Funds strategy funding exit for raising more money

VNStockNews.com - Private equity fund management firms (PE funds) namely Aureos Capital, BankInvest, Mekong Capital operating in Vietnam have underwent a very difficult year.

Accordingly, the investment items in Small to Medium Sized Enterprises (SMEs) are considered more cautiously to minimise the medium and long term risks because factually enterprises had to suffer strong impacts from the recent financial crisis.

As for PE funds, the deadline to end disbursement is coming and they have not much funding to continue investing in next few years when the crisis is over. In order to catch investment opportunities from the economic recovery and maintain investment portfolio, PE funds last year planned to raise funds. Aureos Capital plans to mobilise extra $250 million from South-eastern Asia (including Vietnam, Thailand, Indonesia, Philippines and Malaysia) while BankInvest prepares to raise $150 million more shares from Vietnam market because the fund has only $20 million left for the forthcoming investments. Meanwhile, Mekong Capital is rush to mobilisation additional capital for its fourth fund.
In parallel with the capital raising plans, PE funds are restructuring and withdrawing portfolios that they had carried out many previous years ago. Capital withdrawal is the normal operation of investment funds to realise the investments and refund cash to investors according to the previous commitments.

In most investment items of PE funds, capital exit strategy with particular roadmaps is always mentioned, considered and negotiated in advance with the invested companies. Typically, when deciding to invest in Vinh Hao Mineral Water Joint Stock Co, BankInvest planned in advance the capital exit through selling back the investment item to domestic or foreign brewers that want to diversify products or enter Vietnamese market. The exit strategy is usually mentioned in term sheet contracts or official investment agreements. To raise more capital, PE funds prefer exiting good investment items to create a realised Internal Rate of Return (IRR) equalling or higher than the expected levels. Capital exit strategy is conducted via IPO or pre-IPO, listing or securities sales to other strategic partners. In investment contracts, exit strategy is recorded for each particular period. Invested companies are required to commit to support PE funds' capital withdrawal. For example, Aureos Capital reduced a part of $3 million investment in Truong Thanh Furniture (TTF) before the company launched pre-IPO and listed on Hochiminh Stock Exchange (STC).

Lately, Mekong Capital sold its whole $1.85 million investment in Saigon Gas Joint Stock Co (the investment had been implemented in August 2005) to Elf Gas Co (Total). Such a capital withdrawal method is called trade-sale, which is matched with the acquitisation growth strategy of Elf Gas. Also, Mekong Capital withdrew capital of other investments from Ngo Han Joint Stock Co, AA Architecture Construction Joint Stock Co, Nam Hoa Joint Stock Co. Similarly, to prepare capital mobilisation for the third fund, BankInvest is studying a capital exit strategy in listed firms such as Masan Group, Hoa Phat.

In the current period, the additional capital mobilisation for continuous investments is very difficult for PE funds when the world has not absolutely escaped from the economic recession. Capital exit in the companies with good business results aims to reach IRR as expected or higher. As for PE funds, the capital withdrawal shows the commitment to refund cash to investments after a certain time. The more importance is that PE funds need the support of invested companies throughout the process of implementing the exit strategy.