, which remain uncertain
under the current shroud of geopolitical tensions. That said, we believe that
if inflation in Vietnam were to remain above 4-5% for any length of time, the
SBV would take appropriate steps to cool inflation by raising interest rates.
Furthermore, we do not expect inflation to factor into the SBV's decisions in
2024, partly because China is currently experiencing falling consumer prices
prompting many to anticipate that China will "export deflation" to the rest of
the world - and Vietnam would certainly experience lower increases in food
prices amongst other things as a result.
With inflation well below 4% and interest rates rapidly declining in the
second half of 2023, there were high hopes that credit growth would reach the
annual target of 14%, yet it delivered a little over 11% by the end of 2023.
There was also hope that lower interest rates would address the sluggish
property market but there was disappointment in this area and property
developers were also challenged with deleveraging and getting regulatory
approvals while demand remains underwhelming.
Strength of the local currency: The VND is likely to experience some
depreciation of 2-3% in its value in 2024. This is primarily because Vietnam's
large trade surplus from 2023 is expected to decrease while remaining in
surplus in 2024, and also due to the fact that interest rates in Vietnam
remain considerably lower than US Dollar interest rates.
Regulatory risks: It is commendable that the government continues to push
forward a program of regulatory changes to improve the operation of the
market, address key challenges that several key sectors of the economy face,
and importantly helps to address the bureaucratic hurdles that have at times
in the past turned away FDI and indirect investments in the stock market.
Delays in the power and energy plans and the delayed approval of the Power
Development Plan 8 (PDP8) has stymied the attractiveness of several renewable
and transitional energy projects, however efforts to trial various programs,
including auction mechanisms to replace fixed rates, and push forward various
power and transmission projects will, we believe, have a positive impact.
For the real estate sector, the National Assembly held several meetings during
late 2023 to table and approve important amendments to several laws that
impact the real estate sector, including the Amended Housing Law, the Amended
Real Estate Business Law, while the Amended Land Law and the Amended Law on
Credit Institutions have been tabled and approved in January 2024. Overall,
the laws seek to remove legal bottlenecks, and establish a framework for fair
treatment of land compensation and pricing, and overall provide developers
with smoother legal procedures. These changes will support overall market
sentiment, help resolve many legal bottlenecks, and encourage developers,
particularly those with large backlogs of projects, to launch new projects.
Nevertheless, the key risk is to ensure that these laws come into effect by
the planned effective date of January 2025.
On-going anti-corruption efforts: The high-profile arrests of business leaders
and senior political figures in 2022 and the early part of 2023 triggered a
series of perhaps unintended consequences, both in the stock market and for
the perception of Vietnam amongst some in the international investor
community, as investors do not welcome uncertainty. Fortunately, there have
not been any further significant arrests of business leaders, and
investigation continues with the case involving former property tycoon, Madame
Truong My Lan of Van Thinh Phat and Saigon Commercial Bank who is now accused
of embezzling USD12.5 billion according to state investigators.
Overall - and long-term - we view that these investigations, arrests, and
punishments that are occurring will be net positive for the country, and for
the market, firmly sending out a message that in Vietnam, wrong-doing will not
be tolerated. Nevertheless, in the short-term, these events can have
short-lived but sharp impacts on the market.
VN Index remains the best performing market in the region for 2023
In last year's interim Investment Manager's report, we indicated that
Vietnam's stock markets rarely face two consecutive down years of return.
While 2022 was a very disappointing year for the market which was down -34%,
we had expected 2023 would be better, but that it would still not recover all
the losses incurred in 2022 and, along the way to recovery, the market would
face significant volatility.
In contrast to the modest economic performance, the VN Index closed the
calendar year at 1,129 points, delivering a praiseworthy 11.1% annual total
return in USD terms ($TR) (or 12% in VND simple terms). During the first nine
months of the calendar year, the VN Index surged by 24%, driven by declining
deposit interest rates and government measures to support the country's
corporate bond market early in the year. However, the last quarter of 2023 saw
several home-grown events wipe out much of the gains in the market
year-to-date, exacerbated by fears of a rapid ~4% currency devaluation in the
September / October period, which prompted the SBV to intervene to tighten
monetary policy and support the local currency. Thankfully, by November the
market had found surer footing, with the VN Index posting an 8.0% monthly
gain, followed by a further 3.3% gain in December.
Overall, the VN Index was one of the best performing markets in Southeast Asia
in 2023, outperforming regional peers including Thailand (-14.0%), Indonesia
(7.0%), Philippines (-1.0%) and Malaysia (-7.0%), and as well as the MSCI
global emerging markets index (7.0%) in $TR terms. The long-term outlook for
the market into 2024 is positive, supported by a recovery in corporate
earnings and economic growth, along with strong market liquidity.
Vietnam remained a retail investor-driven market in 2023; domestic individuals
accounted for 82% of total transactions during the year. Along with declining
interest rates and accommodating policies, investors found confidence to
return to the market, and the market saw the ADTV reach peak levels of over
USD 1 billion in August and September. For the full year, the ADTV was an
impressive USD738 million, almost twice the average volume witnessed in late
2022. While domestic retail investors still account for the lion's share of
market turnover, local institutional investors account for just 9%, with
foreign investors representing only 10% of average market turnover.
Disappointingly, foreign investors were net sellers to the tune of USD942
million in 2023; nearly half of that amount was sold in December alone, driven
by profit-taking activities. This contrasts sharply with the inflows
experienced at the end of 2022 when the VN Index bottomed out at the 1,000
level.
Cautious outlook for the market in 2024
Looking forward to 2024, we expect that interest rates will remain stable and
domestic investors will be likely to continue diverting money away from bank
deposits (owing to much lower deposit rates compared to 12 months ago) and
back into the stock market and into real estate. Earnings growth and
valuations will be an area of focus for investors, given the flat earnings for
2023, while valuations remain very attractive and below historical averages.
This should be supportive for the stock market. Specifically, our Research
team expects the earnings of Vietnam's stock market to recover from no growth
in 2023 to 10-15% earnings growth in 2024, although our team's forecast tends
to be slightly more conservative than market consensus. Furthermore, public
equity valuations are at a 30% discount to regional peers, and with a PEG
ratio (Price-to-Earnings to Growth ratio) of 0.7x, Vietnam continues to offer
attractive valuations while delivering reasonable growth to investors.
Upgrade to emerging markets remains uncertain but could be a catalyst in 2024
going forward
In addition, it is widely anticipated that implementation of the stock
exchange's new KRX trading system potentially in 2024 will help solve certain
technical problems, which in turn could lead to Vietnam being upgraded from a
Frontier Market to an Emerging Market by the FTSE-Russell Index later in the
year. Expectations of an imminent market upgrade tends to attract more foreign
inflows and could push daily liquidity past the current ~USD800 million daily
level.
Sector Outlook and Highlights
Earnings growth for most sectors positive, while Real Estate and Consumer
Staples declined.
For the full calendar year, Financials (which includes banks and brokers)
(20.1% y-o-y, 41.1% index weight), is the largest sector in the index and
contributed the most to the past year's market performance. The second-best
sector that contributed to the index performance over 2023 was the Materials
sector (+42.2% y-o-y, 7.9% index weight), led by Hoa Phat Group (HPG, 9.0% of
VOF's NAV), which saw its share price increase by 32% over 2023. Hoa Phat
Group is the leading construction steel company and provides high-quality
construction steel to factories, industrial parks, logistics and
infrastructure projects, as well as to residential developers. HPG is expected
to be a key beneficiary of the expected real estate recovery and ongoing
spending on infrastructure in 2024, which should help HPG deliver stronger
earnings growth.
Other sectors that contributed to market performance included Information
Technology (+42.9% y-o-y, 2.6% index weight) which was the best performing
sector but, owing to its small index market weight, its contribution was lower
than the Financials and Materials sector.
While most other sectors were in positive territory, Consumer Staples (-14.0%
y-o-y, 10.6% index weight) and Real Estate (-6.8% y-o-y, 17.0% index weight)
delivered negative returns for the year. The Real Estate sector is emerging
from a challenging year and there appears to be evidence of a cautious
recovery as confidence remains subdued and potential delays may arise from
regulatory changes, with developers awaiting guidance on new laws. The
sluggish economic activity coupled with weak consumer spending has had a
negative result on the earnings of Consumer Staples companies.
Even as consumer spending recovers or grows in 2024, which we do expect,
consumer staples will find intense competition, will put pressure on their
margins and profitability.
Banks: lower interest rates and improving economic outlook are set to further
enhance outlook
We believe the outlook for 2024 will continue to improve for the Banking
sector. The SBV has set a 15% credit growth target for 2024 and announced the
allocation of full-year credit quotas to banks at the beginning of the year
rather than staggered quarterly as in the past.
Easing policies (including rate cuts and supportive regulations) in 2023 has
led to a significant reduction in deposit rates and a recovery in credit
growth. Deposit rates in four state-owned commercial banks dipped further to
5% in 2023 and below 5% in January 2024, which was lower than the level during
Covid-times. With a more positive economic outlook and an improvement in
borrowing demand, credit growth gained substantial momentum in December, as
evidenced by a rise in credit growth from 9.2% in November to 13.5% in
December.
We expect loans to real estate developers to lead credit growth to address the
maturity of corporate bonds in 2024. The number of mortgage loans is expected
to grow, driven by lower lending rates and new project launches, although this
is likely to remain at a single digit percentage level. Meanwhile, banks'
funding costs are expected to continue to ease into the first half of 2024 as
high-rate deposits from the latter half of 2022 and the beginning of 2023
reach maturity, thereby allowing some more room to lower lending rates
further, and lead to an improvement in margins.
Emerging from its worst crisis, the real estate sector is positioned for
growth in the second half of 2024, driven by supportive government policies
and declining interest rates
Vietnam's real estate sector, accounting for 10% of the country's GDP, is on
the path to recovery. In 2022, the sector grappled with challenges such as
tightening of liquidity, anti-corruption investigations, and the arrests of
several business leaders, leading to a steep market decline, particularly in
the period of September to November of 2022.
However, 2023 marked the beginning of a recovery in the sector, driven by
declining deposit rates that have redirected bank savings into property
investments, and by government efforts to resolve legal bottlenecks for
developers. At the beginning of the year, Vietnam's central bank actively
eased financial pressure by cutting interest rates by 150 basis points. We
expect interest rates to remain low in 2024, which should stimulate demand
from homebuyers and aid the sector's recovery.
Government initiatives have been pivotal in revitalizing the property market.
Decree 8, which took immediate effect in March 2023, allows bond issuers to
extend bond maturities by up to two years or to swap matured principal for
assets like condominiums and houses. Additionally, local authorities have
granted concessions that enable developers to restart suspended projects. This
support has been instrumental for Novaland in resuming all of its projects
across Ho Chi Minh City, Dong Nai, and Phan Thiet in recent months.
Successful residential project launches in 2023, like Khang Dien House's
Privia and Vinhome's Ocean Park 3, indicates strong housing demand from the
rapidly expanding middle class. Khang Dien House (HOSE: KDH, NAV: 9.9%) sold
over 80% of the 1,043 apartments in its Privia project, located in Ho Chi Minh
City's Binh Tan District in just one weekend in December 2023. Similarly,
Vinhome (HOSE: VHM, NAV: 3.6%) reported an 80% take-up for Ocean Park 3 in
Hung Yen, near Hanoi, during the second quarter of 2023.
We project that falling mortgage rates will fuel a presale surge in 2024,
potentially resulting in a significant increase in net profits for the sector.
Transaction volumes are forecasted to reach half of pre-Covid levels, with a
significant rise expected in the second half of the year, particularly in the
mid-end market. Our Research team estimates that companies under our coverage
are set to see a 20% year-on-year presale increase, driven by strong demand,
bulk sales, and lower financing costs. The recent approval of the Land Laws,
which will come into effect in January 2025, should further boost presales
activity in 2024.
A key factor in the Real Estate sector's recovery will be how fast regulatory
approvals for projects are obtained and the effectiveness of new laws to give
clarity on real estate regulations. Hopes are high that the special session of
the National Assembly in January 2024 which approved several important pieces
of real estate-related laws will help solve some of the issues that have
impeded real estate development.
VOF Performance and Portfolio Activity
Table 1: Fund and comparison to market performance, as of 31 December 2023.
VOF NAV +1.9% +17.0% +19.4% +53.2% 18%
VOF Share price +8.0% +10.3% +7.9% +55.2% -
VN Index -1.0% +11.1% +1.8% +31.4% 25%
MSCI EM +4.8% +10.1% -13.7% +21.8% -
MSCI VN -2.0% +5.9% -25.8% -8.0% -
Source: VinaCapital, Bloomberg. All data on a total return basis.
Note: Data is based on the monthly NAV in USD terms, over the last 5 years to
31 December 2023. Standard deviation is the measure of NAV volatility, based
on the annualised standard deviation of the monthly NAV return over the past 5
years. VN Index volatility measured over the same period. A higher standard
deviation percentage indicates higher volatility, while a lower standard
deviation percentage indicates lower volatility in NAV over a 5-year period.
Over the six-months to 31 December 2023, VOF's NAV increased by +1.9% in USD
total return terms ($TR), outperforming the VN Index which declined by -1.0%
($TR) over the same six-month period. The share price performance held up
better, increasing +8.0% on a similar basis, and as a result the discount
level narrowed to 17.8% over the period under review.
Over the 2023 calendar year, while VOF's NAV performance was impacted by
market volatility, the fund delivered +17.0% return ($TR), outperforming the
VN Index, and the fund's share price increased 10.3%. The VN Index, while not
a benchmark for the fund, does serve as a useful reference for investors,
increased by +11.1% ($TR).
VOF continues to outperform the VN Index and over the past 1-year, 3-year and
5-year periods. The outperformance over the longer-term is amplified, with the
performance over 3-years and 5-year periods for VOF are 19.5% and 53.2%
respectively, while the VN Index delivered 1.8% and 31.4% respectively.
We encourage investors to look at performance over the longer term, as VOF's
strategy is to deliver long-term performance by seeking market leading,
well-governed business, that offer resilient growth prospects that benefit
from Vietnam's robust growth story. Importantly, over the longer term, looking
through periods of both rising and falling markets, the fund delivers returns
at much lower levels of volatility - as measured by the standard deviation of
the NAV over an extended period. As of 31 December 2023, the fund's standard
deviation, as measured by the volatility of the NAV over a 5-year period, is
18%, whereas the VN Index volatility is higher, at 25%.
This risk-adjusted return is achieved through diligence in identifying quality
companies, negotiating terms of investment for private investments that
capture both upside and has downside protections that can be enforced in
periods of underperformance, volatility, or breach of investment terms. Two
investments categorised as PEPT have these downside protections which we have
enforced over the past 18 months. We update on these investments in the
following section.
As we look back at the calendar year 2023, the increase in VOF NAV of 17.0%
(on a total return basis) was helped by the performance of the publicly listed
equities portfolio. VOF's listed equities, as a whole, increased by 20.4%
while the Vietnam Index increased by 11.1% ($TR). Over the years, we have
invested and continue to hold high quality publicly listed investments, most
of which were acquired prior to their listing on the Vietnamese stock markets
or invested while private equity investments and have subsequently crossed
over to become publicly listed companies.
VOF's investment strategy: a recap
VOF's investment strategy is able to deliver a relatively stable rate of
return that is in excess of the market. Core to our investment strategy is our
ability to perform proper due diligence on companies prior to investing and
this has helped VOF select companies of high quality. The view is that these
companies, whether they are listed or not listed, have very low liquidity in
this frontier market. As a result, full due diligence prior to VOF's
investment is key to filtering through quality companies that have a wide
strategic moat, led by high calibre managers, knowing that VOF will be
long-term investors.
VOF's strategy is to invest into private equity and private markets
opportunities in Vietnam. Since inception, we have invested in over 200
companies in Vietnam, and today we have exposure to top companies in Vietnam
across several sectors, including banks and financials, real estate,
construction materials, consumer discretionary, technology and healthcare
within the VOF portfolio.
Many publicly listed companies in Vietnam still impose restrictive foreign
ownership limits. Although public companies are permitted to lift these
limits, fewer than 100 companies have chosen to do so. As such, particularly
for high-quality publicly listed companies with no room for additional foreign
investment, foreign investors may need to pay a premium if they want to find a
foothold into these publicly listed companies.
In private companies which are unlisted, these foreign ownership restrictions
largely do not apply, enabling our fund to take meaningful stakes in these
high-quality companies. Our approach involves identifying both private
companies and investing at an early stage of their development and capture
their long-term growth. Moreover, within private companies, we are able to
exert significantly more influence on governance and help push forward
strategic drivers for growth.
Our approach to investing involves understanding business owners, their
motivation and ensuring that we identify good management teams to work with.
Furthermore, we perform extensive due diligence prior to investing in private
companies, this due diligence may be financial, legal, operational, and ESG
due diligence to help us identify weaknesses and ensure that we invest in
equality companies. In addition, we seek terms of investments to protect our
downside in the event of business under performance, but importantly ensures
that we can participate in the growth and upside of these companies as they
mature, and we seek to exit.
Top portfolio holdings as of 31 December 2023
Investee Company % of NAV Sector
1 Asia Commercial Bank (ACB) 13.6 Financials
2 Khang Dien House (KDH) 9.9 Real estate
3 Hoa Phat Group (HPG) 9.0 Materials
4 FPT Corporation (FPT) 7.1 Information Technology
5 Vietnam Prosperity Bank (VPB) 5.2 Financials
6 Airports Corporation of Vietnam (ACV) 4.8 Industrials
7 Phu Nhuan Jewelry (PNJ) 3.9 Consumer Discretionary
8 Vinhomes (VHM) 3.6 Real estate
9 Orient Commercial Bank (OCB) 3.2 Financials
10 Dat Xanh Services (DXS) 3.0 Real Estate
Total 63.3%
Source: VinaCapital
Contributors to VOF performance
As we look at the contribution to performance over the past six months to 31
December 2023, our long-term strategy of investing into quality businesses in
Vietnam continues to capture the strong performance of these businesses.
Key contributors to six-month NAV return of +1.9% ($TR)
FPT Corp (HOSE: FPT, NAV:7.1%): Turning to the top contributors to performance
over the six-month period under review, the Information Technology sector has
performed well and specifically FPT which is one of the top five listed
equities holding in the portfolio. Despite the IT sector comprising only 2.6%
of the index weight, it was the top-performing sector in 2023 largely driven
by FPT Group, Vietnam's largest publicly traded technology company with over
USD5.3 billion in market capitalisation and whose share price was up by 25.0%
during the year. FPT, established in the 1990s, is Vietnam's leading
technology and software service company. FPT's core business is in software
outsourcing, which contributes 60% of its revenues and is a leading provider
of software outsourcing to countries like Japan and the US. In 2023 revenue
from overseas topped USD 1 billion for the first time, and the company expects
overseas revenues to reach USD 5 billion by 2030 according to the Chairman Mr
Truong Gia Binh.
FPT Corp (HOSE: FPT, NAV:7.1%): It is well positioned to capitalise on the
digital transformation trend that is occurring across local and global
markets, with Japan, the US, and Europe being its largest markets for software
outsourcing. FPT's financial results reflect this strong position, with a
reported revenue increase of 20% y-o-y to USD 2.1 billion, and a net profit
rise of 22% y-o-y to USD260 million for 2023.
FPT is benefiting from tailwinds that the semiconductor industry is
experiencing in general, and Vietnam specifically, as it garners interest from
US chip manufacturers and technology companies like Apple. As we witness a
shift away from traditional labour-intensive sectors, Vietnam has recently
become a focal point for growing industries like semiconductors and other
areas of technology. The company's global IT business and expansion strategy,
especially in Europe, are expected to benefit from the increasing global
demand for IT services. FPT recently launched its automotive technology
subsidiary and acquired an 80% stake in the French IT consulting firm AOSIS.
The acquisition will integrate hundreds of IT experts from AOSIS, who have a
deep understanding of the French and European markets, into FPT's global
network. In November 2023 FPT announced the acquisition of US-based product
engineering services firm Cardinal Peak, after completing two earlier
acquisitions in the US during the year. It has also announced that it seeks to
expand into artificial intelligence with chip titan Nvidia Corp.
We have invested in FPT since 2017 and during the past six-months have seen
our holding in FPT increase +24.9%, giving a weighted contribution of +1.5% to
returns during this period and the top contributor to VOF's performance during
this period.
Khang Dien House (HOSE: KDH, NAV: 9.9%): Is the second largest holding in the
portfolio and was the second largest contributor to performance during the
period. As discussed earlier, the performance of the real estate sector has
stabilised, and the outlook is set to improve. An important set of laws has
been fast-tracked for approval in November 2023 and in January 2024, and once
they come into effect in January 2025 will help address many of the
bottlenecks and challenges that the sector faces. KDH is a well-known
developer of landed property for townhouses and villas in HCMC and it has
recently expanded into mid-range condo developments. In a lower interest rate
environment with accommodative regulation and credit for properties with clean
and clear licensing and paperwork, KDH is well positioned for a property
market recovery, given its solid financials and brand equity among buyers. A
testament to this is KDH's recent successful launch of its Privia project in
HCMC's Binh Tan District, where over 80% of the 1,043 units were quickly sold,
which should help drive the company's earnings in 2024. Looking ahead, we
expect the Emiria project, with approximately 60 low-rise and 600 high-rise
units, to launch in the second half of 2024 as construction permits are
obtained. This development is anticipated to further enhance the company's
earnings growth in 2024 and 2025.
We have invested and served on the board of KDH since 2008 when we entered
through a private equity investment and have played a key role in the
company's development and growth through the years. KDH today has a USD1.0
billion market capitalization. The value of our holding in KDH increased by
0.3% over the six-month period, and on a weighted basis, contributed +0.9% to
returns during the period.
Asia Commercial Bank (HOSE: ACB, NAV: 13.6%): The third largest contributor to
performance over the six-month period was ACB, which is the largest holding in
the VOF portfolio. We have been invested in the company, which is one of
Vietnam's leading commercial banks with USD4.2 billion market capitalization,
since 2020 and again 2022, through two tranches that were privately negotiated
investments. The financial sector was the best performing sector in the market
over the past year and commercial banks like ACB with high asset quality,
prudent credit growth and lending standards with a strong risk management
overlay and low exposure to real estate and corporate bond activities have
performed well. ACB has been able to deliver high profitability, with the
second highest return on equity in the market of between 21-23% and expects to
deliver profit growth of 15-17% over 2022-2024 according to management. ACB
trades at an attractive 1.2x price-to-book ratio, which is in line with the
financial sector average of 1.3x price-to-book ratio and pays out a consistent
dividend of almost 4.0%. The value of our holding in ACB increased by 5.4%
over the six-month period and given that it is the largest holding in the
portfolio, provided a weighted contribution of 0.7% to performance over the
period.
Key detractors to performance over the period
Turning to the detractors to performance over the six-month period, the main
detractor to performance was real estate developer, Vinhomes.
Vinhomes (HOSE: VHM, NAV: 3.6%): Vinhomes, a subsidiary of Vingroup (HOSE:
VIC, Not Held) is the largest residential real estate developer in Vietnam,
with a market cap in excess of USD5.6 billion. The company's performance in
the fourth quarter of 2023 missed market expectations, with
lower-than-anticipated deliveries of new project launches, and weaker gross
profit margins. In particular, fourth quarter revenues were down by 72%
year-on-year to USD352 million, while net profit was down by 91% year-on-year
to USD34 million. Nevertheless, for the full calendar year 2023, performance
for the real estate developer has significantly improved, with revenues
increasing 66% year-on-year to USD 4.2 billion, and net profit increasing 15%
year-on-year to USD 1.3 billion, driven primarily by sales of low-rise units
in two mega-projects that were launched during the year. The share price for
VHM declined by 27.3% during the six-month period to 31 December, and given
the portfolio weight, detracted 1.1% from performance over the period on a
weighted contribution basis.
The real estate sector over the same period declined by 12.0%. VHM's share
price was particularly volatile during the period, as was the volatility of
its parent company, conglomerate Vingroup which was down by 15.0% during the
same six-month period. From June through to late August 2023, Vingroup's share
price rallied thanks to the anticipation of the Nasdaq listing of its electric
vehicle subsidiary, VinFast (NASDAQ: VFS, Not Held), which saw its market cap
rise from approximately USD 23 billion at listing to over USD 84 billion on
the first day of trading in August 2023, and even reach as high as USD 180
billion during the first few weeks of trading. However, the share price of
VinFast subsequently collapsed and by November the market cap dipped below USD
5 billion, before rebounding to around USD 10-12 billion at the time of
writing. This wild volatility naturally spilled over to Vingroup, and many
investors took the parent company as well as any associated companies related
to Vingroup, including Vinhomes, to task and the share prices of these
companies experienced significant volatility throughout the September through
to December period.
Public Equity with Private Terms ("PEPT")
As we discussed in last year's annual report for the year ended 30 June 2023,
efforts continue to resolve and recover our investments in several real estate
companies that were classified as PEPT. Many of these investments were
directly impacted by the troubles and challenges that faced the real estate
sector which we have discussed at length.
Work continues in recovering these investments, and as of the date of this
report, the valuations of these investments reflect the current status of
these efforts to recover the investment principal and expected returns. We
will continue to inform investors as we make further progress on these
investments.
Minimal valuation adjustments for the six-month period up to 31 December 2023
Overall, the valuation adjustments from the PEPT and Private Equity
investments over the period of review were immaterial and did not have an
impact on the reported NAV as at 31 December 2023.
Specifically, within the investments that we have previously discussed with
investors concerning the restructuring and recovery efforts, we update below:
Norfolk (Novaland investment, NAV: 3.2%): As discussed in previous reports, we
have negotiated an extended repayment plan with the sponsor and expect to
recover part or all our investment and expected returns over the forthcoming
time period. Given market conditions, a full recovery within this period may
be challenging and the current valuation of the investment in the NAV reflects
this uncertainty. Nevertheless, the investment manager continues to work on
improving the collateral and ensuring that the investment and expected returns
are recovered to achieve an IRR that was committed by the sponsor for this
PEPT investment.
Dat Xanh Services (HOSE: DXS, NAV: 3.1%): This investment is now classified as
a listed investment. The company has a market cap of USD170 million and is a
subsidiary of larger listed real estate company Dat Xanh Group (HOSE: DXG, Not
held) with market cap of USD550 million remains challenging. DXG's share price
increased by 33.7% over the period of review, while DXS's share price remained
relatively flat, increasing by 1.6% in USD terms. We continue to work with the
company to improve the collateral and assets held to ensure that we are able
to recover the investment cost and expected returns over the coming years.
Again, negotiations continue, and we are working with the company to reach a
resolution.
Hung Tinh Land (Unlisted: HTL, NAV: 2.1%): This investment is now classified
as a private equity investment. The recovery of our investment in privately
owned real estate developer Hung Tinh Land is proceeding along the timetable
that the company has agreed to. In November 2023 we received the first of the
payment instalments that the company has committed to.
Nova Consumer Group (Unlisted: NCG, NAV: 1.5%): As at the end of the calendar
year, the investment in NCG was still held in the portfolio. However, as
updated in previous reports to investors, significant progress had been made
in restructuring this investment to realise the collateral and swap the
investment in NCG with the Nova F&B portfolio of operating restaurants.
This transaction was completed in January 2024.
Outlook
As we enter 2024, there seems to be a high level of optimism with interest
rates low in Vietnam and possibly declining in developed markets worldwide.
This is likely to force global investors to shift more investment capital to
equity, and there is hope that more consideration will be given to frontier
and emerging markets, such as Vietnam. Vietnam's lower interest rate
environment will encourage capital investment as well as real estate
investment and development. As mentioned earlier, we do expect the average EPS
to grow between 10% and 15% making current equity valuations at 10 to 11 times
forward PER quite attractive.
On the regulatory front, we are in the midst of a complete restructuring of
the property laws. A few years ago, Vietnam revised its Investment Laws, and
this led to many conflicts with the existing laws relating to real estate.
With these revisions, the process for real estate investments should be much
clearer, and importantly help kick-start the process of privatisation (which
is known as "equitization" in Vietnam) of state-owned enterprises which have
core real estate holdings to move forward again. We have had many discussions
with various government entities involved in this process and feel that once
the revised Land Law is in place, probably effective in 2025, the equitization
process will recommence and this will assist the expected recovery of the real
estate sector.
We do have high hopes that several private companies will look to IPO in 2024.
Liquidity seems plentiful with domestic investors, but market valuations may
be challenging for issuers. Having said that, if businesses can demonstrate a
sustainable attractive top-line and bottom-line growth, Vietnamese investors
have been known to be generous with valuations.
We do expect the economy to grow at 6% to 7% on average over the next 3 to 5
years. Public equities will be very interesting with strong EPS growth, but a
focus on specific sectors will be key to deliver alpha. As we review VOF's
sector exposure and where we intend to head, the areas of high interest
include healthcare, banks, real estate, and materials while consumer staples,
energy and utilities are of less interest. With that said, we do typically
identify so-called diamonds in the coal in the less interesting sectors.
We also expect interest rates to remain low. Today, depositors in Vietnam can
earn 4% to 5% on term deposit for 12 months. With inflation expected to linger
between 4% and 5% and the VND devaluing, depositors will look to alternative
assets for investments as real returns are eroded. Furthermore, with Vietnam's
restrictions on capital controls on its citizens to invest abroad, we think
that real estate, public equities, debt, and gold will be attractive
investment classes.
The Vietnamese market has proved to be attractive to both local and
international Private Equity investors. The country's economic growth is
anchored in traditional sectors and driven by favourable demographics, rapid
urbanization, an expanding middle class, and resilient domestic consumption.
Additionally, Vietnam's economy is largely driven by SMEs, which account for
98% of market share and contribute around 50% of national GDP. Many of these
SMEs often face challenges in accessing finance or having the operational
skills to grow and expand, creating opportunities for PE investments.
Healthcare is a very attractive sector at the moment. We focus primarily on
healthcare services and like to invest in hospitals and medical clinics. We
have invested in 2 hospital platforms, one in the north and one in the south,
totalling up to 14 hospitals and clinics across the country by the time we
complete the bolt-on investments recently made. Over the past year, our
hospital platform in the South has completed a roll-up of another hospital
platform and additionally acquired two more hospitals, increasing the total
from four to eight hospitals in this platform.
Last year, we invested in Chicilon, the leading digital advertising
infrastructure platform in the country, with over 70% market share in the
in-building screen advertising space. This investment has the hallmarks of a
typical private equity investment that VOF traditionally makes. That is, to
invest a meaningful amount of growth capital to back a strong, local
management team, in a sector that benefits from the domestic consumption and
rising middle-income class themes, where the company is a leader in its
segment, with a strong brand and a wide moat, given its market share and
continued investment into technology, innovation and data-analytics.
We look forward to making investments along these terms, where we can apply
our private equity and privately negotiated approach to investing.
We continue to monitor the market landscape for opportunities across different
sectors. At present, we are actively assessing a high-quality pipeline of over
USD200 million in potential private equity opportunities within the banking,
logistics, consumer goods, education, and healthcare sectors. As these
opportunities reach fruition, we look forward to sharing with our shareholders
further details of these investments which will reflect the exciting
opportunities that Vietnam continues to offer.
Andy Ho
Managing Director and Chief Investment Officer
25 March 2024
INTERIM REPORT OF THE BOARD OF DIRECTORS
The Board of Directors (the "Board") submits its report, together with the
Condensed Interim Financial Statements, of VinaCapital Vietnam Opportunity
Fund Limited (the "Company") for the six-month period from 1 July 2023 to 31
December 2023 (the "six-month period").
The Company is a Guernsey domiciled closed ended investment company. It is
classified as a registered closed-ended Collective Investment Scheme under The
POI Law, 2020 and is subject to the Companies Guernsey Law, 2008.
The Company's shares are quoted on the Main Market of the London Stock
Exchange ("LSE") with a Premium Listing (ticker: VOF).
Investing Policy
Investment Objective
The Company's objective is to achieve medium to long-term returns through
investment in assets either in Vietnam or in companies with a substantial
majority of their assets, operations, revenues or income in, or derived from,
Vietnam.
Investment Policy
All of the Company's investments will be in Vietnam or in companies with at
least 75% of their assets, operations, revenues or income in, or derived from,
Vietnam at the time of investment.
· No single investment may exceed 20% of the NAV of the Company at the time of
investment.
· The Company may from time to time invest in other funds focused on Vietnam.
This includes investments in other funds managed by VinaCapital Investment
Management Limited (the "Investment Manager"). Any investment or divestment
into or out of funds managed by the Investment Manager will be subject to
prior approval by the Board.
· The Company may from time to time make co-investments alongside other
investors in private equity, real estate or similar assets. This includes, but
is not restricted to, co-investments alongside other funds managed by the
Investment Manager.
· The Company will not invest in other listed closed-ended funds.
The Company may gear its assets through borrowings which may vary over time
according to market conditions and any or all of the assets of the Company may
be pledged as security for such borrowings. Borrowings will not exceed 10% of
the Company's total assets at the time that any debt is drawn down.
From time to time the Company may hold cash or low risk instruments such as
government bonds or cash funds denominated in either Vietnamese Dong ("VND")
or US Dollars ("USD"), either in Vietnam or outside Vietnam.
Principal Risks
The process which the Company follows in order to identify and mitigate its
key risks is set out on pages 37 to 42 of the Annual Report and Financial
Statements for the year ended 30 June 2023 (the "2023 Annual Report"), a copy
of which is available on the Company's website
https://vinacapital.com/investment-solutions/offshore-funds/vof/corporate-literature/
(https://vinacapital.com/investment-solutions/offshore-funds/vof/corporate-literature/)
. The Directors have reviewed the key risks for the remaining six months of
the Company's financial year. The risks and mitigants identified are
substantially the same as those set out in the 2023 Annual Report. The key
risks are summarised below.
Geopolitical
Risks to global growth emerged in February 2022 as a result of the conflict
between Russia and Ukraine and continued throughout the half year under
review. Geopolitical tensions have heightened in the Middle East. There is
also a risk of an increase in the geopolitical tensions in the Asia region.
Macroeconomic and Market
Opportunities for the Company to invest in Vietnam have come about through the
liberalisation of the Vietnamese economy. Were the pace or direction of change
to the economy to alter in the future, the interests of the Company could be
damaged.
Changes in the equilibrium of international trade caused, for example, by the
imposition of tariffs could affect the Vietnamese economy and the companies in
which the Company is invested.
As Vietnam becomes increasingly connected with the rest of the world,
significant world events will have a greater impact on the country. The
consequences of these events are not always known and, in the past, have led
to increased uncertainty and volatility in the pricing of investments. The
continuing effects of the Russian invasion of Ukraine, in particular on global
commodity prices, remain a cause for concern. The effects continue to be felt
in heightened inflation and higher interest rates intended to combat this.
Investment Performance
The Investment Management Agreement requires the Investment Manager to provide
competent, attentive, and efficient services to the Company. If the Investment
Manager was not able to do this or if the Investment Management Agreement were
terminated, there could be no assurance that a suitable replacement could be
found and, under those circumstances, the Company could suffer a loss of
value.
The performance of the Company's investment portfolio could be poor, either
absolutely or in relation to the Company's peers. Within the portfolio,
individual investments could suffer a partial or total loss of value. For some
structured investments, downside protections are subject to risk that the
counterparty is unable to meet their obligations.
There is a risk that privately negotiated deals are not executed at the best
possible price or that the timing of deals is not optimal due to the presence
of co-investors who may have different liquidity or timing requirements.
There is also a risk that the Investment Manager is not able to access
suitable private equity investments. Private equity investments are subject to
higher execution risk than the risks associated with trading in public
markets. Satisfactory performance of private equity investments relies on
detailed and continuing management oversight.
Operational
The Company is dependent on third parties for the provision of all systems and
services (in particular, those of the Investment Manager and the
Administrator) and any control failures or gaps in these systems and services
could result in a loss or damage to the Company.
Fair Valuation
The risks associated with the fair valuation of the portfolio could result in
the NAV of the Company being misstated.
The quoted companies in the portfolio are valued at market price but many of
the holdings are of a size which would make them difficult to liquidate at
these prices in the ordinary course of market activity. The unlisted
securities are valued at their quoted prices on UPCoM or using quotations from
brokers, but many of the holdings are of a size which may make them difficult
to liquidate at these prices in the ordinary course of market activity. The
fair valuation of operating assets and private equity investments is carried
out according to international valuation standards. In many cases, these
valuations are derived using estimates and probabilities of possible outcomes,
any of which might prove to be wrong. In addition, the investments are not
liquid and are not immediately realisable.
The values of the Company's underlying investments are, on a 'look-through'
basis, mainly denominated in VND whereas the Company's Financial Statements
are prepared in USD. The Company makes investments and receives income and
proceeds from sales of investments in USD. The Company does not hedge its VND
exposure, so exchange rate fluctuations could have a material effect on the
NAV. The sensitivity of the NAV to exchange rates is set out in note 20(a) of
the 2023 Annual Report.
Legal and Regulatory
Failure to comply with relevant regulation and legislation in Vietnam,
Guernsey, Singapore, the British Virgin Islands or the UK may have an impact
on the Company. Although there are anti-bribery and corruption policies in
place at the Company, the Investment Manager and all other service providers,
the Company could be damaged and suffer losses if any of these policies were
breached.
Changing Investor Sentiment
As a Company investing mainly in Vietnam, changes in investor sentiment
towards Vietnam and/or emerging and frontier markets in general may lead to
the Company becoming unattractive to investors. The clamp down in recent years
by the Vietnamese government highlights the risks associated with corruption
in Vietnam and may lead to international investors adopting a more cautious
approach to investment in the country. Changes in international investor
sentiment could lead to reduced demand for its shares and a widening discount.
ESG
As responsible investors, the Board and Investment Manager are aware of the
growing focus on ESG matters. There is a risk that the value of an investment
could be damaged for example by a failure of governance and/or a failure to
protect the environment, employees or the wider community in which a company
operates. As evidence of the effects of climate change grows, there is
increasing focus by shareholders on investment companies' role in influencing
investee companies' approach to environmental risks.
Section 172 Statement
Section 172 of the Companies Act 2006 applies directly to UK domiciled
companies. Nonetheless, the intention of the AIC Code is that the matters set
out in section 172 are reported on by all London listed investment companies,
irrespective of domicile, provided that this does not conflict with local
company law.
Section 172 states that: A director of a company must act in the way he or she
considers, in good faith, would be most likely to promote the success of the
company for the benefit of its members as a whole, and in doing so have regard
(amongst other matters) to the following six items:
(a) the likely consequences of any decision in the long term;
(b) the interests of the company's employees;
(c) the need to foster the company's business relationships with suppliers,
customers and others;
(d) the impact of the company's operations on the community and the environment;
(e) the desirability of the company maintaining a reputation for high standards of
business conduct; and
(f) the need to act fairly as between members of the company.
The process which the Company follows in order to consider and adhere to the
matters above is set out on pages 25 and 26 of the 2023 Annual Report.
Life of the Company
The Company does not have a fixed life but the Board considers it desirable
that shareholders should have the opportunity to review the future of the
Company at appropriate intervals. Accordingly, the Board intends that every
fifth year a special resolution will be proposed that the Company ceases to
continue. If the resolution is not passed, the Company will continue to
operate as currently constituted. If the resolution is passed, the Directors
will be required to formulate proposals to be put to shareholders to
reorganise, unitise or reconstruct the Company or for the Company to be wound
up. The Board tabled such resolutions in 2008, 2013, 2018 and most recently
during December 2023. On each occasion the resolution was not passed, allowing
the Company to continue as currently constituted. The next such resolution
will be put to shareholders at the annual general meeting which is expected to
be held in December 2028.
Results and Dividend
The results of the Company for the six-month period and the state of its
financial affairs as at the reporting date are set out in the Condensed
Interim Financial Statements.
When the Board first declared a dividend in 2017, it was the intention that
the Company would pay a dividend representing approximately 1% of NAV twice
each year and the Company paid a half yearly dividend of 7.0 cents per share
in December 2023. The Board has declared a further half yearly dividend of 7.0
cents per share which will be payable on 13 May 2024.
Performance
The Chairman's Statement and the Investment Manager's Report provide details
of the Company's activities and performance during the six-month period.
The KPIs used to measure the progress of the Company during the six-month
period include:
• the movement in the Company's NAV total return;
• the movement in the Company's share price; and
• discount of the share price in relation to the NAV.
A discussion of progress against the KPIs is included in the Chairman's
Statement.
Related Parties
Details of related party transactions that have taken place during the period
and any material changes, if any, are set out in note 20 of the Condensed
Interim Financial Statements.
Share repurchase programme
Details of the Company's share repurchase programme are set out in note 11 of
the Condensed Interim Financial Statements.
Board of Directors
The members of the Board during the six-month period and up to the date of
this report were:
Name Position Date of appointment
Huw Evans Chairman 27 May 2016
Julian Healy Director 23 July 2018
Kathryn Matthews Director 10 May 2019
Peter Hames Director 24 June 2021
Hai Thanh Trinh Director 30 June 2022
Directors' interests in the Company
As at 31 December 2023 and 30 June 2023, the interests of the Directors in
shares of the Company were as follows:
Shares held Shares held
as at 31 December 2023 as at 30 June 2023
Huw Evans 45,000 35,000
Julian Healy 20,000 15,000
Kathryn Matthews 9,464 9,464
Peter Hames 8,000 8,000
Hai Thanh Trinh - -
Going Concern
Under the AIC Code and applicable regulations, the Directors are required to
satisfy themselves that it is reasonable to assume that the Company is a going
concern. The Directors have undertaken a rigorous review of the Company's
ability to continue as a going concern over the period to 31 March 2025
including reviewing the on-going cash flows and level of cash balances as at
the reporting date as well as taking forecasts of future cash flows into
consideration. After making enquiries of the Investment Manager and having
reassessed the principal risks, the Directors consider it appropriate to adopt
the going concern basis of accounting in preparing the Interim Report and
Condensed Interim Financial Statements.
Signed on behalf of the Board by:
Huw Evans
Chairman
VinaCapital Vietnam Opportunity Fund Limited
25 March 2024
STATEMENT OF DIRECTORS' RESPONSIBILITY IN RESPECT OF THE CONDENSED INTERIM
FINANCIAL STATEMENTS
To the best of their knowledge, the Directors confirm that:
- the Condensed Interim Financial Statements have been prepared in accordance
with IAS 34, "Interim Financial Reporting"; and
- the Interim Report, comprising the Chairman's Statement, the Investment
Manager's Interim Report and the Interim Report of the Board of Directors,
meets the requirements of an interim management report and includes a fair
review of information required by:
(i) DTR 4.2.7R of the UK Disclosure and Transparency Rules, being an
indication of important events which have occurred during the first six months
and their impact on the Condensed Interim Financial Statements, and a
description of the principal risks and uncertainties for the remaining six
months of the year; and
(ii) DTR 4.2.8R of the UK Disclosure and Transparency Rules, being related
party transactions which have taken place in the first six months and which
have materially affected the financial position or performance of the Company
during that period, and any material changes in the related party transactions
disclosed in the 2023 Annual Report.
Signed on behalf of the board by:
Julian Healy
Director
VinaCapital Vietnam Opportunity Fund Limited
25 March 2024
Independent review report to VinaCapital Vietnam Opportunity Fund Limited
Report on the condensed interim financial statements
Our conclusion
We have reviewed VinaCapital Vietnam Opportunity Fund Limited's condensed
interim financial statements (the "interim financial statements") in the
Interim Report and Condensed Interim Financial Statements of VinaCapital
Vietnam Opportunity Fund Limited for the 6-month period ended 31 December 2023
(the "period").
Based on our review, nothing has come to our attention that causes us to
believe that the interim financial statements are not prepared, in all
material respects, in accordance with International Accounting Standard 34,
'Interim Financial Reporting' and the Disclosure Guidance and Transparency
Rules sourcebook of the United Kingdom's Financial Conduct Authority.
The interim financial statements comprise:
● the condensed statement of financial position as at 31 December
2023;
● the condensed statement of comprehensive income for the period
then ended;
● the condensed statement of cash flows for the period then ended;
● the condensed statement of changes in equity for the period then
ended; and
● the explanatory notes to the interim financial statements.
The interim financial statements included in the interim report and condensed
interim financial statements have been prepared in accordance with
International Accounting Standard 34, 'Interim Financial Reporting' and the
Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's
Financial Conduct Authority.
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements 2410, 'Review of Interim Financial Information Performed by the
Independent Auditor of the Entity' issued by the International Auditing and
Assurance Standards Board. A review of interim financial information consists
of making enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review procedures.
A review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing and, consequently, does not enable us
to obtain assurance that we would become aware of all significant matters that
might be identified in an audit. Accordingly, we do not express an audit
opinion.
We have read the other information contained in the interim report and
condensed interim financial statements and considered whether it contains any
apparent misstatements or material inconsistencies with the information in the
interim financial statements.
Responsibilities for the interim financial statements and the review
Our responsibilities and those of the directors
The interim report and condensed interim financial statements, including the
interim financial statements, is the responsibility of, and has been approved
by, the directors. The directors are responsible for preparing the interim
report and condensed interim financial statements in accordance with
International Accounting Standard 34, 'Interim Financial Reporting' and the
Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's
Financial Conduct Authority.
Our responsibility is to express a conclusion on the interim financial
statements in the interim report and condensed interim financial statements
based on our review. This report, including the conclusion, has been prepared
for and only for the company for the purpose of complying with the Disclosure
Guidance and Transparency Rules sourcebook of the United Kingdom's Financial
Conduct Authority and for no other purpose. We do not, in giving this
conclusion, accept or assume responsibility for any other purpose or to any
other person to whom this report is shown or into whose hands it may come save
where expressly agreed by our prior consent in writing.
PricewaterhouseCoopers CI LLP
Chartered Accountants
Guernsey, Channel Islands
25 March 2024
CONDENSED STATEMENT OF FINANCIAL POSITION
31 December 2023 30 June 2023
Note USD'000 USD'000
(Unaudited) (Audited)
TOTAL ASSETS
Financial assets at FVTPL 8 1,088,858 1,137,428
Prepayments and other assets 10 444 658
Cash and cash equivalents 6 26,659 19,133
Total assets 1,115,961 1,157,219
TOTAL LIABILITIES
Accrued expenses and other payables 12 9,224 18,125
Loans and other borrowings 13 - 10,000
Deferred incentive fees 16(b) - 5,227
Total liabilities 9,224 33,352
SHAREHOLDERS' EQUITY
Share capital 11 246,224 267,087
Retained earnings 860,513 856,780
Total shareholders' equity 1,106,737 1,123,867
Total liabilities and shareholders' equity 1,115,961 1,157,219
Net asset value, USD per share 18 7.08 7.02
Net asset value, GBP per share(2) 5.55 5.52
The Condensed Interim Financial Statements were approved and signed by the
Board of Directors on 25 March 2024.
Huw Evans Julian
Healy
Chairman Director
The accompanying notes are an integral part of these Condensed Interim
Financial Statements.
(2) The price of the Company's shares is quoted on the London Stock Exchange
in GBP. The USD NAV per share has been translated to GBP using the rates of
exchange at 31 December 2023 and 30 June 2023
( )
CONDENSED STATEMENT OF CHANGES IN EQUITY
Share capital Retained earnings Total
equity
For the six months ended 31 December 2022 (Unaudited) Note USD'000 USD'000 USD'000
Balance at 1 July 2022 285,314 894,786 1,180,100
Loss for the period - (160,207) (160,207)
Total comprehensive loss - (160,207) (160,207)
Transactions with shareholders
Shares repurchased (10,330) - (10,330)
Dividends paid - (12,941) (12,941)
Balance at 31 December 2022 274,984 721,638 996,622
For the six months ended 31 December 2023 (Unaudited)
Balance at 1 July 2023 267,087 856,780 1,123,867
Income for the period - 14,762 14,762
Total comprehensive income - 14,762 14,762
Transactions with shareholders
Shares repurchased 11 (20,863) - (20,863)
Dividends paid 9 - (11,029) (11,029)
Balance at 31 December 2023 246,224 860,513 1,106,737
The accompanying notes are an integral part of these Condensed Interim
Financial Statements.
CONDENSED STATEMENT OF COMPREHENSIVE INCOME
Six months ended Six months ended
31 December 2023 31 December 2022
Note(s) USD'000 USD'000
(Unaudited) (Unaudited)
Dividend income 14 36,089 32,343
Finance Income 457 -
Net losses on financial assets at FVTPL 15 (10,371) (202,403)
General and administration expenses 16(a) (8,959) (8,980)
Finance cost - (208)
Facility set-up costs (170) (637)
Finance expense 16(b), 20 (603) (2,450)
Incentive fee (charge)/clawback 16(b), 20 (1,681) 22,128
Operating profit/(loss) 14,762 (160,207)
Profit/(loss) before tax 14,762 (160,207)
Corporate income tax 17 - -
Profit/(loss) for the period 14,762 (160,207)
Total comprehensive income/(deficit) for the period 14,762 (160,207)
Earnings per share
- basic and diluted (USD per share) 18 0.09 (0.99)
- basic and diluted (GBP per share)(3) 0.07 (0.82)
All items were derived from continuing activities.
The accompanying notes are an integral part of these Condensed Interim
Financial Statements.
(3) The price of the Company's shares is quoted on the London Stock Exchange
in GBP. The USD earnings per share has been translated to GBP using the rates
of exchange at 31 December 2023 and 31 December 2022.
CONDENSED STATEMENT OF CASH FLOWS
Six months ended Six months ended
31 December 2023 31 December 2022
Note(s) USD'000 USD'000
(Unaudited) (Unaudited)
Operating activities
Profit/(loss) before tax 14,762 (160,207)
Adjustments for:
Net losses on financial assets at FVTPL 8, 15 10,371 202,403
Dividend income 14 (36,089) (32,343)
Facility set-up costs 10 170 637
Finance cost - 208
Incentive fee charge/(clawback) 16(b), 20 1,681 (22,128)
Finance income (457) -
Finance expense 16(b) 603 2,450
(8,959) (8,980)
Finance income received 356 -
Decrease/(increase) in prepayments and other assets 10 145 (39)
Decrease in liabilities 12 (16,338) (20,330)
(24,796) (29,349)
Purchases of financial assets at 8 (61,110) (33,060)
FVTPL
Return of capital from financial assets at FVTPL 8 99,309 54,069
Dividend income 14 36,089 32,343
Net cash generated from operating activities 74,288 53,352
Financing activities
Purchase of shares into treasury 11, 12 (20,937) (10,330)
Loan principal drawdown 13 - 40,000
Loan principal repayments 13 (10,000) (30,000)
Loan interest paid - (179)
Dividends paid 9 (11,029) (12,941)
Net cash used in financing activities (41,966) (13,450)
Net change in cash and cash equivalents for the period 7,526 10,553
Cash and cash equivalents at the beginning of the period 6 19,133 15,630
Cash and cash equivalents at the end of the period 6 26,659 26,183
The accompanying notes are an integral part of these Condensed Interim
Financial Statements.
NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS
1. GENERAL INFORMATION
VinaCapital Vietnam Opportunity Fund Limited (the "Company") is a Guernsey
domiciled closed-ended investment company. The Company is classified as a
registered closed-ended Collective Investment Scheme under The Protection of
Investors (Bailiwick of Guernsey) Law 2020 and is subject to the Companies
(Guernsey) Law, 2008.
The Company's objective is to achieve medium to long-term returns through
investment either in Vietnam or in companies with a substantial majority of
their assets, operations, revenues or income in, or derived from, Vietnam.
The Company has a Premium Listing on the LSE's Main Market, under the ticker
symbol VOF.
The Company does not have a fixed life but the Board considers it desirable
that shareholders should have the opportunity to review the future of the
Company at appropriate intervals. Accordingly, the Board intends that every
fifth year a special resolution will be proposed that the Company ceases to
continue. If the resolution is not passed, the Company will continue to
operate as currently constituted. If the resolution is passed, the Directors
will be required to formulate proposals to be put to shareholders to
reorganise, unitise or reconstruct the Company or for the Company to be wound
up. The Board tabled such resolutions in 2008, 2013, 2018 and most recently
during December 2023. On each occasion the resolution was not passed, allowing
the Company to continue as currently constituted. The next such resolution
will be put to shareholders at the annual general meeting which is expected to
be held in December 2028.
The Condensed Interim Financial Statements for the six-month period ended 31
December 2023 were approved for issue by the Board on 25 March 2024.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
2.1 Basis of preparation
The Company has prepared these Condensed Interim Financial Statements on a
going concern basis in accordance with the Disclosure and Transparency Rules
of the United Kingdom Financial Conduct Authority and IAS 34 "Interim
Financial Reporting". These Condensed Interim Financial Statements do not
comprise statutory Financial Statements within the meaning of the Companies
(Guernsey) Law, 2008, and should be read in conjunction with the Financial
Statements of the Company as at and for the year ended 30 June 2023, which
were prepared in accordance with International Financial Reporting Standards.
The statutory Financial Statements for the year ended 30 June 2023 were
approved by the Board of Directors on 23 October 2023. The opinion of the
auditors on those Financial Statements was unqualified. The accounting
policies adopted in these Condensed Interim Financial Statements are
consistent with those of the previous financial year and the corresponding
interim reporting period. New and amended standards have been considered in
note 2.3. These Condensed Interim Financial Statements for the period ended 31
December 2023 have been reviewed by the Company's Auditors,
PricewaterhouseCoopers CI LLP, but not audited and their review report appears
earlier in this document. The financial information for the year ended 30 June
2023 has been derived from the Audited Annual Financial Statements of the
Company for that year, which were reported on by PricewaterhouseCoopers CI LLP
in the Company's Annual Report and Financial Statements.
2.2 Going concern
Under the AIC Code and applicable regulations, the Directors are required to
satisfy themselves that it is reasonable to assume that the Company is a going
concern. The Directors have undertaken a rigorous review of the Company's
ability to continue as a going concern over the period to 31 March 2025
including reviewing the on-going cash flows and level of cash balances as at
the reporting date as well as taking forecasts of future cash flows into
consideration. After making enquiries of the Investment Manager and having
reassessed the principal risks, the Directors consider it appropriate to adopt
the going concern basis of accounting in preparing the Interim Report and
Condensed Interim Financial Statements.
2.3 Changes in accounting policy and disclosures
The Board has considered the new standards and amendments that are mandatorily
effective from 1 January 2023 and determined that these do not have a material
impact on the Company and are not expected to affect significantly the current
or future periods.
2.4 Subsidiaries and associates
The Company meets the definition of an investment entity within IFRS 10 and
therefore does not consolidate its subsidiaries but measures them instead at
FVTPL.
Any gain or loss arising from a change in the fair value of investments in
subsidiaries and associates is recognised in the Condensed Statement of
Comprehensive Income.
Refer to note 3 for further disclosure on accounting for subsidiaries and
associates.
2.5 Segment reporting
In identifying its operating segments, management follows the subsidiaries'
sectors of investment which are based on internal management reporting
information. The operating segments by investment portfolio include: capital
markets, operating assets, private equity and other net assets (including cash
and cash equivalents, bonds, and short-term deposits).
Each of the operating segments is managed and monitored individually by the
Investment Manager as each requires different resources and approaches. The
Investment Manager assesses segment profit or loss using a measure of
operating profit or loss from the underlying investment assets of the
subsidiaries. Refer to note 4 for further disclosure regarding allocation to
segments.
2.6 Financial Instruments
(a) Recognition and derecognition
Financial assets and financial liabilities are recognised when the Company
becomes a party to the contractual provisions of the financial instrument.
Purchases and sales of financial assets are recognised on the trade date - the
date on which the Company commits to purchase or sell the asset.
Financial assets are derecognised when the rights to receive cash flows from
the financial assets have expired or have been transferred and the Company has
transferred substantially all of the risks and rewards of ownership. A
financial liability is derecognised when it is extinguished, discharged,
cancelled or expires.
(b) Classification of financial assets
The Company classifies its financial assets based on the Company's business
model for managing those financial assets and the contractual cashflow
characteristics of the financial assets.
The Company has classified all investments in equity securities as FVTPL as
they are managed and performance is evaluated on a fair value basis. The
Company is primarily focused on fair value information and uses that
information to assess the assets' performance and to make decisions. The
Company has not taken the option to designate irrevocably any investment in
equity as fair value through other comprehensive income.
The Company's receivables and cash and cash equivalents are classified and
subsequently measured at amortised cost as these are held to collect
contractual cash flows which represent solely payments of principal and
interest.
(c) Initial and subsequent measurement of financial assets
Except for those trade receivables that do not contain a significant financing
component and are measured at the transaction price in accordance with IFRS
15, financial assets are initially measured at fair value plus, in the case of
a financial asset not at FVTPL, transaction costs that are directly
attributable to the acquisition of the financial asset. Transaction costs of
financial assets at FVTPL are expensed in the Condensed Statement of
Comprehensive Income.
Subsequent to initial recognition, investments at FVTPL are measured at fair
value with gains and losses arising from changes in the fair value recognised
in the Condensed Statement of Comprehensive Income.
All other financial assets are subsequently measured at amortised cost using
the effective interest rate method, less any impairment.
(d) Impairment of financial assets
At each reporting date, the Company measures the loss allowance on debt assets
carried at amortised cost at an amount equal to the lifetime expected credit
losses if the credit risk has increased significantly since initial
recognition.
If, at the reporting date, the credit risk has not increased significantly
since initial recognition, the Company measures the loss allowance at an
amount equal to 12-month expected credit losses. The expected credit losses
are estimated using a provision matrix based on the Company's historical
credit loss experience, adjusted for factors that are specific to the debtors,
general economic conditions and an assessment of both the current as well as
the forecast direction of conditions at the reporting date, including time
value of money where appropriate. The measurement of expected credit losses is
a function of the probability of default, loss given default (i.e. the
magnitude of the loss if there is a default) and the exposure at default. The
assessment of the probability of default and loss given default is based on
historical data adjusted by forward-looking information.
(e) Classification and measurement of financial liabilities
Financial liabilities are initially measured at fair value plus transaction
costs that are directly attributable to their acquisition or issue, other than
those classified as at FVTPL in which case transaction costs are recognised
directly in profit or loss.
Subsequently, financial liabilities are measured at amortised cost using the
effective interest method except for financial liabilities designated at FVTPL
and held for trading, which are carried subsequently at fair value with gains
or losses recognised in the Condensed Statement of Comprehensive Income.
The Company's financial liabilities only include loans and other borrowings
and trade and other payables which are measured at amortised cost using the
effective interest method.
3. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
When preparing the Condensed Interim Financial Statements, the Company relies
on a number of judgements, estimates and assumptions about recognition and
measurement of assets, liabilities, income and expenses. Actual results may
differ from the judgements, estimates and assumptions.
Information about significant judgements, estimates and assumptions which have
the greatest effect on the recognition and measurement of assets, liabilities,
income and expenses were the same as those that applied to the Annual Report
and Financial Statements for the year ended 30 June 2023.
3.1 Critical accounting estimates
(a) Fair value of subsidiaries and associates and their underlying investments
The Company holds its investments through a number of subsidiaries and
associates which were established for this purpose. At the end of each half of
the financial year, the fair values of investments in subsidiaries and
associates are reviewed and the fair values of all material investments held
by these subsidiaries and associates are assessed. As at 31 December 2023,
100% (30 June 2023: 100%) of the financial assets at FVTPL relate to the
Company's investments in subsidiaries and associates that have been fair
valued in accordance with the policies set out below.
The shares of the subsidiaries and associates are not publicly traded; return
of capital to the Company can only be made by divesting the underlying
investments of the subsidiaries and associates. As a result, the carrying
value of the subsidiaries and associates may not be indicative of the value
ultimately realised on divestment.
The underlying investments include listed and unlisted securities, one
operating asset and private equity investments (including investments
classified as "public equity with private terms"). Where an active market
exists (for example, for listed securities), the fair value of the subsidiary
or associate reflects the valuation of the underlying holdings, as disclosed
below. Where no active market exists, valuation techniques are used.
Information about the significant judgements, estimates and assumptions which
are used in the valuation of the investments is discussed below.
(a.1) Valuation of assets that are traded in an active market
The fair values of listed securities are based on quoted market prices at the
close of trading on the reporting date. The fair values of unlisted securities
which are traded on Vietnam's Unlisted Public Company Market ("UPCoM") are
based on published prices at the close of business on the reporting date. For
other unlisted securities which are traded in an active market, fair value is
the average quoted price at the close of trading obtained from a minimum
sample of five reputable securities companies at the reporting date. Other
relevant measurement bases are used if broker quotes are not available or if
better and more reliable information is available.
(a.2) Valuation of investments in private equities
As at the financial year-end, the Company's underlying investments in private
equities are fair valued by an Independent Valuer or by the Investment Manager
using a number of methodologies such as adjusted net asset valuations,
discounted cash flows, income related multiples, price-to-book ratios,
structured financial arrangements and blended models. The projected future
cash flows are driven by management's business strategies and goals and its
assumptions of growth in GDP, market demand, inflation, ESG risk, etc. For the
principal investments, the Independent Valuer and, where relevant, the
Investment Manager selects appropriate discount rates that reflect the level
of certainty of the quantum and timing of the projected cash flows.
As at 31 December 2023, the Investment Manager reviewed the valuations carried
out as at 30 June 2023 and considered whether there were any changes to
performance or the circumstances of the underlying investments which would
affect the fair values. Methods, assumptions, and data were consistently
applied from 30 June 2023 except for certain underlying private equity
investments where a change in assumption is deemed appropriate to reflect the
change in the market conditions or investment-specific factors.
The Investment Manager then made recommendations to the Audit Committee of the
fair values as at 31 December 2023 and the Audit Committee, having considered
these, then made recommendations for approval by the Board. Refer to note
21(c) which sets out a sensitivity analysis of the significant observable
inputs used in the valuations of the private equity investments.
(a.3) Loans and receivables at FVTPL
For the year ended 30 June 2023, two underlying investments that were
previously classified as private equity were restructured and classified as
loans and receivables at FVTPL due to defaults.
For the current period, consistent with the prior year, these underlying loans
and receivables designated at FVTPL are fair valued by the Investment Manager
using methodologies such as a scenario-based model using probability-weighted
average of discounted cash flows and investment cost plus expected return.
Refer to note 21(c) which sets out a sensitivity analysis of the significant
unobservable inputs used in the valuations.
a.4) Valuation of the operating asset
At each year-end the fair value of any underlying operating asset is based on
valuations by an independent specialist appraiser. These valuations are based
on certain assumptions which are subject to uncertainty and might result in
valuations which differ materially from the actual results of a sale. The
estimated fair values provided by the independent specialist appraisers are
then used by the Independent Valuer as the primary basis for estimating fair
value of the Company's subsidiaries and associates that hold these properties
in accordance with accounting policies set out in note 2.6.
(b) Incentive Fee
For the accounting year ended 30 June 2023, the incentive fee was calculated
as follows:
· To the extent that the NAV as at any year end commencing 30 June 2019 was
above the higher of an 8% compound annual return and the high water mark
initially set in 2019, having accounted for any share buy backs, share issues
and/or dividends, the incentive fee payable on any increase in the NAV with
effect from 30 June 2019 above the higher of the high water mark and the 8%
annual return target was calculated at a rate of 12.5%;
· The maximum amount of incentive fees that can be paid out in any one year was
capped at 1.5% of the average month-end NAV during that year; and
· Any incentive fees earned in excess of this 1.5% cap were accrued if they were
expected to be paid out in subsequent years.
With effect from 1 July 2023 the incentive fee is calculated as follows:
· To the extent that the NAV as at any year end is above the higher of an 10%
compound annual return and a high water mark initially set in 2019, having
accounted for any share buy backs, share issues and/or dividends, the
incentive fee payable on any increase in the NAV above the higher of the high
water mark and a 10% annual return target is calculated at a rate of 10%;
· The maximum amount of incentive fees that can be paid out in any one year is
capped at 1.5% of the average month-end NAV during that year; and
· Any incentive fees earned in excess of this 1.5% cap are accrued if they are
expected to be paid out in subsequent years.
For periods up to 30 June 2023, the incentive fee payable on any increase in
NAV was 12.5% and the annual return target was 8%. The cap was as described
above.
Any incentive fees payable within 12 months are classified under accrued
expenses and other payables in the Condensed Statement of Financial Position.
The fair values of any additional incentive fees potentially payable beyond 12
months after the end of the reporting period are classified as deferred
incentive fees in the Condensed Statement of Financial Position.
At the end of each financial period, the Board makes a judgement in
considering the total amount of any accrued incentive fees which are likely to
be settled beyond 12 months after the end of the reporting period. In
determining the fair value of the non-current liability at a Condensed
Statement of Financial Position date the Board may apply a discount to reflect
the time value of money and the probability and phasing of payment. An
annualised discount rate of 8% was applied to the deferred incentive fees
carried forward as at the accounting years ended 30 June 2022 and 30 June
2023. Any unwinding of the discount recorded in the previous financial period
is recorded in finance expense in the Condensed Statement of Comprehensive
Income.
For further details of the incentive fees earned and accrued at the period end
please refer to note 16(b).
3.2 Critical judgements in applying the Company's accounting policies
(a) Eligibility to qualify as an investment entity
The Company has determined that it is an investment entity under the
definition of IFRS 10 as it meets the following criteria:
i. The Company has obtained funds from investors for the purpose of
providing those investors with investment management services;
ii. The Company's business purpose is to invest funds solely for returns
from capital appreciation, investment income or both; and
iii. The performance of investments made by the Company is substantially
measured and evaluated on a fair value basis.
The Company has the typical characteristics of an investment entity:
· It holds more than one investment;
· It has more than one investor;
· It has investors that are not its related parties; and
· It has ownership interests in the form of equity or similar
interests.
As a consequence, the Company does not consolidate its subsidiaries and
accounts for them at FVTPL. The Company has applied the exemption from
accounting for its subsidiaries using the equity method as permitted by IAS
28.
(b) Judgements about active and inactive markets
The Board considers that the Ho Chi Minh Stock Exchange, the Hanoi Stock
Exchange and UPCoM are active markets for the purposes of IFRS 13.
Consequently, the prices quoted by those markets for individual shares as at
the balance sheet date can be used to estimate the fair value of the Company's
underlying investments.
Notwithstanding the fact that these stock exchanges can be regarded as active
markets, the size of the Company's holdings in particular stocks in relation
to daily market turnover in those stocks would make it difficult to conduct an
orderly transaction in a large number of shares on a single day. However, the
Board considers that if the Company were to offer a block of shares for sale,
the price which could be achieved in an orderly transaction is as likely to be
at a premium to the quoted market price as at a discount. Consequently, when
taken across the whole portfolio of the Company's underlying quoted
investments, the Board considers that using the quoted prices of the shares on
the various active markets is generally a reasonable determination of the fair
value of the securities.
In the absence of an active market for quoted or unquoted investments which
may include positions that are not traded in active markets, valuations may be
adjusted to reflect illiquidity and/or non-transferability, which are
generally based on available market information, and in determining the fair
value one or more valuation techniques may be utilised.
4. SEGMENT ANALYSIS
Dividend income is allocated based on the underlying investments of
subsidiaries which declared dividends. Net gains/losses on financial assets at
fair value through profit or loss are allocated to each segment with reference
to the assets held by each respective subsidiary. General and administration
expenses, finance costs/income and loan facility set-up costs are allocated
based on the investment sector. Finance expenses, accrued expenses and other
payables are allocated to each segment with reference to the percentage
allocation on the investments holding.
The financial assets at FVTPL are measured based on the investment sector.
Other assets and liabilities are classified as other net assets.
Segment information can be analysed as follows:
Condensed Statement of Comprehensive Income
Capital Operating Private Other Net
Markets* Assets Equity Assets** Total
USD'000 USD'000 USD'000 USD'000 USD'000
Six months ended 31 December 2023 (Unaudited)
Dividend income 35,837 - 252 - 36,089
Finance income 309 - 113 35 457
Net (losses)/gains on financial assets at FVTPL
(9,833) (326) 117 (329) (10,371)
General and administration expenses (5,976) (110) (2,193) (680) (8,959)
Facility set-up costs (115) - (42) (13) (170)
Finance expenses (407) - (149) (47) (603)
Incentive fee charge (1,135) - (417) (129) (1,681)
Profit/(Loss) before tax 18,680 (436) (2,319) (1,163) 14,762
Six months ended 31 December 2022 (Unaudited)
Dividend income 27,885 - 4,458 - 32,343
Net losses on financial assets at FVTPL (81,266) (146) (120,991) - (202,403)
General and administration expenses (6,460) (112) (2,311) (97) (8,980)
Finance cost (152) - (54) (2) (208)
Facility set-up costs (464) - (166) (7) (637)
Finance expenses (1,804) - (646) - (2,450)
Incentive fee clawback 16,298 - 5,830 - 22,128
Loss before tax (45,693) (258) (113,880) (106) (160,207)
* Capital markets include listed securities and unlisted securities, valued at
their prices on UPCoM or using quotations from brokers.
** Other net assets include cash and cash equivalents, loans and receivables
at FVTPL, interest and other net assets of the subsidiaries and associates at
fair value.
Condensed Statement of Financial Position
Capital Operating Private Other Net
Markets* Assets Equity Assets** Total
USD'000 USD'000 USD'000 USD'000 USD'000
As at 31 December 2023
(Unaudited)
Financial assets at FVTPL 726,285 13,335 266,513 82,725 1,088,858
Receivables and prepayments - - - 444 444
Cash and cash equivalents - - - 26,659 26,659
Total assets 726,285 13,335 266,513 109,828 1,115,961
Total liabilities
Accrued expenses and other payables 6,153 113 2,258 700 9,224
Total liabilities 6,153 113 2,258 700 9,224
Net asset value 720,132 13,222 264,255 109,128 1,106,737
Capital Operating Private Other Net
Markets* Assets Equity Assets**
Total
USD'000 USD'000 USD'000 USD'000 USD'000
As at 30 June 2023
(Audited)
Financial assets at FVTPL 791,376 13,661 254,974 77,417 1,137,428
Receivables - - - 658 658
Cash and cash equivalents - - - 19,133 19,133
Total assets 791,376 13,661 254,974 97,208 1,157,219
Total liabilities
Accrued expenses and other payables 12,610 218 4,065 1,232 18,125
Deferred incentive fees 3,637 63 1,172 355 5,227
Loan and borrowings 7,042 - 2,270 688 10,000
Total liabilities 23,289 281 7,507 2,275 33,352
Net asset value 768,087 13,380 247,467 94,933 1,123,867
* Capital markets include listed securities and unlisted securities. The
unlisted securities are comprised of securities valued at their prices on
UPCoM or using quotations from brokers.
** Other net assets of USD82.7 million (30 June 2023: USD77.4 million) include
cash and cash equivalents, prepayments, loans and receivables at FVTPL and
other net assets of the subsidiaries and associates at fair value.
5. INTERESTS IN SUBSIDIARIES AND ASSOCIATES
There is no legal restriction to the transfer of funds from the BVI or
Singapore subsidiaries to the Company. Cash held in directly-owned as well as
indirectly-owned Vietnamese subsidiaries and associates is subject to
restrictions imposed by co-investors and the Vietnamese government and
therefore it cannot be transferred out of Vietnam unless such restrictions are
satisfied. As at 31 December 2023, the restricted cash held in these
Vietnamese subsidiaries and associates amounted to USD nil (30 June 2023: USD
nil). The Company has not entered into a contractual obligation to, nor has it
committed to provide, current financial or other support to an unconsolidated
subsidiary during the period.
5.1 Directly-owned subsidiaries
The Company had the following directly-owned subsidiaries as at 31 December
and 30 June 2023:
As at As at
31 December 2023 30 June 2023
Country of % of Company % of Company
Subsidiary incorporation interest interest Nature of the business
Allwealth Worldwide Limited * BVI - 100.00 Holding company for investments
Asia Value Investment Limited BVI 100.00 100.00 Holding company for listed and unlisted securities
Belfort Worldwide Limited BVI 100.00 100.00 Holding company for private equity
Boardwalk South Limited BVI 100.00 100.00 Holding company for listed securities
Clearfield Pacific Limited BVI 100.00 100.00 Holding company for investments
Clipper Ventures Limited BVI 100.00 100.00 Holding company for listed securities and private equity
Darasol Investments Limited BVI 100.00 100.00 Holding company for investments
Foremost Worldwide Limited BVI 100.00 100.00 Holding company for unlisted securities and private equity
Fraser Investment Holdings Pte. Limited Singapore 100.00 100.00 Holding company for listed securities
Hospira Holdings Limited BVI 100.00 100.00 Holding company for private equity
Longwoods Worldwide Limited BVI 100.00 100.00 Holding company for listed securities
Navia Holdings Limited BVI 100.00 100.00 Holding company for investments
Portal Global Limited BVI 100.00 100.00 Holding company for listed securities
Preston Pacific Limited BVI 100.00 100.00 Holding company for listed securities
Rewas Holdings Limited BVI 100.00 100.00 Holding company for unlisted securities
Turnbull Holding Pte. Ltd. Singapore 100.00 100.00 Holding company for investments
Vietnam Enterprise Limited BVI 100.00 100.00 Holding company for listed and unlisted securities
Vietnam Investment Limited BVI 100.00 100.00 Holding company for listed and unlisted securities
Vietnam Investment Property Holdings Limited BVI 100.00 100.00 Holding company for listed and unlisted securities
Vietnam Investment Property Limited BVI 100.00 100.00 Holding company for listed securities
Vietnam Master Holding 2 Limited BVI 100.00 100.00 Holding company for private equity
Vietnam Ventures Limited BVI 100.00 100.00 Holding company for listed and unlisted securities
VinaSugar Holdings Limited BVI 100.00 100.00 Holding company for investments
VOF Investment Limited BVI 100.00 100.00 Holding company for listed and unlisted securities, an operating asset and
private equity
VOF PE Holding 5 Limited BVI 100.00 100.00 Holding company for listed securities
Windstar Resources Limited BVI 100.00 100.00 Holding company for listed securities
*Allwealth Worldwide Limited was restructured to be held indirectly through
Clipper Ventures Limited during the period.
5.2 Indirect interests in subsidiaries
The Company had the following indirect interests in subsidiaries as at 31
December and 30 June 2023:
As at As at
31 December 2023 30 June 2023
Country of % of Company's % of Company's
Indirect subsidiary incorporation Nature of the business Immediate parent indirect interest indirect interest
Abbott Holding Pte. Limited Singapore Holding company for private equity Hospira Holdings Limited 100.00 100.00
Aldrin One Pte. Ltd. Singapore Holding company for private equity Halley One Limited 81.31 81.31
Aldrin Three Pte. Ltd. Singapore Holding company for private equity Halley Three Limited 80.07 80.07
Aldrin Two Pte. Ltd. Singapore Holding company for investments Clipper Ventures Limited 100.00 100.00
Allright Assets Limited BVI Holding company for private equity Clipper Ventures Limited 100.00 100.00
Allwealth Worldwide Limited BVI Holding company for investments Clipper Ventures Limited 80.02 -
Chifley Investments Pte. Ltd Singapore Holding company for investments Belfort Worldwide Limited 85,91 85,91
Clipper One Limited BVI Holding company for investments Clipper Ventures Limited 100.00 100.00
Goldcity Worldwide Limited BVI Holding company for investments Clipper Ventures Limited 100.00 100.00
Gorton Investments Pte. Ltd Singapore Holding company for investments Belfort Worldwide Limited 100.00 100.00
Halley Five Limited BVI Holding company for investments Clipper Ventures Limited 80.90 80.90
Halley Four Limited BVI Holding company for investments Clipper Ventures Limited 79.40 79.40
Halley One Limited BVI Holding company for investments Clipper Ventures Limited 81.31 81.31
Halley Three Limited BVI Holding company for investments Clipper Ventures Limited 80.07 80.07
Halley Two Limited BVI Holding company for investments Clipper Ventures Limited 85.91 85.91
Liva Holdings Limited BVI Holding company for private equity Halley Five Limited 80.90 80.90
Menzies Holding Pte. Ltd. Singapore Holding company for investments Belfort Worldwide Limited 100.00 100.00
PA Investment Opportunity II Limited BVI Holding company for investments Vietnam Enterprise Limited 100.00 100.00
Sharda Holdings Limited BVI Holding company for private equity Clipper Ventures Limited 89.64 89.64
Tempel Four Limited BVI Holding company for private equity Halley Four Limited 79.40 79.40
Victory Holding Investment Limited BVI Holding company for listed securities and private equity Clipper Ventures Limited 87.58 87.58
Vietnam Opportunity Fund II Pte. Ltd. Singapore Holding company for private equity Belfort Worldwide Limited 68.00 68.00
Whitlam Holding Pte. Ltd Singapore Holding company for listed securities Navia Holdings Limited 61.26 61.26
5.3 Direct interests in associates
The Company did not have any directly-owned associates as at 31 December and
30 June 2023.
5.4 Indirect interests in associates
The Company had the following indirect interests in associates as at 31
December and 30 June 2023:
As at As at
31 December 2023 30 June 2023
Country of Company's subsidiary or associate holding % of Company's % of Company's
Indirect associate incorporation Nature of the business direct interest in the associate indirect interest indirect interest
Tam Tri Medical Vietnam Private equity investment Vietnam Opportunity Fund II Pte. Ltd. and 37.80 37.80
Clearfield Pacific Limited
Hung Vuong Corporation Vietnam Operating asset investment VOF Investment Limited 31.04 31.04
Thu Cuc Medical & Beauty Care Joint Stock Company BVI Private equity investment Aldrin One Pte. Ltd 24.39 24.39
Chicilon Media Vietnam Private equity investment Chifley Investment Pte. Ltd 14.84 14.84
5.5 Financial risks
As at 31 December 2023, the Company owned a number of subsidiaries and
associates for the purpose of holding investments in listed and unlisted
securities, an operating asset, loans and receivables at FVTPL and private
equity investments. The Company, via these underlying investments, is subject
to financial risks which are further disclosed in note 21. The Investment
Manager makes investment decisions after performing extensive due diligence on
the underlying investments, their strategies, financial structure and the
overall quality of management.
6. CASH AND CASH EQUIVALENTS
31 December 2023 30 June 2023
USD'000 USD'000
(Unaudited) (Audited)
Cash at banks 26,659 19,133
As at 31 December 2023, the cash and cash equivalents were denominated in USD
and GBP.
As at 31 December 2023, the Company's overall cash position including cash
held in directly held subsidiaries was USD41.0 million (30 June 2023: USD22.8
million). Please refer to note 8 for details of the cash held by the Company's
subsidiaries. As mentioned in note 5, the restricted cash held in Vietnamese
subsidiaries and associates amounted to USD nil (30 June 2023: USD nil).
7. FINANCIAL INSTRUMENTS BY CATEGORY
Financial assets at amortised cost Financial assets at FVTPL Financial liabilities at amortised cost Total
USD'000 USD'000 USD'000 USD'000
As at 31 December 2023 (Unaudited)
Financial assets at FVTPL - 1,088,858 - 1,088,858
Financial liabilities - - (9,224) (9,224)
Cash and cash equivalents 26,659 - - 26,659
Total 26,659 1,088,858 (9,224) 1,106,293
Financial assets/(liabilities) denominated in:
- GBP 162 - - 162
- USD 26,497 1,088,858 (9,224) 1,106,131
As at 30 June 2023 (Audited)
Financial assets at FVTPL - 1,137,428 - 1,137,428
Financial liabilities - - (33,352) (33,352)
Cash and cash equivalents 19,133 - - 19,133
Total 19,133 1,137,428 (33,352) 1,123,209
Financial assets/(liabilities) denominated in:
- GBP 92 - - 92
- USD 19,041 1,137,428 (33,352) 1,123,117
As at 31 December 2023 and 30 June 2023, the carrying amounts of all financial
liabilities approximate their fair values.
All financial liabilities are short term in nature and their carrying values
approximate their fair values. The fair value of the deferred incentive fees
does not materially differ from their carrying amount. There are no financial
liabilities that must be accounted for at FVTPL (30 June 2023: nil).
8 . FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
Financial assets at FVTPL comprise VOF's investments in subsidiaries and
associates. The underlying assets and liabilities of the subsidiaries and
associates at fair value are included with those of VOF in the following
table.
31 December 2023 30 June 2023
(Unaudited) (Audited)
Within 12 Months Over 12 Months Within 12 Months Over 12 Months
USD'000 USD'000 USD'000 USD'000
Cash and cash equivalents 14,339 - 3,705 -
Ordinary shares - listed 649,533 - 687,039 -
Ordinary shares - unlisted * 76,752 - 104,337 -
Private equity - 266,513 - 254,974
Loans and Receivables ** 52,570 - 64,059
Operating asset - 13,335 - 13,661
Other net assets 15,816 - 9,653 -
809,010 279,848 868,793 268,635
* Unlisted Securities include OTC traded securities and unlisted securities
publicly traded on UPCoM of the Hanoi Stock Exchange.
** On a look-through basis, following the change in the structure of the
underlying investments, these are now classified as loans and receivables at
FVTPL.
The major underlying investments held by the direct and indirect subsidiaries
and associates of VOF were in the following industry sectors.
31 December 2023 30 June 2023
USD'000 USD'000
(Unaudited) (Audited)
Real Estate 255,892 268,002
Financials 243,413 211,226
Materials 140,022 169,780
Consumer Discretionary 100,120 98,927
Health Care 96,391 94,181
Information Technology 78,334 62,702
Industrial 63,102 86,081
Consumer Staples 42,299 96,062
Energy 39,130 37,109
As at 31 December 2023, an underlying holding, Asia Commercial Bank, within
financial assets at FVTPL amounted to 13.6% of the NAV of VOF (30 June 2023:
12.7%).
There have been no changes in the classification of financial assets at fair
value through profit or loss shown as Level 3 during the period ended 31
December 2023.
Changes in Level 3 financial assets at fair value through profit or loss
The fair values of the Company's investments in subsidiaries and associates
are estimated using approaches as described in note 3.1. As observable prices
are not available for these investments, the Company classifies them as Level
3 fair values.
For the period For the year ended
31 December 2023 30 June 2023
(Unaudited) (Audited)
Opening balance 1,137,428 1,205,940
Purchases 61,110 68,110
Return of capital (99,309) (88,576)
Net losses for the period/year (10,371) (48,046)
1,088,858 1,137,428
9. DIVIDENDS
The dividends paid in the reporting period were as follows:
Dividend rate Net dividend
During the six months ended 31 December 2023 per share payable
(Unaudited)
(cents) (USD'000) Record date Ex-dividend date Pay date
Second dividend for the year ended 30 June 2023 7.0 11,029 3 November 2023 2 November 2023 4 December 2023
Dividend rate Net dividend
During the six months ended 31 December 2022 per share payable
(Unaudited)
(cents) (USD'000) Record date Ex-dividend date Pay date
Second dividend for the year ended 30 June 2022 8.0 12,941 4 November 2022 3 November 2022 5 December 2022
Under the Guernsey Law, the Company can distribute dividends from capital and
revenue reserves, subject to the net asset and solvency test. The net asset
and solvency test considers whether a company is able to pay its debts when
they fall due, and whether the value of a company's assets is greater than its
liabilities. The Board confirms that the Company passed the net asset and
solvency test for each dividend paid.
10. PREPAYMENTS AND OTHER ASSETS
31 December 2023 30 June 2023
USD'000 USD'000
(Unaudited) (Audited)
Deferred expenses 257 517
Prepayments 86 141
Interest on fixed deposits 101 -
444 658
Due to the short-term nature of the prepayments and other assets, their
carrying amount is considered to be
the same as their fair value.
The Company exited Indochina Food Industries Pte. Ltd ("ICF") through the sale
of 100% of VinaSugar Holding Limited in 2012 for a total consideration of
USD28.45 million. As at 31 December 2023 and 30 June 2023, the
buyer had paid USD19.75 million with USD8.7 million remaining outstanding. In
June 2014, the Company approved a loan of USD2.9 million to ICF to provide
immediate relief for the business. Together with the existing receivable of
USD8.7 million, the total USD11.6 million is receivable but has been fully
provided for.
On 18 March 2022, the Company entered into a USD40 million revolving credit
facility (the "Facility") with Standard Chartered Bank (Singapore) Limited.
Costs totalling USD1.26 million were incurred in relation to the Facility,
which have been capitalised as a prepayment and were amortised over the period
of the Facility. The outstanding amount of USD0.9 million (30 June 2022:
USD0.36 million) was expensed to the Statement of Comprehensive Income upon
expiry of the Facility on 18 March 2023.
On 18 March 2023, the Company renewed the Facility by a further year through
exercise of an extension option in the original agreement. Costs totalling
USD0.7 million were incurred in relation to this new arrangement, which have
been capitalised as a prepayment and are being amortised over the period of
the new Facility. In these financial statements, an amount of USD0.1 million
(31 December 2022: USD0.6 million) has been expensed to the Condensed
Statement of Comprehensive Income and a deferred expense of USD0.3 million (30
June 2023; USD0.5 million) is recorded on the Condensed Statement of Financial
Position as at 31 December 2023.
11. SHARE CAPITAL
The Company may issue an unlimited number of shares, including shares of no
par value or shares with a par value. Shares may be issued as (a) shares in
such currencies as the Directors may determine; and/or (b) such other classes
of shares in such currencies as the Directors may determine in accordance with
the Articles and the Guernsey Law and the price per Share at which shares of
each class shall first be offered to subscribers shall be fixed by the Board.
The minimum price which may be paid for a share is USD0.01. The Directors will
act in the best interest of the Company and the shareholders when authorising
the issue of any shares and shares will only be issued at a price of at least
the prevailing Net Asset Value at the time of issue, so that the NAV per share
is not diluted.
Issued capital
Six months ended Year ended
31 December 2023 30 June 2023
Number of Number of
shares USD'000 shares USD'000
Issued and fully paid at 1 July 166,230,562 267,087 179,662,704 491,301
Cancellation of treasury shares (3,752,599) - (13,432,142) -
Issued and fully paid at period/year end 162,477,963 267,087 166,230,562 491,301
Shares held in treasury (6,182,716) (20,863) (6,182,716) (224,214)
Outstanding shares at period/year end 156,295,247 246,224 160,047,846 267,087
Treasury shares
Six months ended Year ended
31 December 2023 30 June 2023
Number of Number of
shares shares
Opening balance at 1 July 6,182,716 16,182,716
Shares repurchased during the period/year 3,752,599 3,432,142
Shares cancelled during the period/year (3,752,599) (13,432,142)
Closing balance at period/year end 6,182,716 6,182,716
In October 2011, the Board first sought and obtained shareholder approval to
implement a share buyback programme. The share buyback programme was approved
again at subsequent general meetings of the Company.
During the period ended 31 December 2023, 3.7 million shares (31 December
2022: 2.0 million) were repurchased at a cost of USD20.8 million (31 December
2022: USD10.3 million) and subsequently cancelled. There was USD 0.2 million
(31 December 2022: USD nil) payable at the period end in relation to these
shares.
12. ACCRUED EXPENSES AND OTHER PAYABLES
31 December 2023 30 June 2023
USD'000 USD'000
(Unaudited) (Audited)
Incentive fees payable to the Investment Manager (note 16(b)) 7,512 15,803
Management fees payable to the Investment Manager (note 20(a)) 1,194 1,233
Expenses recharged payable to the Investment Manager (note 20(a)) - 73
Revolving credit facility costs payable (note 10) - 91
Shares repurchase payable (note 11) 198 272
Other payables 320 653
9,224 18,125
All accrued expenses and other payables are short-term in nature. Therefore,
their carrying values are considered to be a reasonable approximation of their
fair values. Further details of the payables to other related parties are
disclosed in note 20.
13. LOANS AND OTHER BORROWINGS
31 December 2023 30 June 2023
USD'000 USD'000
(Unaudited) (Audited)
Net loan liability at beginning of the period 10,000 -
Revolving credit facility total of all drawdowns - 60,000
Revolving credit facility total of all repayments (10,000) (50,000)
Net loan liability due - 10,000
As noted above, on 18 March 2022, the Company entered into a USD40.0 million
revolving credit facility ("the Facility") with Standard Chartered Bank
(Singapore) Limited. In the year to 30 June 2023, the maximum amount drawn
down at any one time was USD40m. The USD40m had been repaid in full when the
facility was renewed on 18 March 2023. Interest charged on the Facility is the
aggregate of margin plus the compounded reference rate. On 18 March 2023,
the Company exercised an option extending the Facility to 18 March 2024. USD
10.0 million outstanding on the facility as at 30 June 2023 was repaid during
the period. In March 2024, the Company agreed to extend the Facility for a
third year and it will now run until March 2025.
Security has been provided by way of a charge over the Group's assets under
the Facility.
In accordance with the Facility Agreement the Group has various non-financial
and financial covenants that are required to be met. The two financial
covenants are detailed below. Throughout the period, these financial covenants
have been met.
Covenants Requirement
Loan to Value Ratio Must not exceed 10%
Asset Cover Ratio Must not be less than 3.25:1
14. DIVIDEND INCOME
Six months ended
31 December 2023 31 December 2022
USD'000 USD'000
(Unaudited) (Unaudited)
Dividend income 36,089 32,343
The above table sets out dividends received by the Company from its
subsidiaries. These represent distributions of income received as well as the
proceeds of disposals of assets by subsidiaries, and do not reflect the
dividends earned by the underlying investee companies. During the period, the
subsidiaries received a total amount of USD3.8 million in dividends from their
investee companies (31 December 2022: USD4.5 million).
15. NET LOSSES ON FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
Six months ended
31 December 2023 31 December 2022
USD'000 USD'000
(Unaudited) (Unaudited)
Financial assets at FVTPL:
Unrealised losses, net (10,371) (202,403)
16(a). GENERAL AND ADMINISTRATION EXPENSES
Six months ended
31 December 2023 31 December 2022
USD'000 USD'000
(Unaudited) (Unaudited)
Management fees and expenses (note 20(a)) 6,993 7,258
Custodian, secretarial and other professional fees 686 504
Audit fees 443 304
Directors' fees, including expenses (note 20(c)) 237 276
Others 600 638
8,959 8,980
16(b). INCENTIVE FEE
Following the exceptional performance in the 2020/21 accounting year, a
liability of USD21.6million was carried forward in the Company's accounts as
at 30 June 2023. Of this amount, USD15.8 million was paid out following the
publication of the annual report for the year to 30 June 2023 and a balance of
USD5.8 million was carried forward as an accrual for potential payment of
incentive fees in future years. As at 30 June 2023 this was discounted to
USD5.2 million to reflect the time value of money and the probability of
payment but is now accounted at its full value as it is potentially payable
within 12 months. In addition, the NAV total return for the six months to 31
December 2023 has resulted in a further incentive fee accrual of USD1.7
million. Incentive fees are only paid out following the publication of annual
accounts and, at the half year stage, any incentive fees are provided for on
the assumption that the NAV as at the following 30 June will be the same as at
31 December. On this assumption, USD7.5 million will be payable when the
annual report is published in October 2024 and is classified as a current
liability as at 31 December 2023. As at 31 December 2023 there were no
incentive fees accrued but payable after October 2024.
17. INCOME TAX EXPENSE
The Company has been granted Guernsey tax exempt status in accordance with the
Income Tax (Exempt Bodies) (Guernsey) Ordinance 1989 (as amended).
The majority of the subsidiaries are domiciled in the BVI and so have a tax
exempt status whilst the remaining subsidiaries are established in Vietnam and
Singapore and are subject to corporate income tax in those countries. The
income tax payable by these subsidiaries is taken into account in determining
their fair values in the Condensed Statement of Financial Position.
18. EARNINGS PER SHARE AND NET ASSET VALUE PER SHARE
(a) Basic
Basic earnings per share is calculated by dividing the loss or profit from
operations of the Company by the weighted average number of ordinary shares in
issue during the period excluding ordinary shares purchased by the Company and
held as treasury shares (note 11).
Six months ended
31 December 2023 31 December 2022
USD'000 USD'000
(Unaudited) (Unaudited)
Profit/(loss) for the period (USD'000) 14,762 (160,207)
Weighted average number of ordinary shares in issue 157,549,421 162,425,623
Basic earnings per share (USD per share) 0.09 (0.99)
(b) Diluted
Diluted earnings per share is calculated by adjusting the weighted average
number of ordinary shares outstanding to assume conversion of all dilutive
potential ordinary shares. The Company has no category of potentially dilutive
ordinary shares. Therefore, diluted earnings per share is equal to basic
earnings per share.
(c) NAV per share
NAV per share is calculated by dividing the NAV of the Company by the number
of outstanding ordinary shares in issue as at the reporting date excluding
ordinary shares purchased by the Company and held as treasury shares (note
11). NAV is determined as total assets less total liabilities. The basic NAV
per share is equal to the diluted NAV per share.
31 December 2023 30 June 2023
(Unaudited) (Audited)
Net asset value (USD'000) 1,106,737 1,123,867
Number of outstanding ordinary shares in issue 156,295,247 160,047,846
Net asset value per share (USD per share) 7.08 7.02
19. SEASONALITY
The Board believes that the impact of seasonality on the Condensed Interim
Financial Statements is not material.
20. RELATED PARTIES
The Investment Manager was appointed by the Board of Directors under an
Investment Management Agreement, which sets out the basis for the calculation
and payment of the management fee. The Investment Management Agreement may be
terminated by either party giving six months' notice. In certain circumstances
the Company may be required to pay compensation to the Investment Manager of
an amount up to six months' fees in lieu of notice. The management fees and
incentive fees described below were payable for the half year to 31 December
2023 and will continue in effect until 30 June 2024.
(a) Management fees
For the accounting year ended 30 June 2023, the Investment Manager received a
fee at the annual rates set out below, paid monthly in arrear.
● 1.50% of net assets, levied on the first USD500 million of net
assets;
● 1.25% of net assets, levied on net assets between USD500 million
and USD1,000 million;
● 1.00% of net assets, levied on net assets between USD1,000 million
and USD1,500 million;
● 0.75% of net assets, levied on net assets between USD1,500 million
and USD2,000 million; and
● 0.50% of net assets, levied on net assets above USD2,000 million.
With effect from 1 July 2023, the Investment Manager receives a fee at an
annual rate at the rates set out below, payable monthly in arrear.
● 1.30% of net assets, levied on the first USD1,000 million of net
assets;
● 1.00% of net assets, levied on net assets between USD1,000 million
and USD1,500 million;
● 0.75% of net assets, levied on net assets between USD1,500 million
and USD2,000 million; and
● 0.50% of net assets, levied on net assets above USD2,000 million.
Total management fees earned by the Investment Manager for the period amounted
to USD7.0 million (31 December 2022: USD7.3 million). In total USD1.2 million
(30 June 2023: USD1.3 million) was payable to the Investment Manager at the
reporting date.
(b) Incentive fees
As described in note 16(b), USD15.8 million of accrued incentive fees were
paid to the Investment Manager in November 2023. USD7.5 million is accrued for
potential payment when the annual report for the year to 30 June 2024 is
published and is classified as a current liability as at 31 December 2023.
25% of any incentive fee paid to the Investment Manager is used by the
Investment Manager to purchase shares in the Company in the open market. In
practice such purchases are generally made alongside, and at the same price
as, share buybacks made by the Company.
(c) Directors' Remuneration
During the period, the Remuneration Committee engaged an independent
consultant, Stephenson Executive Search Limited, to review the directors' work
load and remuneration. Taking account of the consultant's recommendations, the
Board agreed the following levels of directors' remuneration with effect from
1 October 2023:-
Director Description Total annual remuneration
with effect from 1 October 2023
Huw Evans $115,000 as Chair $115,000
Julian Healy $80,000 directors' fee $100,000
$10,000 as Chair of the Audit Committee
$10,000 for work on valuations
Kathryn Matthews $80,000 directors' fee $85,000
$5,000 as Chair of the Management Engagement Committee
Peter Hames $80,000 directors' fee $95,000
$5,000 as Chair of the Remuneration Committee
$10,000 for work on listed investments
Hai Trinh $80,000 directors' fee $85,000
$5,000 for additional work carried out in Vietnam
The Directors who served during the period received the following emoluments
in the form of fees:
Six months ended
Annual fee 31 December 2023 31 December 2022
USD USD USD
Unaudited Unaudited
Huw Evans 115,000 55,000 52,500
Julian Healy 100,000 47,500 45,000
Thuy Bich Dam* - - 42,500
Kathryn Matthews 85,000 42,500 42,500
Peter Hames 95,000 45,000 40,000
Hai Thanh Trinh 85,000 41,250 40,219
231,250 262,719
*Retired on 18 April 2023
There were no directors' fees outstanding at the period end (30 June 2023: USD
nil). During the period, directors' expenses totalling USD4,622 were paid (31
December 2022: USD13,098). The total amount received by the Directors during
the period was USD235,872 (31 December 2022: USD275,817), of which USDnil was
outstanding at 31 December 2023 (31 December 2022: USDnil).
(d) Shares held by related parties
Shares held Shares held
as at 31 December 2023 as at 30 June 2023
Huw Evans 45,000 35,000
Julian Healy 20,000 15,000
Kathryn Matthews 9,464 9,464
Peter Hames 8,000 8,000
Hai Thanh Trinh - -
Andy Ho - 248,084
As at 31 December 2023, Stephen Westwood, a retained Consultant of the
Company, owned 6,000 shares (30 June 2023: 6,000) in the Company.
As at 31 December 2023, the Investment Manager owned 4,009,897 shares (30 June
2023: 3,303,397 shares) in the Company.
(e) Controlling party
In the opinion of the Directors on the basis of shareholdings advised to them,
the Company has no immediate nor ultimate controlling party.
21. FINANCIAL RISK MANAGEMENT
(a) Financial risk factors
The Company's activities expose it to a variety of financial risks: market
risk (including currency risk, fair value interest rate risk, cash flow
interest rate risk and price risk), credit risk and liquidity risk.
The Condensed Interim Financial Statements do not include all financial risk
management information and disclosures required in the Annual Audited
Financial Statements; they should be read in conjunction with the Company's
Audited Financial Statements as at 30 June 2023.
There have been no significant changes in the management of risk or in any
risk management policies since the last balance sheet date.
(b) Capital Management
The Company's capital management objectives are:
· To ensure the Company's ability to continue as a going concern;
· To provide investors with an attractive level of investment
income; and
· To preserve a potential capital growth level.
The Company is not subject to any externally imposed capital requirements. The
Company has engaged the Investment Manager to allocate the Company's assets in
such a way so as to generate a reasonable investment return for its
shareholders and to ensure that there is sufficient funding available for the
Company to continue as a going concern.
Capital as at the period end is summarised as follows:
31 December 2023 30 June 2023
USD'000 USD'000
(Unaudited) (Audited)
Net assets attributable to equity shareholders 1,106,737 1,123,867
(c) Fair value estimation
The table below analyses financial instruments carried at fair value, by
valuation method. The different levels have been defined as follows:
· Level 1: Quoted prices (unadjusted) in active markets for
identical assets or liabilities;
· Level 2: Inputs other than quoted prices included within Level 1
that are observable for the asset or liability, either directly (that is,
as prices) or indirectly (that is, derived from prices); and
· Level 3: Inputs for the asset or liability that are not based on
observable market data (that is, unobservable inputs).
There are no financial liabilities of the Company which were carried at FVTPL
as at 31 December 2023 and 30 June 2023.
The level into which each financial asset is classified is determined based on
the lowest level of significant input to the fair value measurement.
Financial assets measured at fair value in the Condensed Statement of
Financial Position are grouped into the following fair value hierarchy:
Level 3 Total
USD'000 USD'000
As at 31 December 2023
Financial assets at FVTPL 1,088,858 1,088,858
As at 30 June 2023
Financial assets at FVTPL 1,137,428 1,137,428
The Company classifies its investments in subsidiaries and associates as Level
3 because they are not publicly traded, even when the underlying assets may be
readily realisable. There were no transfers between the levels during the
period/year ended 31 December 2023 and 30 June 2023.
If the investments which are held by the subsidiaries were instead held at the
Company level, they would be presented as follows:
Level 1 Level 2 Level 3 Total
USD'000 USD'000 USD'000 USD'000
As at 31 December 2023 (Unaudited)
Cash and cash equivalents 14,339 - - 14,339
Ordinary shares - listed 649,533 - - 649,533
- unlisted * 71,094 5,658 - 76,752
Private equity - - 266,513 266,513
Loans and receivables at FVTPL 52,570 52,570
Operating asset - - 13,335 13,335
Other liabilities, net of assets - - 15,816 15,816
734,966 5,658 348,234 1,088,858
Level 1 Level 2 Level 3 Total
USD'000 USD'000 USD'000 USD'000
As at 30 June 2023 (Audited)
Cash and cash equivalents 3,705 - - 3,705
Ordinary shares - listed 687,039 - - 687,039
- unlisted * 98,099 6,238 - 104,337
Private equity investments - - 254,974 254,974
Loans and receivables at FVTPL - - 64,059 64,059
Operating asset - - 13,661 13,661
Other net assets - - 9,653 9,653
788,843 6,238 342,347 1,137,428
* Unlisted securities are valued at their prices on UPCoM or using quotations
from brokers.
Investments whose values are based on quoted market prices in active markets,
and are therefore classified within Level 1, include actively traded equities
on Ho Chi Minh City Stock Exchange, Hanoi Stock Exchange or UPCoM at the
Condensed Statement of Financial Position date.
Financial instruments which trade in markets that are not considered to be
active but are valued based on market prices and dealer quotations are
classified within Level 2. These include investments in OTC equities. As Level
2 investments include positions that are not traded in active markets,
valuations may be adjusted to reflect illiquidity and/or non-transferability,
which are generally based on available market information.
Private equities, the operating asset, loans and receivables at FVTPL and
other assets that do not have an active market are classified within Level 3.
The Company uses valuation techniques to estimate the fair value of these
assets based on significant unobservable inputs as described in note 3.1.
There were no movements into or out of the Level 3 category during the period.
The Company considers the appropriateness of the valuation model inputs, as
well as the valuation results using various valuation methods and techniques
which are generally recognised as standard within the industry. The change in
the significant unobservable inputs shown in the table below shows the impact
which a reasonable potential shift in the input variables would have on the
valuation result.
Set out below is the sensitivity analysis which shows the changes in the
Company's net asset value, on a look through basis, based on the significant
unobservable input assumptions used in the valuation of Level 3 investments as
at 31 December 2023, keeping all other assumptions constant. The changes in
discount rates by +/- 1% is considered appropriate for the market in which the
Company is operating.
Segment Valuation Valuation Discount Cap Terminal Multiples Sensitivities in discount rates and cap rates/terminal
Technique (USD'000) rate rate growth rate growth rate (USD'000)
Change in discount rate
Operating assets Discounted cash flows 13,335 15% n/a 13.5% n/a -1% 0% 1%
Change in -1% 14,080 13,486 12,936
terminal growth 0% 13,915 13,335 12,797
1% 13,762 13,194 12,669
Private equity Discounted cash flows 211,281 13%- 23% n/a 5% n/a
-1% 0% 1%
Change in -1% 215,435 202,261 190,509
cap rate 0% 228,022 211,281 1,173,819
1% 241,398 222,434 207,298
Private equity Multiples 9,807 n/a n/a n/a 7.86 Change in -1% 0% 1%
EBITDA margin 9,750 9,807 9,964
Loans at FVTPL Scenario 35,817 21% n/a n/a n/a
-1% 0% 1%
based 36,252 35,817 35,392
Private equity
Discounted cash flows
211,281
13%- 23%
n/a 5%
n/a
-1% 0% 1%
Change in -1% 215,435 202,261 190,509
cap rate 0% 228,022 211,281 1,173,819
1% 241,398 222,434 207,298
Private equity
Multiples
9,807
n/a
n/a
n/a
7.86
Change in -1% 0% 1%
EBITDA margin 9,750 9,807 9,964
Loans at FVTPL
Scenario
based
35,817
21%
n/a
n/a
n/a
-1% 0% 1%
36,252 35,817 35,392
* The above sensitivity analysis includes those underlying Level 3 private
equity investments that have been valued using the valuation methodologies
noted above. The difference between the balance of USD319.1 million recorded
as Level 3 private equity investments and loans and receivables at FVTPL
earlier in note 21 and the three above balances of USD256.9 million relates to
five underlying investments, whose fair value measurement and inputs are not
subject to the same sensitivities.
Set out below is the sensitivity analysis which shows the changes in the
Company's net asset value based on the significant unobservable input
assumptions used in the valuation of Level 3 investments as at 30 June 2023,
keeping all other assumptions constant. The changes in discount rates by +/-
1% are considered appropriate for the market in which the Company is
operating.
Segment Valuation Valuation Discount Cap Terminal Multiples Sensitivities in discount rates and cap rates/terminal
technique (USD'000) rate rate growth rate growth rate (USD'000)
Change in discount rate
Operating assets Discounted cash flows 13,661 15% n/a 13.5% n/a -1% 0% 1%
Change in -1% 14,406 13,812 13,262
terminal growth 0% 14,241 13,661 13,123
1% 14,088 13,520 12,995
Private equity Discounted cash flows 210,540 13%-23% n/a 5% n/a
-1% 0% 1%
Change in -1% 213,655 200,433 189,488
terminal growth 0% 226,630 210,540 196,563
1% 241,417 222,074 206,725
Private equity Multiples 11,392 n/a n/a n/a 8.03
Change in -1% 0% 1%
EBITDA margin 11,270 11,392 11,483
Loans at FVTPL Scenario 37,212 21% n/a n/a n/a
-1% 0% 1%
based 37,755 37,212 36,681
Private equity
Discounted cash flows
210,540
13%-23%
n/a
5%
n/a
-1% 0% 1%
Change in -1% 213,655 200,433 189,488
terminal growth 0% 226,630 210,540 196,563
1% 241,417 222,074 206,725
Private equity
Multiples
11,392
n/a
n/a
n/a
8.03
Change in -1% 0% 1%
EBITDA margin 11,270 11,392 11,483
Loans at FVTPL
Scenario
based
37,212
21%
n/a
n/a
n/a
-1% 0% 1%
37,755 37,212 36,681
* The above sensitivity analysis includes those underlying Level 3 private
equity investments that have been valued using the valuation methodologies
noted above. The difference between the balance of USD319.0 million recorded
as Level 3 private equity investments and loans and receivables at FVTPL
earlier in note 21 and the three above balances of USD259.1 million relates to
four underlying investments, whose fair value measurement and inputs are not
subject to the same sensitivities.
Specific valuation techniques used to value the Company's underlying
investments include:
· Quoted market prices or dealer quotes;
· Use of discounted cash flow technique to calculate the present value of
the estimated future cash flows; and
· Other techniques, such as the latest market transaction price.
22. SUBSEQUENT EVENTS
This Interim Report and Condensed Interim Financial Statements were approved
for issue by the Board on 25 March 2024.
A dividend of 7.0 cents per share in respect of the half year ended 31
December 2023 was declared on 25 March 2024. The dividend is payable on or
around 13 May 2024 to shareholders on record on 5 April 2024.
MANAGEMENT AND ADMINISTRATION
Directors Registrar
Huw Evans Computershare Limited
Julian Healy 13 Castle Street
Peter Hames St Helier
Kathryn Matthews Jersey, JE1 1ES
Hai Thanh Trinh Channel Islands
Registered Office Independent Auditors
PO Box 656 PricewaterhouseCoopers CI LLP
Trafalgar Court PO Box 321
Les Banques Royal Bank Place
St Peter Port 1 Glategny Esplanade
Guernsey, GY1 3PP St Peter Port
Channel Islands Guernsey, GY1 4ND
Channel Islands
Investment Advisor
Investment Manager
VinaCapital Investment Management Ltd. VinaCapital Fund Management JSC
1(st) and 2(nd) Floors, Elizabeth House 17th Floor, Sun Wah Tower
Les Ruettes Brayes 115 Nguyen Hue Blvd, District 1
St Peter Port Ho Chi Minh City
Guernsey, GY1 1EW Vietnam
Channel Islands
Administrator and Company Secretary UK Marketing and Distribution Partner
Aztec Financial Services (Guernsey) Limited Cadarn Capital Limited
PO Box 656 Moor Place
Trafalgar Court, Les Banques 1 Fore St Avenue
St Peter Port London EC2Y 9DT
Guernsey, GY1 3PP
Channel Islands
Corporate Broker Custodian
Numis Securities Limited Standard Chartered Bank (Vietnam) Limited
45 Gresham Street Unit 1810-1815, Keangnam
London, EC2V 7BF Cau Giay New Urban Area
United Kingdom Me Tri Com Hanoi
Vietnam
Marketing and Investor Engagement (Global) Public Relations (London)
Barclays Bank PLC Camarco
1 Churchill Place, 40 Strand
London, E14 5HP London, WC2N 5RW
United Kingdom United Kingdom
Investment Advisor's Offices:
Ho Chi Minh City
17th Floor, Sun Wah Tower
115 Nguyen Hue Blvd, District 1
Ho Chi Minh City
Vietnam
Phone: +84-28 3821 9930
Fax: +84-28 3821 9931
Hanoi
2nd Floor, International Centre Building
17 Ngo Quyen, Hoan Kiem District
Hanoi
Vietnam
Phone: +84-424 3936 4630
Fax: +84-424 3936 4629
Singapore
6 Temasek Boulevard
# 42-01, Suntec Tower 4
Singapore 038986
Phone: +65 6332 9081
Fax: +65 6333 9081
GLOSSARY AND ALTERNATIVE PERFORMANCE MEASURES
Term Definition
AGM Annual General Meeting
AIC The Association of Investment Companies
AIC Code The AIC Code of Corporate Governance which was issued in February 2019
ADTV Average daily trading value
Basis point One hundredth of one percentage point
Board The Board of Directors
BVI British Virgin Islands
Company VinaCapital Vietnam Opportunity Fund Limited
COVID The disease caused by SARS-CoV-2, the coronavirus that emerged in December
2019
EBITDA Earnings before interest, tax, depreciation and amortisation. A measure of the
gross profit of a company.
ESG Environmental, Social, and Governance
Facility The revolving credit facility as disclosed in notes 10 and 13
FDI Foreign direct investments.
Financial Statements The Interim Condensed Financial Statements of the Company
FVTPL Fair value through profit or loss
GBP British Pound Sterling.
GDP Gross Domestic Product. GDP is a monetary measure of the value of all of the
finished goods and services produced in a specific time period in a country or
wider region.
Guernsey Law The Companies (Guernsey) Law, 2008 as amended
IAS International Accounting Standard
IFRS International Financial Reporting Standards
Independent Valuer A qualified independent professional services firm
IPO Initial public offering - the means by which most listed companies achieve
their stock market listing.
KPI Key performance Indicator
LSE The London Stock Exchange
MSCI Morgan Stanley Capital International
NAV Net Asset Value, being the total value of the Company's assets less its
liabilities (the net assets)
NAV per share NAV divided by the number of shares in issue.
NAV per share increase Expressed in percentage terms, is a measure of the NAV per share of the
Company, calculated by taking the change in the NAV per share over the period
in question and dividing by the starting NAV per share.
The NAV per share increase is calculated as follows:
31 December 2023: Closing NAV per share 7.08 a
30 June 2023: Opening NAV per share 7.02 b
Change in real terms 0.06 c=b-a
Change as a percentage 0.9% =c/b
NAV Total Return Expressed in percentage terms, is a measure of the investment return earned by
the Company, calculated by taking the change in the NAV over the period in
question and dividing by the starting NAV. This assumes that any dividends
paid in the period are reinvested at the prevailing NAV per share on the
ex-dividend date and that the dividend would grow at the same rate of return
as the NAV per share after re-investment.
The NAV Total Return is calculated as follows:
Total return over period:
31 December 2023: Closing NAV per share 7.08 a
Dividends paid 0.07 b
Effect of dividend reinvestment* 0.00 c
30 June 2023 Opening NAV per share 7.02 d
NAV Total Return (%) 1.9% =((a+b+c)/d)-1
Total return over the calendar year:
31 December 2023: Closing NAV per share 7.08 a
Dividends paid 0.13 b
Effect of dividend reinvestment 0.01 c
31 December 2022 Opening NAV per share 6.17 d
NAV Total Return (%) 17.0% =((a+b+c)/d)-1
Total return over 3 years:
31 December 2023: Closing NAV per share 7.08 a
Dividends paid 0.43 b
Effect of dividend reinvestment* 0.01 c
31 December 2020 Opening NAV per share 6.30 d
NAV Total Return (%) 19.4% =((a+b+c)/d)-1
NAV Total Return
Total return over 5 years: 7.08 a
31 December 2023: Closing NAV per share
Dividends paid 0.67 b
Effect of dividend reinvestment* 0.11 c
31 December 2018 Opening NAV per share 5.13 d
NAV Total Return (%) 53.2% =((a+b+c)/d)-1
NovaGroup NovaGroup Joint Stock Company
OTC Over-The-Counter
PCTM Performance Conditional Tender Mechanism
PEG Price/Earnings to Growth Ratio
PEPT Public Investments with Private Terms
PER Price-to-earnings ratio
PMI Purchasing Managers' Index
POI Law The Protection of Investors (Bailiwick of Guernsey) Law, 2020
Private Equity This consists of investments in private companies, structured investments and
bonds with privately negotiated terms.
SBV State Bank of Vietnam
Share Price Total Return Expressed in percentage terms, is a measure of the return earned by a
shareholder, calculated by taking the change in the share price over the
period in question and dividing by the starting share price. This assumes that
any dividends paid in the period are reinvested at the prevailing share price
on the ex-dividend date and that the dividend would grow at the same rate of
return as the share price after re-investment.
The share price Total Return over the period is calculated as follows:
31 December 2023: closing share price 4.56 a
Dividends paid 0.07 b
Effect of dividend reinvestment 0.00 c
30 June 2023 opening share price 4.29 d
Share price total return (%) 7.9% =((a+b+c)/d)-1
SME Small and Medium-sized Enterprises
SOE State Owned Enterprise
UK Companies Act Companies Act 2006
UPCoM UPCoM listing of the Hanoi Stock Exchange
USD United States Dollar.
VinaCapital VinaCapital Investment Management Ltd
VND / VN Dong Vietnamese Dong
VN Index The Ho Chi Minh Stock Exchange Index, a capitalisation-weighted index of all
companies listed on the Ho Chi Minh Stock Exchange.
VOF VinaCapital Vietnam Opportunity Fund Limited
NAV Total Return
Expressed in percentage terms, is a measure of the investment return earned by
the Company, calculated by taking the change in the NAV over the period in
question and dividing by the starting NAV. This assumes that any dividends
paid in the period are reinvested at the prevailing NAV per share on the
ex-dividend date and that the dividend would grow at the same rate of return
as the NAV per share after re-investment.
The NAV Total Return is calculated as follows:
Total return over period:
31 December 2023: Closing NAV per share 7.08 a
Dividends paid 0.07 b
Effect of dividend reinvestment* 0.00 c
30 June 2023 Opening NAV per share 7.02 d
NAV Total Return (%) 1.9% =((a+b+c)/d)-1
Total return over the calendar year:
31 December 2023: Closing NAV per share 7.08 a
Dividends paid 0.13 b
Effect of dividend reinvestment 0.01 c
31 December 2022 Opening NAV per share 6.17 d
NAV Total Return (%) 17.0% =((a+b+c)/d)-1
Total return over 3 years:
31 December 2023: Closing NAV per share 7.08 a
Dividends paid 0.43 b
Effect of dividend reinvestment* 0.01 c
31 December 2020 Opening NAV per share 6.30 d
NAV Total Return (%) 19.4% =((a+b+c)/d)-1
NAV Total Return
Total return over 5 years: 7.08 a
31 December 2023: Closing NAV per share
Dividends paid 0.67 b
Effect of dividend reinvestment* 0.11 c
31 December 2018 Opening NAV per share 5.13 d
NAV Total Return (%) 53.2% =((a+b+c)/d)-1
NovaGroup
NovaGroup Joint Stock Company
OTC
Over-The-Counter
PCTM
Performance Conditional Tender Mechanism
PEG
Price/Earnings to Growth Ratio
PEPT
Public Investments with Private Terms
PER
Price-to-earnings ratio
PMI
Purchasing Managers' Index
POI Law
The Protection of Investors (Bailiwick of Guernsey) Law, 2020
Private Equity
This consists of investments in private companies, structured investments and
bonds with privately negotiated terms.
SBV
State Bank of Vietnam
Share Price Total Return
Expressed in percentage terms, is a measure of the return earned by a
shareholder, calculated by taking the change in the share price over the
period in question and dividing by the starting share price. This assumes that
any dividends paid in the period are reinvested at the prevailing share price
on the ex-dividend date and that the dividend would grow at the same rate of
return as the share price after re-investment.
The share price Total Return over the period is calculated as follows:
31 December 2023: closing share price 4.56 a
Dividends paid 0.07 b
Effect of dividend reinvestment 0.00 c
30 June 2023 opening share price 4.29 d
Share price total return (%) 7.9% =((a+b+c)/d)-1
SME
Small and Medium-sized Enterprises
SOE
State Owned Enterprise
UK Companies Act
Companies Act 2006
UPCoM
UPCoM listing of the Hanoi Stock Exchange
USD
United States Dollar.
VinaCapital
VinaCapital Investment Management Ltd
VND / VN Dong
Vietnamese Dong
VN Index
The Ho Chi Minh Stock Exchange Index, a capitalisation-weighted index of all
companies listed on the Ho Chi Minh Stock Exchange.
VOF
VinaCapital Vietnam Opportunity Fund Limited
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