VinaCapital Vietnam Opportunity Fund Limited
Annual Report 2017
2
3
Section 1
Section 2
Section 3
Contents
Annual Report and Financial Statements for the year
ended 30 June 2017
General Information
General Information
Investing Policy
Historical Financial Information
Financial Highlights
Chairman’s Statement
Investment Manager’s Report
Investment Manager’s Report
Economic and Investment Environment
VinaCapital Management Team
03
04
06
08
10
14
23
34
38
Financial Reports and Statements
Board of Directors
Disclosure of Directorships in Other Public
Companies Listed on Recognised Stock Exchanges 40
41
Report of the Directors
54
Statement of Director’s Responsibilities
56
Report of the Audit Committee
60
Directors’ Remuneration Report
62
Independent Auditor’s Report
70
Financial Statements
Section 4
Annex
Management and Administration
Notice of Annual General Meeting
106
108
Taking Vietnam to
the world
VOF
GENERAL INFORMATION
VinaCapital Vietnam Opportunity Fund Limited (“the Company” or “VOF”)
is a Guernsey domiciled closed-ended investment company. The Company
was previously a limited liability company incorporated in the Cayman Islands.
At an Extraordinary General Meeting held on 27 October 2015, Shareholders
approved proposals to change the Company’s domicile to Guernsey.
This change took place on 22 March 2016. The Company is classified as a
registered closed-ended Collective Investment Scheme under the Protection
of Investors (Bailiwick of Guernsey) Law 1987 and is subject to The Companies
(Guernsey) Law, 2008.
The Company is quoted on the Main Market of the London Stock Exchange
(“LSE”) with a Premium Listing.
The Company does not have a fixed life but the Board has determined that it is
desirable that Shareholders should have the opportunity to review the future
of the Company at appropriate intervals. Accordingly, the Board intends that
a special resolution will be proposed every fifth year 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 and 2013 and on both occasions
the resolution was not passed allowing the Company to continue as currently
constituted. The next shareholder vote on the continuation of the Company
is planned to be held in December 2018.
VOF Annual Report 2017VOF Annual Report 2017
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5
Investing Policy
Investment Objective
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.
Investment Policy
All of the Company’s investments will be in
Vietnam or in companies with at least 75 per
cent 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 net
asset value (“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 of funds managed by the Investment
Manager will be subject to prior approval by
the Board. No more than 10%, in aggregate, of
the value of the Company’s total assets may be
invested in other listed closed-ended investment
funds. The restriction on investment in other
listed closed-ended investment funds does not
apply to investments in closed-ended investment
funds which themselves have published
investment policies to invest no more than 15%
of their total assets in other listed closed-ended
investment funds.
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 may gear its assets through
borrowings which may vary substantially 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 are
not to 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.
An Cuong Wood-Working Joint Stock Company (“AC”)
VOF Annual Report 2017VOF Annual Report 2017 6
Historical Financial Information *
Years ended 30 June
Statement of Income (USD’000)
Total income from ordinary activities
Total expenses from ordinary activities
Operating profit/(loss) before income tax
Income tax expense
Profit/(loss) for the year
Minority interests
Profit/(loss) attributable to ordinary equity holders
Statement of Financial Position (USD’000)
Total assets
Total liabilities
Net assets
Share information
Basic earnings/(loss) per share (cents per share)
Basic earnings per share (pence per share)
Share price at 30 June (USD)**
Share price at 30 June (GBP)**
Ordinary share capital (thousand shares)
Market capitalisation at 30 June (USD’000)**
Market capitalisation at 30 June (GBP’000)**
Net asset value per ordinary share (USD)
Net asset value per ordinary share (GBP)**
2013
2014
2015
2016
2017
120,239
(29,515)
90,724
(672)
90,052
(202)
90,254
743,868
9,171
734,697
31.00
2.13
261,376
556,731
111,510
(22,527)
88,983
-
88,983
-
88,983
781,645
10,265
771,380
36.00
2.50
238,255
595,638
12,132
(17,504)
(5,372)
-
(5,372)
-
(5,372)
723,744
5,080
718,664
(2.00)
2.50
219,958
549,894
2.81
3.24
3.27
119,137
(23,067)
96,070
-
96,070
-
96,070
796,386
9,850
786,536
45.00
30.00
2.82
2.11
208,646
588,382
440,243
3.77
2.82
230,366
(39,817)
190,549
-
190,549
-
190,549
982,358
32,683
949,675
93.00
73.00
3.82
2.94
200,621
766,372
589,826
4.73
3.64
Ratio
Return on average ordinary shareholders’ funds
Ongoing charges***
Incentive fee
Ongoing charges plus incentive fee
14.8%
2.1%
0.0%
2.1%
15.9%
1.7%
1.2%
2.9%
1.0%
1.7%
0.5%
2.2%
12.8%
1.8%
1.2%
3.0%
22.0%
1.9%
2.7%
4.6%
7
* Until 1 July 2014, the financial statements were prepared on a consolidated basis. From 1 July 2014, the financial statements of the
Company are prepared on a stand-alone basis in accordance with International Financial Reporting Standards (“IFRS”) 10.
** Following the change of domicile to Guernsey the Company’s shares are now quoted in Pounds Sterling (“GBP”). USD NAV per share is
translated to Pound Sterling using the rate of exchange at 30 June 2016 and 30 June 2017 respectively.
*** Ongoing charges have been prepared in accordance with the Association of Investment Companies (“AIC”) recommended methodology.
VOF Annual Report 2017VOF Annual Report 2017 8
Financial Highlights
Total Net Assets (millions)
NAV per share
Increase in NAV per share over the year
Basic and diluted earnings/(loss) per share
Share price
Increase in share price over the year
Discount to NAV per share
As at 30 June 2017
USD
As at 30 June 2016
USD
As at 30 June 2015
USD
949.68
4.73
25.5%
0.93
3.82
35.5%
19.2%
786.54
3.77
15.3%
0.45
2.82
12.8%
25.2%
718.66
3.27
0.9%
(0.02)
2.50
0.0%
23.5%
In the year to 30 June 2017, the
Company’s NAV per share increased
in US Dollar terms by 25.5% to
USD4.73, while the Company’s share
price rose by 35.5% to USD3.82, from
the same period a year ago.
9
USD949.68
Total Net Assets
(millions)
19.2%
Discount to
NAV per share
Cotec Constructions (CTD)
VOF Annual Report 2017VOF Annual Report 2017 10
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Chairman’s Statement
Dear Shareholders,
I am pleased to be able to report strong
investment returns for the second year in a row
with the Company’s NAV per share growing by
25.5% in US Dollar terms.
In seeking to achieve the Company’s Investment
Objective, our strategy has been and remains:
• To retain the largest part of the portfolio in
listed assets
• To continue to add to unlisted securities* and
private equity investments as and when attractive
opportunities arise
• To reduce holdings in direct real estate and directly
owned operating assets
• To reduce the discount to NAV at which VOF’s
shares trade
* Unlisted securities include companies that have
not yet commenced publicly trading on any of
Vietnam’s major bourses. These may be state-
owned enterprises which are going through the
process of privatisation (known as “equitisation”
in Vietnam) and companies that are traded on the
Unlisted Public Company Market (“UPCoM”) of
the Hanoi Stock Exchange as well as stocks traded
over-the-counter (“OTC”).
Investment Performance
The Investment Manager’s report sets out in
detail the drivers of this year’s strong investment
performance but I would like to emphasise some
specific points.
The largest part of the Company’s portfolio is
made up of listed securities and, as in the previous
accounting year, performance in our Capital
Markets (listed and unlisted) pool was particularly
strong. It rose by more than 32% in US Dollar
terms and outperformed the Vietnam Index
(“VN-Index”) by a substantial margin of almost
12 percentage points. Growth in the underlying
earnings of our holdings was also strong and
provides some support for current market levels.
It was also particularly encouraging to experience
a number of major – and profitable – exits from
investments. Several of these exits were in part a
continuation of our policy of reducing exposure
to Direct Real Estate and Operating Assets, which
taken together have now fallen to only 6% of
the portfolio. Some of the Direct Real Estate and
Operating Assets were sold at very attractive prices
during the year.
As the Investment Manager describes in its
report, a further consequence of successful exits
was a relatively high balance in cash and bonds
throughout the accounting year. Of course, had we
been fully invested, results – particularly in Capital
Markets – could have been even better but this is
to speak with the benefit of hindsight and we are
naturally aware of somewhat extended valuation
levels after such a strong run in the market. We
had hoped that a significant proportion of our cash
would have been reinvested in unlisted securities
and private equity positions, but the gestation
period for making such new investments is always
somewhat unpredictable and it was prudent to
hold back sufficient cash to enable immediate
deployment as and when such attractive deals
were ready to close. As the Investment Manager
points out, we are very disciplined in this area as
we seek superior returns and an appropriate level
of reward for placing capital in illiquid investments.
The cash holdings continue to place the Company
in a good position to add to these areas as
opportunities arise. As at 30 June 2017, a number
of significant transactions were in various stages of
negotiation and, subsequent to the year end, the
Investment Manager has invested approximately
USD27 million in this asset class.
The investment performance of the Company’s
Capital Markets pool has been strong in
comparison to most of its peer funds. Given the
level of private equity and unlisted investment
exposure in the Company’s portfolio, there is
scope for significant value accretion over and
above stock market performance as these
investments mature and are listed or otherwise
sold privately.
The investment performance in the last financial
year has again resulted in our Investment Manager
earning an incentive fee on the Capital Markets pool.
The incentive fee earned by the Investment Manager
during the year was USD24.6 million. However, due
to the application of the 1.5% of Capital Markets Pool
NAV cap on incentive fee payments, only USD11.2
million is payable to the Investment Manager in
relation to the financial year ended 30 June 2017.
The balance of the incentive fee over the cap will be
carried forward and may be paid out next year or in
subsequent years. Any payment in future years will,
of course, also be subject to the 1.5% cap. I would
note that the Company has accrued the full quantum
of the incentive fee in the accounts (less a small
discount to reflect the time value of money and the
probability of payment in future years) as the Board
believes there is a reasonable likelihood that the
NAV per share will continue to advance and that the
sum in excess of the cap will be paid. NAV releases to
the market include this accrual, as does the ongoing
charge ratio shown on page 7 of these accounts.
Despite some very profitable exits, there was no
incentive fee payable on the Direct Real
Estate pool.
“Ultimately, the
investment success of
the manager will be
the best proof to the
market of the value and
promise of the
VOF portfolio.”
VOF Annual Report 2017VOF Annual Report 2017
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Discount Management
The discount at which the Company’s shares trade
to their NAV improved somewhat over the
Company’s accounting year, from 25.2% to 19.2%
but, in the Board’s view, remains unsatisfactory.
As mentioned in the Half Year Report, from June
2016 up until 15 November 2016 we were not
allowed by regulation to buy back shares as we
were negotiating the sale of a major asset. Since
then, the buyback programme has again been
active and has achieved some success. During this
seven and a half month period, we have bought
back 8 million shares at an average discount of
22.8% for a total consideration of USD27.4 million.
In part as a means of addressing the discount
and in part reflecting the growing maturity of
the Vietnamese investment markets, in August
2017 we announced the commencement of a
dividend programme. The first interim dividend
of 4.8 US cents (“cents”) per share, which was
paid in September, was approximately 1% of the
unaudited NAV as at 30 June 2017. We announced
the intention to pay at least this level of dividend
at half yearly intervals for the foreseeable future
and the Board declared a further interim dividend
of 4.8 cents per share on 25 October 2017. The
Board believes that a company paying a regular
dividend and with a sustainable annual yield of
approximately 2% of NAV should be attractive to a
wider range of potential investors.
The Investment Manager has also been very active
in marketing and investor relations and has put
considerable efforts into meeting both existing
and potential shareholders. The Board remains
available to investors and is in direct contact with
major shareholders.
Over the past three years, we have made progress
in a number of areas which were aimed at
reducing the size of the discount to NAV.
These included the reduction of our weighting in
Direct Real Estate and Operating Assets where
valuations were deemed by investors to be
uncertain. Further, we re-domiciled the
Company to Guernsey and listed the shares on the
premium section of the London Stock Exchange
and continued with an active buyback programme.
In August 2017, management of our assets was
delegated by the Investment Manager to VinaCapital
Fund Management Limited, an entity managed
and regulated in Vietnam by the State Securities
Commission of Vietnam (the “SSC”). The SSC is
a member of the International Organization of
Securities Commissions, which also includes in
its membership the regulators in the UK and the
USA. We believe that having the assets managed
by a regulated entity will remove a barrier which
had previously prevented some institutions from
investing in the Company’s shares.
Nevertheless, the discount has remained
stubbornly higher than we expected or desired.
We hope that a combination of a dividend and a
continuing buyback strategy will supplement the
natural investment attraction of the Vietnamese
capital markets and bring the Company’s share
price discount in to levels which the Board feels more
accurately reflect the fundamental prospects.
Continuation Vote
I would like to remind you that every fifth year,
shareholders are asked to vote on whether the
Company should continue as currently constituted.
There will be a vote in 2018 which is planned to
take place at the same time as the AGM, expected
to be in December. Under our Articles of Association,
this vote will be structured as a special resolution
for ‘discontinuation’, whereby the Company will
continue as is unless more than 75% of those voting
elect to ‘discontinue’. I will write to you nearer the
time setting out the Board’s recommendation.
Outlook
The global investment landscape is challenging.
Valuations are generally at the high end of
historic ranges, the economic cycle is mature and
monetary policy remains unorthodox and highly
supportive of risky assets such as equities. When
you combine these factors with the geopolitical risks
evident in a number of areas, it is perhaps surprising
that markets have been so positive and that
investors seem complacent about the outlook. There
is a widely held view that the global economy is still
not sufficiently robust to deal with an economic
slowdown, and that monetary stimulus would swiftly
add liquidity should anything untoward appear on
the horizon. The main reason for this belief rests in
the fact that price inflation has remained much more
subdued than predicted by economic models and
does not justify any ‘quantitative tightening’, as the
jargon would have it. Recent indications of gradual
tightening of monetary policy in developed markets
may slow the inflation of asset prices, including equities.
In this environment, where growth is in short
supply and is highly priced, it is encouraging that
countries like Vietnam are appearing on more
investor radars. Here we see rapid growth which is
occurring naturally as a result of continued
integration into the global economic system,
productivity improvement, investment and greater
participation rates in the economy. Inflation is
higher than in the developed world but remains
well controlled and the country is on course to
deliver more of its economy into the private
sector. The awkward banking problems which
resulted from the hangover in the real estate
market have been well corralled and the markets
have negotiated the thorny problem of Trump’s
abandonment of the Trans Pacific Partnership
trade agreement without too much of a hiccup.
As everywhere else, valuations in Vietnam have
responded to the good economic news, but
they are still low by regional and international
standards, especially given the level of earnings
growth. It is true that Vietnam is no longer
undiscovered, but it is not yet part of the
mainstream investment universe and should
continue to see growing international interest
from both direct and portfolio investors.
The country remains one of the most attractive
investment ‘stories’ available and we believe that
the flexibility offered by VOF’s mandate combined
with a well-resourced investment team makes it a
good choice to exploit that opportunity.
Steven Bates
Chairman
VinaCapital Vietnam Opportunity Fund Limited
25 October 2017
Phu Nhuan Jewelry (PNJ)
VOF Annual Report 2017VOF Annual Report 2017
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“The big return is
not in the buying
and the selling,
but in the waiting.”
Charlie Munger
This year, the Investment Manager’s review
of the portfolio and outlook is followed by a
detailed discussion about Vietnam’s economy
from VinaCapital’s Chief Economist.
Investment Manager’s Report
Andy Ho
Managing Director and Chief Investment Officer
Your patience is paying off!
The 2017 financial year (“FY 2017”) saw VOF NAV per share increase
25.5% in USD terms, with the capital market component returning 32.2%,
outperforming the VN-Index by nearly 12%. Over the last two financial years,
VOF’s NAV has risen by 44.9%. As for the share price, we saw an increase
of 35.5% in USD terms and 39.5% in GBP terms over the 12 months to 30
June 2017. Comparatively, the VN-Index, MSCI Emerging Markets, and the
MSCI Frontier Markets returned 20.6%, 21.2% and 15.2% in US dollar terms,
respectively, over the same period.
During the financial year, VOF benefited from a number of major exits –
especially sales of Direct Real Estate and Operating Assets – generating
USD156 million in cash and receivables. These exits represented an IRR
of 9.3% and an average of 1.8 times invested capital.
In addition, VOF enjoyed a significant increase in unrealised capital gains in
its listed equities portfolio and in several unlisted holdings, due primarily to
strong earnings growth and P/E multiple expansion. VOF’s listed and unlisted
equity holdings experienced a total earnings growth of 39.3%, while all
companies within the VOF portfolio (including the listed, unlisted and private
equity portfolios) delivered a total earnings growth of 38.7%.
Investment Review
The second half of 2016 (“2H16”) and the first half of 2017 (“1H17”) saw
Vietnam’s capital markets, and more specifically, the VN-Index, rise strongly.
The VN-Index increased by 3.0% during 2H16 and increased by a total of
20.6% over the 2017 financial year. In hindsight, we should have been more
aggressive investing in the capital markets during the middle of 2016.
VN-Index (in VND)
The VN-Index broke out of its long-term average trading range
850
Bonds, 4%
Others, 4%
Real estate projects*, 6%
Private equity, 8%
Cash, 9%
Unlisted Equity, 11%
Net Asset Value
USD 949.7m
Listed equity, 58%
750
650
550
450
Vinamilk’s (VNM)
Chart: VOF portfolio by asset class, % of NAV, 30 June 2017
*Including one Operating Asset (Hung Vuong Plaza)
Source: Bloomberg
Dec
13
Mar
14
Jun
14
Sep
14
Dec
14
Mar
15
Jun
15
Sep
15
Dec
15
Mar
16
Jun
16
Sep
16
Dec
16
Mar
17
Jun
17
VOF Annual Report 2017VOF Annual Report 2017 16
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The benchmark VN-Index broke out of a
three-year trading range at the outset of VOF’s
financial year. The initial breakout was propelled
by a surge of foreign inflows into emerging and
frontier markets in the middle of 2016, and
earnings growth coming through as evidenced
by the 30% average growth of large companies
in the first quarter of 2017. Later in the financial
year, the listing of new names on the stock
market including government equitisations and
the relaxation of foreign ownership limits (“FOL”)
across several large-cap companies also helped
fuel foreign and local investors’ enthusiasm for
Vietnamese stocks.
On 1 July 2016, VOF’s listed equity component
represented 57.9% of VOF’s total NAV. This asset
class within VOF increased 11.3% during 2H 2016
and 32.2% during FY2016/17.
Net cash available at the fund level at the
beginning of the fiscal year was slightly more
than USD55 million or 7.0% of VOF’s NAV. Our
caution in deploying this capital was primarily
the result of the greater opportunity we saw
in the private equity pipeline and in companies
going through the equitisation process. In
retrospect, greater aggression could have further
improved performance in the short term, but the
opportunities we have been working on are now
being added to the portfolio and hold the promise
of attractive returns over time.
Furthermore, VOF continued to build cash during
2H16, including combined proceeds of USD15.6
million from the sales of unlisted food company
Cau Tre and listed rubber company Phuoc Hoa
Rubber. During FY2017, VOF also took some
profits in the listed equity portfolio, parts of which
were reinvested as described below, and received
USD126 million from various exits in projects held
in the Direct Real Estate and Operating Assets
portfolio. These latter sales reduced the number
of holdings in this area from 14 at the end of
June 2016 to 10 at the end of June 2017 and the
weighting fell from 17.5% to 6.0% of NAV. The
net effect of all these transactions has led to VOF
closing FY2017 with USD37 million in cash and
USD50 million held in term deposits.
At the start of 2017, we turned our attention to
new opportunities in private equity. The pipeline
was robust, with more than USD200 million in
potential transactions under review, in several
sectors including banks, media, hospitals, and
construction materials. As mentioned in the
interim report, we are taking much longer to close
private equity deals because valuations have risen
significantly over the last twelve months (the VN-
index increased by 13.4% during CY2016) and terms
were tilting away from investors and more towards
sellers. Nevertheless, we felt that it would still be
possible to obtain attractive terms to protect the
Company’s interests and achieve attractive entry
prices as long as we remained patient.
As a result, the incubation time between starting
and closing a deal has increased significantly.
At the end of 2016, VOF deployed over USD40
million into privately negotiated investments into
listed companies such as Cotec Constructions,
Khang Dien House, and Novaland. During the first
half of 2017, VOF invested an additional USD48.5
million into a number of opportunities, including
low-cost airline VietJet Air, Thien Long Group,
Viglacera and the Hoa Phat Group. In summary,
we have taken advantage of a number of
opportunities in the capital markets, but some of
these investments have taken longer to come to
fruition than we expected: it is not simply a case
of buying these assets in the market. Transactions
need to be negotiated and structured and
approvals obtained, particularly in cases where
investments are in the form of Private Investment
in Public Equity deals or in the equitisation of
State-Owned Enterprises.
During FY2017, VOF had 30 - 35 holdings in its
Capital Market portfolio and I would like to take the
opportunity to highlight a few of the larger holdings
to provide a sense of how they are performing.
The table below sets out VOF's top 10 holdings:
Investee company
Asset class % of NAV Sector
Description
1. Vinamilk (“VNM”)
Listed
13.6
Food & beverage
Leading dairy company with dominant domestic
market share.
2. Hoa Phat Group (“HPG”)
3. Phu Nhuan Jewelry (“PNJ”)
4. Khang Dien House (“KDH”)
Listed
Listed
Listed
9.4
5.2
5.1
Construction materials
Vietnam’s largest steel manufacturer.
Consumer discretionary
Vietnam’s largest jewellery manufacturer and retailer.
Real estate & construction
Leading property developer with strong asset base
strategically located in District 9, Ho Chi Minh City.
5. Quang Ngai Sugar (“QNS”)
Unlisted
5.1
Food & beverage
6. Airports Corporation of Vietnam
Unlisted
5.0
Infrastructure
Diversified FMCG company with dominant domestic
market share in soymilk drink.
Vietnam’s largest airports operator, as well as aviation
infrastructure developer.
Financial services
One of Vietnam’s top ten commercial banks.
Transportation
Leading low cost carrier in Vietnam.
Real estate & construction One of Vietnam’s leading construction companies.
Construction materials
One of Vietnam’s leading wood-working and decorative
materials companies.
(“ACV”)
7. Eximbank (“EIB”)
8. VietJet Air (“VJC”)
9. Cotec Construction (“CTD”)
10. An Cuong Wood-Working Joint
Stock Company (“AC”)
Top 10 % of NAV
Listed
Listed
Listed
Private
Equity
3.6
3.3
3.0
2.7
56.0
Source: VinaCapital, % of total NAV, 30 June 2017
VOF Annual Report 2017VOF Annual Report 2017 18
All others,
20.9%
Eximbank (EIB),
3.6%
Khang Dien House
(KDH), 5.1%
Listed equity
market value:
USD 550.1m*
Vinamilk
(VNM), 13.6%
Hoa Phat Group
(HPG), 9.4%
Phu Nhuan Jewelry
(PNJ), 5.2%
Chart: VOF’s listed equities portfolio, chart represents
top 5 holdings and others, % of NAV, 30 June 2017
*Excluding Overseas shares
Vinatex, 1%
Airporrts Corporation
of Vietnam (ACV), 5%
Unlissted equity
market value:
USD 103.7m
QuangNgai Sugar
(QNS), 5%
Chart: VOF’s unlisted securities portfolio, chart represents top holdings,
% of NAV, 30 June 2017
Vinamilk (VNM) – Listed equities
VNM is our largest portfolio holding, and we started out at the beginning
of the financial year with VNM comprising 13.6% of our NAV. During our
financial year VNM’s share price increased by 39.2% despite modest 2016
profit growth of 9% and after the State Capital Investment Corporation
(“SCIC”) only managed to divest 60% of the shares (or 5.4%) out of the 9%
earmarked to be sold during their first phase of divestment (at the time
of writing this report SCIC is to sell another 3.3% of the company in the
second phase of divestment). Fraser & Neave which is already VNM’s largest
shareholder, was the only bidder for the shares, and the placement at a small
premium to market price at the time meant that other buyers preferred to
buy in the market as there is no restriction on foreign ownership since the
company removed its FOL the year before.
At the start of the financial year VNM accounted for 26.1% of the capital
market portfolio (versus 12.3% of the VN-Index weight at the same point
in time), a considerable overweight position, and from our perspective we
considered the stock price fairly valued at 21x P/E in 2017 against a modest
growth forecast. Accordingly, we decided to reduce our position by three
million shares or 4% of our opening position during the year. As at the end of
the financial year, VNM accounted for 13.6% of NAV and 19.7% of the capital
market portfolio (versus 12.2% weight of the VN-Index).
Hoa Phat Group (HPG) – Listed equities
HPG, VOF’s second-largest holding (after VNM) represents about 13.7% of
the capital market portfolio and 9.4% of total NAV. We have an overweight
position against the VN-Index, and increased our position before the end
of FY2017 by participating in a rights issue, investing an additional USD10.4
million which represented a 35% discount to the prevailing market price.
HPG trades at a P/E of approximately 7 times; the current Vietnam stock
market average P/E is about 16.5 times.
19
HPG’s management team has proved that it can
execute strategy effectively, and the company’s
market share in the construction steel sector has
increased from 22% at the end of 2016 to 24% by
mid-2017; the company is by far the largest steel
company in Vietnam.
The rights issue raised a total of USD300m and
will be used to finance the construction of a
new factory, which will increase the company’s
potential output from two million tons of steel
per annum to six million tons per annum. The
company’s existing steel complex is operating
at full capacity.
In 2016, HPG delivered profit after tax that was
89% higher than for 2015. Most analysts expect
continued earnings growth of between 10% and
12% in 2017 and 2018, respectively, forecasts that
have contributed to the 54% increase in HPG’s
share price during the 2017 financial year.
Phu Nhuan Jewelry (PNJ) – Listed equities
We continue to like PNJ as it continues to be
the dominant player (and only listed company)
in Vietnam’s jewelry sector. We have been
comfortable maintaining our position (7.6% of the
capital markets portfolio and 5.2% of total NAV)
despite a strong run-up in the share price (+35%
in FY2017) partly because we believe that we
could sell part or all of our holding at a significant
premium to prevailing market prices since PNJ has
reached its foreign ownership limit of 49%.
Furthermore, we believe that there is still strong
profit growth in the underlying business. In 2016,
PNJ reported revenues of USD380 million and core
profit of USD22 million, 11% and 17% higher than
2015, respectively. During the first half of 2017,
revenue and core profit grew by 39% and 35%,
respectively.
capacity is 390 million litres and the company
plans to introduce additional capacity of 90 million
litres by 2018. 2016 revenue was USD312 million
and net profit was USD62.6 million. Most analysts
expect QNS to grow profit after tax by 5% to 10%
in 2017, but more significantly in 2018 once the
new capacity comes online.
New store expansion is the primary driver behind
PNJ’s growth. PNJ currently has 240 stores, more
than double the number of stores compared to
its two nearest competitors combined, and is
gaining market share from traditional stores and
consolidating its market leadership.
Quang Ngai Sugar (QNS) – Unlisted equities
VOF initially invested USD13.5 million for a
2.4% stake in QNS, Vietnam’s largest producer
of soymilk and sugar in March 2015 when the
company was private. Since then, VOF has
acquired additional shares to gain a 5.3% stake
for a total investment of USD27.8 million.
QNS is VOF’s largest unlisted holding.
QNS officially debuted its listing on the UPCoM in
December 2016. As at 30 June 2017, the market
value of VOF’s stake was equivalent to USD48.4
million, or an unrealised 1.8x multiple return on
invested equity in USD terms.
QNS expects to enjoy a high growth rate given the
production capacity it is adding in both its sugar
and soymilk businesses. QNS’s current soymilk
QNS currently trades at a 2017 P/E ratio of 11x,
which is attractive relative to other consumer
goods companies which trade at trailing P/E
ratios of 18x to 32x.
VietJet Air (VJC) – Pre-IPO offering
VOF invested USD20.5 million into VJC in a
pre-IPO offering in December 2016. The low-cost
carrier subsequently listed its shares on the Ho
Chi Minh City Stock Exchange (HOSE) in February
2017. VJC was the first Vietnamese private
low-cost carrier, launching its first commercial
flight in December 2011 with a single aircraft.
In its first year of operation, VJC achieved 8%
market share and grew with vigour to amass 45%
market share by May 2017, making it the largest
local airline - a title formerly held by the national
flag carrier Vietnam Airlines.
VJC currently has a network of 38 domestic and
26 international routes, and aims to have 41
domestic and 37 international routes by the end
of 2017. The expansion is backed by the delivery
of 17 new Airbus aircraft, part of a 100-aircraft
VOF Annual Report 2017VOF Annual Report 2017 20
21
order the company announced in 2016. Having a fleet of uniform aircraft and
engines has enabled VJC to achieve significant cost savings and operational
efficiencies, especially compared to Vietnam Airlines.
During the first five months of 2017, VJC’s revenue increased 44% year-
on-year, backed by higher passenger loads and a rise in average fare. Most
analysts expect VJC to deliver revenue and profit after tax of USD1.6 billion
and USD139 million, respectively, in 2017. VJC’s stock price has increased 41%
since its listing debut in February, and currently has an implied 2017 P/E of 12x.
SSG-Saigon Pearl,
0.9%
American Home
Vietnam (IBS), 0.6%
Thai Hoa
International
Hospital, 1.0%
Private equity
portfolio market
value: USD 70.2m
An Cuong
Wood-Working, 2.7%
International Dairy
Product (IDP), 2.2%
Cotec Constructions (CTD) – private placement
In November 2016, VOF invested USD20.7 million into CTD, the largest private
construction company in Vietnam, through a private placement. CTD is known
for its transparency, good corporate governance, and reliability (including
on-time delivery with the highest standards of quality).
CTD had a significant order pipeline of USD1.5 billion (or two-years’
worth of revenue) at the time of VOF’s investment. In 2016, the company
delivered revenue and profit after tax of USD924 million and USD63 million,
respectively. Most analysts expect profit to grow by 25% during 2017. VOF
invested in CTD at a P/E of 6.8x implied 2017 earnings. Since we invested,
CTD’s share price has increased by more than 40% and currently trades at an
implied 2017 P/E of almost 10x.
Investing in the real estate sector or related companies in Vietnam is
always challenging, and it is difficult to time the cycle correctly, especially
when there is some concern about how sustainable the growth in the
sale of high-end apartments can go; CTD derives significant revenue from
this sector. However, the company is now branching out to the more
affordable lower and mid-range segments of the market, which are still
experiencing strong demand.
Chart: VOFs Private Equity portfolio, chart represents top holdings, % of NAV, 30 June 2017
International Dairy Products (IDP) – private equity portfolio
We are in the midst of restructuring IDP and, while we are seeing progress,
it is admittedly slower than we would like. In November 2014, VOF, along
with an investment partner, acquired 75% of a distressed dairy company
called Bavi (named after the province in which the fresh milk is sourced).
Over the next 18 months into the middle of 2016, we renamed the company
IDP and embarked on Phase 1 of restructuring the business. Our focus was
on addressing the company’s capital structure, fixed assets, and portfolio of
products. During the latter part of Phase 1, IDP tested interest for its products
in China with solid success, although it was unable to scale up production to
supply this export market until it received the necessary licences required,
which it finally obtained in May 2017.
At present, we are into Phase 2 of the restructuring exercise, which entails
the start of aggressive marketing and advertising strategies to promote the
brands and portfolio of products, as well as to optimise the product mix
for export to China. We expect to enter Phase 3 of the restructuring in the
middle of 2018, at which point we expect IDP to start generating a profit and
we will begin our search for a strategic acquirer of the business.
In 2016, IDP delivered revenue of USD65 million but was still posting a
significant loss. The first quarter of 2017 saw a slight improvement in revenue
although operational challenges remain. A number of changes were made
during the second quarter which, together with the granting of an export
license to China, led to a significant improvement in sales. Since April 2017,
IDP has been delivering average sales of USD5.4 million per month, with
each month showing significant improvement over the last. We hope to
deliver revenue of USD75 million in 2017 with a significant reduction in
losses. In 2018, we expect sales to increase to levels where the company can
break even. Our exit strategy is to sell a controlling stake of this beverage
business at a valuation based on a multiple of sales. As a benchmark, we have
historically seen food and beverage businesses in Vietnam that deliver no or
very little levels of profit sold for a multiple of 2x to 3x sales.
AC expects to open a second factory in 2018 to provide capacity for further
expansion. With available cash and a steady positive operating cash flow, the
company is confident that its strategy to increase production capacity will
enable it to maintain its leading position in the industry.
In June 2017, Sumitomo Forestry and AC signed a strategic agreement in
which Sumitomo acquired a portion of AC’ new shares. In addition, Sumitomo
also acquired 5% vendor shares from employees. The partnership is expected
to bring benefits to both parties in terms of supply and customer network,
and defines AC as a preferred target for a global strategic investor to join and
participate in the local market.
Direct Real Estate and Operating Assets
An Cuong Wood-Working Joint Stock Company (AC) - private equity portfolio
VOF and its co-investment partner Sumitomo Forestry currently own 21.4% of
AC, with VOF’s effective holding at 13.1%.
During the first five months of 2017, AC delivered USD42.8 million in
revenue and USD6.7 million in net profit, which is a 60% and 39% increase
year-on-year, respectively. AC is the largest interior wood working company
in Vietnam, producing melamine panels and doors, and other interior
furnishing components. The company’s two key products, melamine panel
and interior components, generated strong revenue growth of 29% and178%,
respectively, during the first half of 2017.
In 2015, AC reported total revenue of USD66 million and profit of USD8.6
million. In 2016, revenue and profit increased 24% and 70%, respectively.
AC expects to deliver revenue and profit in 2017 of USD110 million and
USD17 million, respectively.
All others 1.2%
Trinity Garden,
0.7%
World TRade
Center, 0.7%
Real Estate and
Operating projects
USD 57.4m
Vinasquare, 1.5%
Huong Vuong Plaza
1.2%
Green Park Estate
0.8%
Chart: VOF’s Real Estate portfolio, chart represents top 5 holdings, % of NAV, 30 June 2017
Turning to the Direct Real Estate portfolio, the ongoing cyclical recovery in the
real estate sector provided an opportunity for us to continue the divestment
of projects held in the portfolio. Over the financial year, we sold four projects,
including Dai Phuoc Lotus, Danang Beach Resort, Saigon Golf, and one
Operating Asset, delivering gross proceeds of USD126 million, at an average of
58% above NAV at the time of exit. At the start of the financial year, the direct
real estate portfolio represented 8.2% of VOF’s portfolio, while Operating
Assets represented a further 9.2%; by the end of the financial year, Direct Real
Estate projects represented 4.8% and Operating Assets were down to 1.2%.
VOF Annual Report 2017VOF Annual Report 2017
22
23
Strategy for FY2018
The Company’s results for the past two years
reinforce our belief that our overall strategy is
well positioned, although, given the flexibility of
our mandate, we are able to adjust as necessary.
Our Capital Market portfolio strategy remains
concentrated on our top ten holdings, which
account for 82% of that segment of the portfolio.
Our conviction in both the level of concentration
and the position sizing in both absolute and relative
terms of each of these top names has contributed
to solid performance, with a 32% increase in the
listed equity portfolio for the financial year –
outperforming the VN-Index by nearly 12%.
We remain long term in our horizon and bullish
on our top holdings and thus will continue
to overweight these positions despite short-
term volatility and even at times short-term
underperformance against the VN-Index. We think
that judging performance on a three-to-five-year
basis is more appropriate for Vietnam, and prefer
to buy and hold quality stocks with very little
portfolio turnover (our listed turnover was just
10% for the year), especially given the relatively
low levels of liquidity in the market in general and
of some of our own holdings in particular.
VOF’s listed equity component has generated a
gain of 65% versus the VN-Index’s 26% over the
past three financial years, and we will strive to
continue to outperform both the VN-Index and
our listed equity peers.
Private Equity
With regards to our private equity strategy, we remain
focused on companies in sectors that benefit from the
growth of the domestic economy such as healthcare,
education, construction materials, banks, property
development, and media. We will continue to source
opportunities and invest between USD10-50 million
into companies valued between USD100-500 million.
We seek companies with strong growth potential,
with a view to an IPO within three to five years after
investment. In the meantime, we consider trade sales
if exit valuations and terms are attractive. We have
been very successful in trade sales to international
buyers over the last five years, as capital costs for most
multinationals interested in Vietnam are historically low.
We hope to secure between 10% and 30% of target
businesses at discounted valuations to their listed
peers, with appropriate minority protections. The
investment terms we seek are aimed at securing
optimal exits either in a trade sale or through an IPO.
However, as mentioned earlier in this report, these
terms are taking longer to negotiate with sponsors.
More than 18 months ago, we would typically
take three to six months to conclude the terms
of our investment into these private deals; now it
appears that it will take about five to ten months to
complete the negotiation and full legal, financial and
operational due diligence work.
At present, we have a significant pipeline, amounting
to nearly USD200 million, of private equity deals and
opportunities not available to other funds and expect
to close more than half of this pipeline in the coming
months. This would be an aggregate investment
which significantly exceeds our current cash balance,
and we would look towards taking profit in the listed
equities portfolio to fund some of these private
investment opportunities, especially where we
see the return potential of new investments to be
significantly greater than that offered by specific
companies in the listed equities portfolio.
Equitisations of State Owned Enterprises (“SOEs”)
On the equitisation front, the government remains
committed to privatising SOEs, and has been pushing
companies to complete the process. While there have
been a number of equitisations, only a handful have
been interesting to us, including Airports Corporation
of Vietnam and Viglacera. VOF participated in the
equitisation of both companies, and has unrealised
gains of 152% and 23.6% respectively since investment.
VOF will continue to participate in the equitisation
of Vietnam’s SOEs as appropriate. We prefer to
focus on the small- to medium- size opportunities,
companies with market capitalisations of less than
USD1 billion because they typically receive less
attention and tend to present better opportunities
for existing management to participate.
The participation of the existing management team is
key and reflects the level of alignment of interest that
we look for, along with many other factors including
future growth and exit opportunities. We always
believe that one of the key objectives of the equitisation
program is to enfranchise existing management to
become owners of the very businesses that they have been with over the years. In each
case, we look closely at the quality of the management team. The higher the level of
participation, the more interesting the opportunities become to us.
At the moment, we have visibility into a number of equitisation opportunities,
as well as the opportunity to participate in the sale of additional government
stakes in businesses that have already started the equitisation process. They
include companies in many sectors, including telecommunications, food
and beverage, infrastructure development, logistics, and retail electronic
distribution. We do feel that the opportunities in investing in SOEs are
plentiful and there are certainly quite a few “gems” among the rocks.
ECONOMIC AND INVESTMENT ENVIRONMENT
by Michael Kokalari, Chief Economist
It is my pleasure to follow Andy’s review of the investment portfolio with a discussion
of the key economic themes that take our interest and influence our thinking on the
challenging, but rewarding process of investment and to allow us to deliver returns
Vietnam’s macro economy was very stable throughout 2016, a trend that has
continued into 2017, as evidenced by modest inflation, a stable VND exchange
rate, and steady interest rates. This stability, coupled with robust yet sustainable
Gross Domestic Product (“GDP”) growth, is fostering an ideal environment for the
continued appreciation of Vietnamese stock, bond, and real estate prices.
Direct Real Estate and Operating Assets
Lastly, with respect to the remaining direct real estate assets, we expect that
the positive trends in the property market will continue over the next 12
months, and we are engaged in ongoing negotiations with potential buyers to
continue divestments of projects in this asset class.
High, Sustainable GDP Growth
Vietnam’s GDP grew 6.2% in 2016, and we expect the country’s economy
to grow at a 6.5-6.7% annual pace in 2017, with growth in both 2016 and
2017 driven by domestic consumption and by the continued expansion of
the country’s manufacturing output, which is in turn being fuelled by foreign
direct investment (“FDI”) inflows.
Outlook
Vietnam’s growth over the past few years has occurred in a more rational
and sustainable way than in the past, and the country is starting to realise
its potential – something being noticed by growing numbers of investors
around the world. Ironically, this success may make it slightly more difficult
to find the “hidden gems”, but we remain excited by the many opportunities
in the market today. We are already working hard to build on this past year’s
success and continue to build value for you, our patient shareholders.
On behalf of our team, I thank you for your continued support.
Andy Ho
Managing Director
25 October 2017
GDP Growth (% yoy)
6.87
7.01
6.47
6.12
6.56
6.68
5.78
5.48
6.17
5.17
7.5
7.0
6.5
6.0
5.5
5.0
4.5
4.0
Q1
15
Q2
15
Q3
15
Q4
15
Q1
16
Q2
16
Q3
16
Q4
16
Q1
17
Q2
17
Source: General Statistics Office of Vietnam (“GSO”).
VOF Annual Report 2017VOF Annual Report 2017
24
25
In 2016, Vietnam’s GDP growth was held back by a severe drought, which
impeded production in the country’s agriculture sector, which comprises
about 18.1% of Vietnam’s GDP, and by a decline in oil production due to
weak global oil prices (Vietnam’s oil production cost is about USD40/barrel,
according to the Vietnam Institute of Economics). Agricultural production
has rebounded from a 0.8% decline in the first half of 2016 (“1H16”) to
2.7% growth in the first half of 2017, but Vietnam’s oil production volume
fell 12.5% year-on-year (“yoy”), outweighing any recovery in agricultural
production. The net result of these two transitory factors was that Vietnam’s
GDP grew by an annual rate of 5.7% in the first half of 2017, nearly
unchanged from the country’s 1H16 GDP growth rate. Had oil production not
plunged, it is estimated that the economy would have grown by nearly 7%
yoy in the first half of 2017.
Domestic consumption is now the primary driver of Vietnam’s economic growth,
accounting for nearly two-thirds of Vietnam’s economy and contributing an
estimated four percentage points out of the country’s 6.2% GDP growth in 2016;
we expect a similar contribution this year. Consumption grew by an estimated
8% in real terms in 2016, accelerating to an 8.4% yoy pace in 1H17. Furthermore,
a 25% surge in tourist arrivals to more than 10 million visitors in 2016 (and a
further 30% yoy leap in 1H17) augmented consumption by locals. Tourism now
directly comprises nearly 7% of Vietnam’s GDP, and the aggregate contribution
of tourism, including spending in local restaurants and other services, may be as
high as 15%, according to some estimates.
Vietnam’s manufacturing output grew by 12% in 2016, and at a 10.6% yoy
pace in the first half of 2017. Manufacturing now accounts for about 16% of
Vietnam’s economy, and the importance of Samsung and other global
electronics makers within the country’s manufacturing sector has become
particularly pronounced in recent years.
Finally, we note that construction, which comprises 5% of Vietnam’s GDP,
grew by 10% in 2016 and 9% in the first half of 2017, with growth driven
by both infrastructure development and the thriving residential real estate
market, which is discussed in more depth below. Also, the services industry,
which accounts for over 40% of Vietnam’s GDP, grew by about 7% yoy in both
2016 and in 1H17, although the contribution of the services sector is also
captured in certain of the segments of the economy discussed above (domestic
consumption, tourism, etc).
Manufacturing Growth (% yoy)
13.1%
13.6%
11.9%
12.2%
9.3%
8.1%
15%
12%
9%
6%
3%
0%
Q1
16
Q2
16
Q3
16
Q4
16
Q1
17
Q2
17
Source: GSO, VinaCapital Research
Stable Macro-economy and Exchange Rate
Prudently, Vietnam’s policymakers have been prioritising macroeconomic
stability over GDP growth for the last few years, and the results have
been an encouraging decline in the country’s inflation rate, and a marked
improvement in the stability of the VND exchange rate.
The deceleration in Vietnam’s headline inflation rate from the end of 2016 to
mid-2017 was attributable to weak energy prices and falling food prices, with the
latter largely attributable to a circa 50% decline in pork prices since late 2016.
Stripping out food and energy prices, Vietnam’s core inflation rate was below
1.5% at the end of 1H17, with the increase in the country’s core CPI more-or-less
attributable to administrative price hikes.
CPI (% yoy)
6.0
5.0
4.0
3.0
2.0
1.0
0
Jun
15
Aug
15
Oct
15
Dec
15
Feb
16
Apr
16
Jun
16
Aug
16
Oct
16
Dec
16
Feb
17
Apr
17
Jun
17
Source: GSO
Government mandated hikes in the prices of medical goods and services
(which account for 6% of the CPI basket) helped lift the country’s CPI
inflation rate to a 4.7% yoy increase by the end of 2016. Medical-related
prices continued to rise in the first half of 2017, and rocketed 46% yoy as
at the end of1H17, but the increase in consumer prices receded to a 2.5%
yoy increase by the end of 1H17.
VND Official vs Unofficial Exchange Rates
23,500
23,000
22,500
22,000
21,500
21,000
OTC USD/VND rate
Upper Band of Official USD/VND Rate
Jun
15
Sep
15
Nov
15
Jan
16
Mar
16
May
16
Aug
16
Oct
16
Dec
16
Feb
17
Apr
17
Jun
17
Source: SBV, VinaCapital Research
The country’s low, stable core inflation rate (excluding medical price hikes)
prompted a steady decline in VND interest rates, and fostered a high degree
of stability in the USD/VND exchange rate, with the exception of a brief burst
of volatility at the end of 2016, triggered in part by India’s demonetisation of
its currency. The VND depreciated by 1.2% against the USD in 2016, but the
unofficial value of the USD/VND exchange rate was more-or-less unchanged
in the first half of 2017, despite a degradation in Vietnam’s trade balance
from a 1.8%-of-GDP trade surplus in 2016 to a 2.6%-of-GDP trade deficit in
1H17 (Vietnam’s imports surged 24% in the first half of 2017).
5-Year Government Bond Yield and Credit Default Swap
7.5
7.0
6.5
6.0
5.5
5.0
4.5
5 Year Government Bond Yield (%)
5 Year Credit Default Swap (bps)
350
300
250
200
150
100
50
Jul
15
Sep
15
Nov
15
Jan
16
Mar
16
May
16
Jul
16
Sep
16
Nov
16
Jan
17
Mar
17
May
17
Source: Bloomberg, Vietnam Government bond yield
In a slight contrast to the stability of Vietnam’s unofficial exchange rate in
2017, the official daily USD/VND FX rate increased 1.4% in 1H17, because the
State Bank of Vietnam (the “SBV”) has been proactively depreciating the VND
(albeit at a very modest rate) in anticipation that rising US interest rates will
support the value of the USD. Despite the SBV’s concerns about the possibility of
higher US interest rates, falling domestic inflation expectations and declining risk
premiums prompted a 70-basis point plunge in one-year Vietnam government
bond (“VGB”) yields to 3.6%, and a 120-basis point plunge in five-year VGB
VOF Annual Report 2017VOF Annual Report 2017
26
27
yields to 4.9% over the past twelve months ending 30 June 2017. Concurrently,
Vietnam’s five-year credit default swap rate, which institutional investors use to
assess a country’s risk premium, fell by 60 basis points.
airports and sea ports), as well as the development of new electricity
generation facilities, should help ensure the continued flow of FDI into
Vietnam’s manufacturing sector.
purchased have been resolved, so the estimated aggregate NPL ratio, when
non-performing loans held by the VAMC are considered, is still about 8-9% of
outstanding loans.
Structural Growth Drivers: FDI, Rapidly Emerging Middle Class and
Infrastructure Development
Vietnam’s impressive long-term growth prospects are supported by the
FDI-funded expansion of the country’s manufacturing base, which is driving
export growth and supporting the emergence of a vibrant middle class.
Furthermore, Vietnam is outspending its regional peers on infrastructure
development (as a proportion of GDP), which also supports the country’s
long-term growth prospects.
Vietnam among Asia’s biggest infrastructure spenders
Expenditure on the construction of new roads and mass transit systems
facilitates the physical expansion of Vietnam’s major cities, the populations
of which are growing at approximately 3% per annum – the highest rate in
the region. Simultaneously, expenditure on logistics infrastructure (including
Infrastructure Spending (% GDP)
7
6
5
4
3
2
1
0
China
Vietnam
India
Indonesia Myanmar Singapore Philippines Malaysia
Thailand
Source: Asian Development Bank
FDI in Vietnam increased by 9% in 2016, and equated to 7.7% of GDP, and FDI
continued growing at a healthy 7% yoy rate in 1H17, despite the withdrawal
of the US from the Trans Pacific Partnership at the beginning of the year. The
resiliency of Vietnam’s FDI inflows is a reflection of the continued migration
of production facilities from China to Vietnam, which has helped drive a 30%
increase in the number of manufacturing jobs in Vietnam (and a 12% decline in
agriculture jobs) since 2013, according to Standard Chartered Bank research.
Rapid Credit Growth, Modest Banking Sector Reforms
Vietnam’s commercial banks grew the total amount of their outstanding loans
by 19% in 2016, and by a further 9% to 30 June 2017, which was the fastest
pace of first half credit growth in over six years. About one-half of Vietnam’s
system-wide credit growth is reported to be attributable to the extension of
new loans to consumers; outstanding consumer loans grew by about 30% in
both 2016 and in 1H17.
Unfortunately, the rapid pace of Vietnam’s credit growth has not been
matched by a corresponding acceleration of long-overdue structural reforms
in the banking sector, or a ramp up in the disposal of banks’ legacy
non-performing loans (“NPL”). Vietnam’s NPL problem peaked at about 17%
of outstanding loans in 2012, when the government set up the Vietnam Asset
Management Company (“VAMC”), to facilitate the removal of NPLs from
banks’ balance sheets.
The VAMC purchased about USD12 billion of NPLs from commercial banks (as
at 31 March 2017), and certain banks have aggressively written off bad debts,
which has significantly lifted Vietnam’s system-wide credit cost rate over the
last few years. These measures have reduced Vietnam’s official, on-balance
sheet, NPL ratio to below 3% but, as less than 20% of the NPLs the VAMC
Credit Cost and NPL Ratio
1.6%
1.4%
1.2%
1.0%
0.8%
0.6%
0.4%
0.2%
0.0%
18%
16%
14%
12%
10%
8%
6%
2009
2010
2011
2012
2013
2014
2015
2016
2017F
2018F
Credit-cost rate (%)
NPL Ratio (%)
Source: VAMC, VinaCapital Research
The majority of the loans which the VAMC purchased are backed by real
estate collateral, and as Vietnam’s property market has roared back
to life in recent years, foreign distressed asset buyers have expressed
a strong interest in acquiring the collateral assets underpinning those
non-performing loans. The bottleneck impeding the consummation of
transactions between those prospective buyers and the holders of the
defaulted loans is the lack of a clear legal framework enabling the VAMC
and/or the banks themselves to foreclose on collateral originally pledged
by borrowers.
The good news is that the government announced a new set of regulations
at the end of June 2017 that are meant to greatly expand the powers of both
banks and the VAMC to foreclose on distressed assets. The details of how
these new rules will work in practice are still unclear, but this new regulation
seemingly has the potential to address one of the two most important issues
in the banking sector. The other major issue which banks face is an urgent
need to raise new capital in order to fund their growth and to prepare for the
eventual implementation of the Basel II capital adequacy standard.
At the end of 2016, the system-wide Capital Adequacy Ratio (“CAR”) of the
Vietnamese banking system was 12%. The rapid pace of credit growth in
2016 reduced the system-wide CAR by nearly two percentage points. The
rapid pace of credit growth in 2017 is likely to again reduce the system-wide
ratio by about two percentage points, but as certain state-owned commercial
banks have already reached the maximum limit on the amount of Tier II
capital (long-dated, subordinated debt) they are permitted to employ,
so those banks will need to raise Tier I capital (straight equity), in order to
meet the 9% statutory minimum CAR for individual banks.
The conundrum for Vietnam’s banks and for the government is that the most
eager providers of new capital to the banking system are foreign investors,
but Vietnam’s current 30% FOL makes it difficult for foreign investors
to inject new equity into many individual local banks because they have
already reached their FOL. At the end of 2016, Vietnam’s Prime Minister
indicated that the government would consider liberalising the FOL for banks,
as it did for listed, non-bank companies, but there have been no further
developments on this topic since that time.
Finally, the implementation of the stricter Basel II standard will reduce
Vietnam’s system-wide CAR by about four percentage points, and necessitate
that banks raise over USD7 billion of new capital. The SBV previously guided
that the phased implementation of Basel II would commence in 2018, but
the start-date was subsequently pushed back – presumably because the FOL
issue needs to be addressed first.
VOF Annual Report 2017VOF Annual Report 2017
28
29
The Property Sector
Vietnam’s residential real estate market remained robust during the financial
year, with modest price increases across the various segments and specific
geographies of the market.
Apartment
Type
2nd Quarter 2017
price USD psm
Y-o-Y
change
Apartment
price USD
Affordable
Mid-end
Premium
Luxury
895
1,493
2,356
4,149
8.6%
6.5%
6.2%
3.3%
67,115
111,950
N/A
N/A
Source: Jones Lang LaSalle, per square metre (“psm”)
Home price
to income
ratio
4.2
7.0
N/A
N/A
There are clear signs that the current uptrend in the property development
cycle remains robust but, within the real estate sector, we observe an
increasing bifurcation of the market between ever-increasing activity in the
affordable and mid-tier segments of the market, where demand is being driven
by mortgage-funded purchases of housing units by end-buyers, and a slight
deceleration of activity in the high end segment, where purchases are typically
motivated by investment and speculation (and often paid for with cash).
Transaction Volume of High-End Condominiums (‘000 units)
9
HCMC
8
7
6
5
4
3
2
1
0
Hanoi
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
2013
2014
2015
2016
2017
Source: CBRE, Savills
Transaction Volume of Mid-Range Condominiums (‘000 units)
9
HCMC
8
7
6
5
4
3
2
1
0
Hanoi
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
2013
2014
2015
2016
2017
Source: CBRE, Savills
While the market continues to absorb a surfeit of new supply, buyers are
reportedly becoming more discriminating in their assessments of prospective
property purchases. Specifically, the leading real estate brokers report that
buyers are now showing heightened sensitivity regarding the price, location,
and developer’s reputation of the projects being evaluated, evidenced by
the tepid pace of sales of certain high-end projects built by less esteemed
developers, and situated in less prime locations.
The increased discernment by buyers of high-end condominiums is likely to
be attributable to an oversupply of new high-end apartment units in both Ho
Chi Minh City and Hanoi, following a flurry of development activity in recent
years. The absorption rate of the high-end segment fell from 50% in 2016 to
45% in 1H17, and a plethora of anecdotal evidence suggests that prices in this
segment of the market have already peaked.
That said, foreign buying of high-end apartments reportedly rocketed during the
financial year, with an increasing number of projects reaching the 30% foreign
ownership limit for individual developments. The proportion of CBRE’s buyers
who are foreigners surged from less than 40% in 1H16 to nearly 60% in 1H17.
The other hotspots in the market include the affordable, mid-tier, and landed
property niches, with purchases in the latter two – which now account for
over half of Vietnam’s residential real estate purchases – predominately
funded with 15 to 20 year mortgages.
A few years ago, mortgage-funded purchases of newly constructed apartments
were rare, but today mortgage lending by banks is driving Vietnam’s real estate
market, with about half of Vietnamese banks’ newly created consumer credit
in the form of housing loans. According to our analysis, the mortgage payment
of a typical professional couple (with circa five-years work experience) for a
typical affordable apartment (circa USD70,000) or mid-tier apartment (circa
USD130,000) equates to between 20% and 35% of that couple’s joint monthly
salary respectively at current interest rates.
Finally, we note that although the number of new housing units
constructed annually has surged in recent years (particularly in HCMC
& Hanoi), many analysts believe that Vietnam’s housing supply still falls
well short of demand. We see no risk that excess supply could prompt a
downturn in the market, but we are concerned about the capacity of banks
to continue extending mortgages to home buyers.
Mortgage rates increased by about 50 basis points (“bps”) during the financial
year to approximately 10.7%, owing to capital and liquidity pressures in the
banking system (the latter is partly attributable to new macro prudential
regulations that constrain local banks’ asset-liability mismatches). If mortgage
rates (which are typically floating interest rates in Vietnam) were to reach
13%, a high proportion of home owners would have difficulties making their
mortgage payments – although we believe the possibility of an imminent,
steep increase of interest rates in Vietnam is remote.
Aggregate transactions and mortgages
110,00
Housing unit demand > 100k/yr1
95,000
80,000
65,000
50,000
35,000
20,000
5,000
Mortgages becoming widely available ...
62,000
8,000
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017F
Source: CBRE
VOF Annual Report 2017VOF Annual Report 2017 30
31
The Stock Market
A 30% valuation discount between Emerging Market (“EM”) and
Developed Market stock markets, and a seismic shift in investor
sentiment following the stabilisation of China’s economy led to robust
EM stock market inflows from mid-2016, benefitting Vietnam (even
though the country is still categorised as a “Frontier Market” by MSCI).
The wave of investment funds flowing into EM stock markets was briefly
derailed by the US election, when EMs experienced their sharpest
outflows since 2008 although EM inflows have rebounded vigorously
in 1H17. Vietnam was not immune from these developments, so the
local stock exchange reported that foreign investors were net sellers of
Vietnamese stocks in 2016 for the first time in nearly 10 years (albeit by
a negligible amount). Foreign inflows roared back in 1H17, when foreign
investors bought over USD400 million of Vietnamese stocks.
The attractive valuation of Vietnam’s stock market was one reason
foreign investors were enthusiastic to invest. At the beginning of VOF’s
financial year, the VN-Index was trading at a 12x forward P/E ratio, and
valuations were still fairly attractive at the end of 1H17, when the
VN-Index traded at 15x forward 2017 P/E, versus 16% expected EPS
growth, and versus a circa 16x average forward P/E ratio for Vietnam’s
emerging ASEAN peers (Indonesia, Thailand, Malaysia and the Philippines).
The 2015 decision by the government to allow most listed Vietnamese
companies to determine their own FOLs continues to support the stock
market, as a growing number of companies opt to lift their FOLs above the
prior 49% statutory limit (for non-banks). In addition, the government’s
encouragement of a range of unlisted state-owned and private sector
companies to list on the stock market also has generated enthusiasm for
Vietnamese stocks from local and international investors alike.
Looking forward, the listings (and planned listings) of new large cap companies
substantially increased and will continue to increase the number of tickers on
the market that institutional investors consider “investible”, which is in turn
prompting a significant increase in the number of international investment
management firms participating in the Vietnamese stock market.
Newly listed large cap stocks
during FY2017
Ticker
Market Cap
(end-2017) (USD mn)
Saigon Alcohol Beer
and Beverage Corp
Airport Corporation of Vietnam JSC
Vietnam National Petroleum Group
(Petrolimex)
No Va Land Investment Group
Vietjet Aviation JSC
Vietnam Airlines JSC
Quang Ngai Sugar JSC
Hanoi Beer Alcohol and Beverage
Total
Source: Bloomberg
SAB
ACV
PLX
NVL
VJC
HVN
QNS
BHN
6,603
4,838
3,340
1,845
1,802
1,410
870
891
21,599
However, a corollary to this overall re-rating of the market has been the re-
emergence of some particularly stretched valuations on individual companies,
the likes of which have not been seen in Vietnam’s stock market for years.
For example, Vietnam’s leading beer company, Sabeco (SAB in the above
table), has traded at a valuation around 30x P/E since its listing on the stock
exchange at the end of 2016, despite the company’s lacklustre earnings
growth prospects, partly because several international financial and strategic
investors have expressed the desire to acquire a major stake in the company
and the free float in this company’s shares is small.
Number of quoted companies Over USD1bn Market Cap
25
20
15
10
5
0
21
16
8
6
6
7
7
10
9
7
3
0
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Source: Bloomberg
In some respects, the current investment environment is reminiscent of past
episodes in which overly inflated valuations ultimately yielded unattractive
returns on certain investments that were wildly popular among many market
participants. In certain cases, such as Sabeco, investors are pricing in strategic
and M&A premiums to some companies’ stock prices which we think on a
standalone, fundamental basis would not be justified. For that reason, we
believe that an extra degree of caution is currently warranted. We continue
to strictly adhere to our value-driven investment selection process, and to
eschew transitory fads in favour of patiently uncovering unappreciated gems
in the private and public markets.
Risks
In both 2016 and 2017, Vietnam’s government set the identical, somewhat
ambitious 6.7% GDP growth target. The country’s economy grew by a
respectable 6.2% in 2016, but since GDP growth fell well short of the official
target last year, the government appears to have intensified its effort to
stimulate growth in the first half of 2017.
Policymakers are currently relying heavily on monetary stimulus, as
the government’s ability to use fiscal stimulus is impeded by the fact
that Vietnam’s public debt-to-GDP ratio has already essentially reached
the government’s self-imposed 65% limit. Furthermore, intensified
spending on infrastructure development and other programs lifted the
government’s budget deficit to 5.5% of GDP on average during
2013-2016, leaving some local lawmakers lamenting Vietnam’s
lack of fiscal prudence.
The SBV supplied the interbank market with an abundance of liquidity in
the latter part of 2016, and again in the second quarter of 2017 (the SBV
cut policy interest rates by 25 bps to 6.25% a week after the end of VOF’s
financial year on 30 June 2017). The stated hope of the SBV is that banks’
excess liquidity will manifest into the “real economy” in the form of
higher credit growth and lower lending rates. However, excess liquidity
also risks inflating asset bubbles and reigniting inflation.
Credit and Money Supply Growth (% yoy)
Credit growth
M2 growth
35
30
25
20
15
10
5
0
2009
2010
2011
2012
2013
2014
2015
2016
2017
Source: Bloomberg
VOF Annual Report 2017VOF Annual Report 2017 32
33
As Vietnam’s policymakers worked hard to rein in inflation after the country’s
CPI increased by as much as 23% in 2011, so the central bank regularly
reiterates that it remains vigilant to guard against a potential re-emergence
of inflation. Fortuitously, there are no signs of significant inflationary
pressures on the horizon in Vietnam, especially given the current stability of
oil prices, which will help ease year-on-year consumer price comparisons as
2017 progresses.
Furthermore, the gap between Vietnam’s money supply growth and the
system-wide growth of banks’ loan books reached four percentage points
in late 2016, indicating that Vietnam’s economy was generating excess
liquidity that likely fuelled increases in asset prices at that time. However,by
the end of 1H17, Vietnam’s credit growth was about two percentage points
higher than year-on-year M2 growth, indicating that the “real economy”
was absorbing a disproportionate share of the new liquidity the economy
generated, thus alleviating concerns about the emergence of asset bubbles
for the time being.
That said, Vietnam’s money supply growth is high in absolute terms, while
at the same time there is an ongoing, notable increase in the number of new
foreign investors to the market that have not experienced the pronounced
peaks and troughs that characterise the investment cycles of Vietnam’s public
equity markets. For that reason, we believe an extra degree of prudence is
required when assessing prospective investments in the current investment
climate to avoid entering “bidding wars” over assets that ultimately degrade
the performance of the portfolio.
Michael Kokalari
Chief Economist
25 October 2017
VietJet Air (VJC)
VOF Annual Report 2017VOF Annual Report 2017 34
35
VinaCapital Management Team
Don Lam
Chief Executive Officer
Don Lam is a founding partner of the Investment Manager
and has more than 20 years’ experience in Vietnam.
He has overseen the Investment Manager’s growth from
the manager of a single USD10 million fund in 2003
into a leading investment management and real estate
development firm in Southeast Asia, with a diversified
portfolio of approximately USD1.8 billion in assets under
management. Before founding the Investment Manager,
Mr Lam was a partner at PricewaterhouseCoopers
(Vietnam), where he led the corporate finance and
management consulting practices throughout the
Indochina region. Additionally, Mr Lam set up the
VinaCapital Foundation whose mission is to empower the
children and youth of Vietnam by providing opportunities
for growth through health and education projects. He also
is the Vice-Chairman, Global Agenda Council on ASEAN for
the World Economic Forum. He has a degree in Commerce
and Political Science from the University of Toronto. He is
a Chartered Accountant and is a member of the Institute of
Chartered Accountants of Canada. He also holds
a Securities License in Vietnam.
VINACAPITAL GROUP
Founded in 2003, VinaCapital is one of Vietnam’s leading
investment management and real estate investment firms with
USD1.8 billion in assets under management across a range of
asset classes, including public and private equity, real estate,
venture capital, and fixed income. The company manages two
closed-ended funds which trade on the London Stock
Exchange, including VOF, which trades on the Main Market,
and VinaLand Limited which trades on the AIM. Further,
VinaCapital manages the Forum One - VCG Partners Vietnam
Fund, a leading Vietnam-focused, open-ended UCITS-compliant
fund, and the Vietnam Equity Special Access Fund, as well as
numerous segregated accounts.
VinaCapital is a partner with Draper Fisher Jurvetson in DFJV,
a venture capital fund, and with Warburg Pincus in Lodgis
Hospitality Holdings, a hospitality development platform.
VinaCapital has offices in Ho Chi Minh City, Hanoi, Danang,
and Singapore. The company has approximately 125
employees, and is the largest single employer of CFA
Charterholders in Vietnam.
Brook Taylor
Chief Operating Officer
Brook Taylor is the Chief Operating Officer of the
Investment Manager. Mr Taylor has more than 20 years of
management experience, including more than eight years
as a senior partner with major accounting firms.
Previously, he was deputy managing partner of Deloitte
in Vietnam and head of the firm’s audit practice.
He was also managing partner of Arthur Andersen
Vietnam and a senior audit partner at KPMG.
Brook has lived and worked in Vietnam since 1997.
Mr Taylor’s expertise spans a broad range of management
and finance areas including accounting, business planning,
audit, corporate finance, taxation, and risk management.
He holds an Executive MBA from INSEAD, a Bachelor of
Commerce and Administration from Victoria University
of Wellington, and is a member of the Australia and
New Zealand Institute of Chartered Accountants and
Association of Chartered Certified Accountants.
Andy Ho
Managing Director and Chief Investment Officer
Andy Ho is Managing Director and Chief Investment
Officer of the Investment Manager, where he oversees
the capital markets, private equity, fixed income and
private equity investment teams. Previously, Mr Ho was
Director of Investment at Prudential Vietnam’s fund
management company, where he managed the capital
markets portfolio and Prudential’s investment strategy.
He has also held management positions at Dell Ventures
(the investment Company of Dell Computer Corporation)
and Ernst & Young. Mr Ho is a leading authority on capital
markets investment, privatisations, and private equity
deals and structures in Vietnam, where he has led private
placement deals totaling over USD750 million. He holds
an MBA from the Massachusetts Institute of Technology
and is a Certified Public Accountant in the United States.
VOF Annual Report 2017VOF Annual Report 2017 36
37
Loan Dang
Deputy Managing Director
Duong Vuong
Deputy Managing Director
Khanh Vu
Investment Director
Michael Kokalari
Chief Economist
Loan Dang joined VinaCapital in 2005 and is responsible
for the Company’s private equity investments.
Ms Dang has led numerous private equity and private
placement deals for the Company, and holds board
positions at several of the Company’s investee
companies. Ms Dang has previous experience at KPMG
Vietnam and Unilever Vietnam. She has an MBA from
the University of Hawaii and holds an FCCA (UK) fellow
membership and a BA in Finance and Accounting from the
University of Economics, Ho Chi Minh City.
Duong Vuong is responsible for the Company’s listed and
unlisted equity investments. Mr Vuong has over 20 years
of investment experience including the last nine years in
Vietnam. Previously, Mr Vuong was a Research Head at
PXP Vietnam Asset Management where he managed a
team of analysts responsible for producing investment
ideas for all of the firm’s portfolios. Prior to working in
Vietnam, he held various positions including Senior
Investment Analyst for ADIA in Abu Dhabi and Banks
Analyst for Merrill Lynch in London. He is a CFA
Charterholder having gained the CFA designation in 2001.
With over seven years at VinaCapital, Khanh Vu is
responsible for the Investment Manager’s marketing,
investor relations and communication activities for the
Company. He is also an active member of the fund’s
Investment Committee, involved in deal sourcing,
investment execution and monitoring. Mr Vu has over 15
years of investment experience, and has been based in
Vietnam for the last four years. Mr Vu has held managerial
positions in corporate finance, asset management,
investment banking, and professional services. Prior to
VinaCapital, he was at Macquarie Bank based in New
York and Sydney, with his last posting on the buy-side
infrastructure asset management team. Prior to that,
he held various positions with Deloitte & Touche and
Arthur Andersen, based in Sydney. Mr Vu holds both a
Master and Bachelor degrees from the University of New
South Wales, Sydney, and a Graduate Diploma of Applied
Finance granted by the Financial Services Institute of
Australia where he is a Fellow.
Michael Kokalari, CFA serves as VinaCapital’s Chief Economist,
and is responsible for providing thought leadership and
technical acumen on a wide range of global and local
macroeconomic issues with a view to maximizing the firm’s
investment performance. Mr Kokalari worked in Vietnam for
eight years, and was previously the Head of Research at CIMB
Securities Vietnam, and the CIO of Saigon Asset Management.
Earlier in his career, Mr Kokalari was a derivatives trader in
Tokyo & London where he ran multi-billion dollar trading
books for Lehman Brothers, JP Morgan Chase, Credit Suisse
First Boston, Paribas and West LB. Mr Kokalari co-authored the
CFA guide to Credit Derivatives, and was a contributor to “Risk
Management: Foundations for a Changing Financial World”
(published in 2010), along with Nobel Prize winners Myron
Scholes and William Sharpe of Stanford University.
Mr Kokalari holds an MS Engineering in Computational
Mathematics from Stanford University, an MS Mathematics
from Stanford, an MS Management from the Graduate School
of Business at Stanford, and a BA Mathematics from Clark
University, where he was a Gryphon and Pleiades Scholar.
VOF Annual Report 2017VOF Annual Report 2017 38
Board of Directors
39
Steven Bates
Non-executive Chairman (Independent)
(Appointed 5 February 2013)
Martin Adams
Non-executive Director (Independent)
(Appointed 5 February 2013)
Thuy Bich Dam
Non-executive Director (Independent)
(Appointed 7 March 2014)
Huw Evans
Non-executive Director (Independent)
(Appointed 27 May 2016)
Michael Gray
Non-executive Director (Independent)
(Retired 21 December 2016)
Steve Bates is a veteran investor in emerging
markets, spending most of his career with
the Fleming Group and its successor JP
Morgan Asset Management, where he led
the emerging markets team. Over the past
15 years Mr Bates has continued to manage
investments across the emerging world
working for GuardCap Asset Management
and is also a non-executive director of
a number of investment companies. He
holds an MA in Law from the University of
Cambridge and is a CFA.
Martin Adams has over 35 years investment
and banking experience in emerging
markets, including over 25 years in Vietnam,
and has forged a career serving as an
independent director on listed and unlisted
funds. He is currently chairman of Eastern
European Property Fund, Kubera Cross
Border Fund, Trading Emissions and Trinity
Capital, and a non-executive director of a
number of other funds. Mr Adams holds an
MA in Economic Science from the University
of Aberdeen.
Ms Thuy Bich Dam began her career at
Vietnam’s Ministry of Science, Technology and
Environment, responsible for coordinating
treaties between the government and the
World Intellectual Property Organisation
(WIPO) and the European Patent Office (EPO).
From 1996 to 2005, Ms Dam worked as the
Natural Resources Director of ANZ Investment
Bank (Singapore). Following this, Ms Dam was
appointed as the CEO Vietnam, CEO Greater
Mekong Region and Vice Chairwoman for the
Greater Mekong Region for ANZ Bank Vietnam
over a span of nearly eight years. Ms Dam was
also the Chief Representative for the National
Australia Bank, Vietnam from November
2013 to September 2016. She is currently the
President-Designate of Fulbright University
Vietnam. She holds a Bachelor’s degree
in English from Hanoi University, an MBA
Finance from The Wharton School of Business
and completed the Advanced Management
Program at Harvard Business School.
Huw Evans is a Guernsey resident and
qualified in London as a Chartered
Accountant with KPMG (then Peat
Marwick Mitchell) in 1983. He
subsequently worked for three years
in the Corporate Finance Department
of Schroders before joining Phoenix
Securities Limited in 1986. Over the next
twelve years he advised a wide range
of companies in financial services and
other sectors in the UK and overseas
on mergers and acquisitions and more
general corporate strategy. Since moving
to Guernsey in 2005 he has acted as a
Director of a number of Guernsey-based
companies and funds. He holds an MA in
Biochemistry from Cambridge University.
Michael Gray has over 30 years’ professional accounting
experience and trained as a chartered accountant with
Coopers & Lybrand in the UK. He was admitted as a member
to the Institute of Chartered Accountants of England and
Wales (FCA) in 1976. Prior to his accounting career, Mr Gray
spent 10 years in the shipping industry. Apart from being a
FCA, Mr Gray has a Bachelor of Science Degree in Maritime
Studies from Plymouth University, a Master of Arts in South
East Asian Studies from the National University of Singapore
and Doctor of Business (Honoris Causa) from the University
of Newcastle in Australia. He is also a Fellow of the Chartered
Institute of Logistics and Transport, a Fellow of the Institute
of Singapore Chartered Accountants and a Fellow of the
Singapore Institute of Directors. Mr Gray was a partner at
PricewaterhouseCoopers Singapore and was the founding
Territorial Senior Partner for PricewaterhouseCoopers
Indochina (Vietnam, Cambodia and Laos). He is a board
member of several listed companies in Singapore, including
Avi-tech Electronics Ltd, GSH Corporation Holdings Ltd and
FSL Trust Management Pte Ltd. Mr Gray has also held many
positions in Boards of Voluntary Welfare Organisations and
government committees in Singapore.
VOF Annual Report 2017VOF Annual Report 2017
40
Disclosure of directorships in other public companies listed on recognised stock exchanges
Directorships
Company Name
Steven Bates
Baring Emerging Europe plc
The Biotech Growth Trust PLC
British Empire Securities and General Trust plc
F&C Capital & Income Investment Trust plc
Matin Adams
Aberdeen Latin America Income Fund Limited
Vietnam Phoenix Fund Limited
Easten Europe Property Fund Limited
Kebera Cross-Border Fund Limited
Marwyn Value Investors Limited
Terra Catalyst Fund
Trading Emissions Plc
Trinity Capital Plc
Michael Gray (retired 21 December 2016)
GSH Corporation Limited
Avi-Tech Electronics Limited
FSL Trust Management Pte.Ltd
Thuy Bich Dam
None
Huw Evans
BH Marco Limited
Standard Life Investments Property Income Trust Limited
Stock Exchange
London
London
London
London
London
Ireland
London
London
London
London/Chanel Islands
London
London
Singapore
Singapore
Singapore
London/Dubai
London
41
Report of the Directors
The Board of Directors (the “Board”) presents its Annual
Report together with the Audited Financial Statements of
the Company for the year ended 30 June 2017.
Until 22 March 2016, the Company was incorporated
in the Cayman Islands as an exempted company with
limited liability. The registered office of the Company
was PO Box 309, Ugland House, Grand Cayman, KY1-
1104, Cayman Islands. The Company’s shares were
traded on the AIM market of the LSE.
At an Extraordinary General Meeting on 27 October
2015, Shareholders approved proposals to change the
Company’s domicile to Guernsey. Registration as a
Guernsey company was completed on 22 March 2016.
The current registered office of the Company is PO
Box 225, Trafalgar Court, Les Banques, St Peter Port,
Guernsey, GY1 3QL.
On 30 March 2016, the Company’s shares were
cancelled from trading on AIM and admitted to the
Main Market of the London Stock Exchange with a
Premium Listing.
The Company’s investments continue to be managed
by the Investment Manager.
Principal Activities
The Company is a closed-ended investment company
with limited liability which was incorporated in
Guernsey on 22 March 2016 under The Companies
(Guernsey) Law, 2008.
Through its investments in subsidiaries, 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.
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 a special resolution will be proposed every fifth
year 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 a special resolution
in 2008 and in 2013 and on both occasions it was not
passed, allowing the Company to continue as currently
constituted. The next special resolution on the life of the
Company is planned to be held in conjunction with the
AGM, expected to be in December 2018.
Investment Policy and Valuation Policy
The Company’s investment objective and investment
policy are set out on page 4. The valuation policy can
be found in note 2 to the Financial Statements.
VOF Annual Report 2017VOF Annual Report 2017
42
43
Report of the Directors (cont.)
Performance
The Chairman’s Statement and the Investment
Manager’s Report provide details of the Company’s
activities and performance during the year.
The key performance indicators (“KPIs”) used to measure
the progress of the Company during the year include:
• The movement in the company’s NAV;
• The movement in the Company’s share price; and
• Discount of the share price in relation to the NAV.
Information relating to the KPIs can be found in the
Financial Highlights section on pages 8.
Risk Management
The Board considers risk management to be a
function of its Audit Committee and a review of
whose operations is set out on pages 56 to 59. On
the specific question of risk management, the Audit
Committee reviews at each of its meetings the risks and
uncertainties faced by the Company in the form of a
risk matrix and heat map. For the purposes of making
the Viability Statement, the Board has undertaken a
robust review of the principal risks and uncertainties
facing the Company including those that would
threaten its business model, future performance,
solvency or liquidity. Those principal risks are described
in the table below together with a description of the
mitigating actions taken by the Board.
Vietnamese Market Risk
Description
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.
The economy could also be affected by any escalation
in geopolitical tensions in the region and elsewhere.
Mitigating Action
The Board is regularly briefed on political and economic
developments by the Investment Manager. The
Investment Manager publishes a monthly report on the
Company which includes information and comment
on macroeconomic and, where relevant, political
developments in Vietnam.
Changing investor sentiment
Description
As a Company investing mainly in Vietnam, changes
in investor sentiment towards Vietnam and/or
frontier markets may lead to the Company becoming
unattractive to investors leading to reduced demand
for shares and a widening discount.
Mitigating Action
The Investment Manager has an active Investor
Relations programme, keeping shareholders and other
potential investors regularly informed on Vietnam in
general and on the Company’s portfolio in particular.
At each Board meeting the Board receives reports from
the Investment Manager and from the Broker and is
updated on the composition of and any movements in
the shareholder register. The Board also communicates
regularly with major shareholders directly, independent
of the Investment Manager.
Over the previous year, the Company migrated its
domicile from Cayman Islands to Guernsey in order
to demonstrate that the Company adopts the highest
standards of corporate governance and moved its
trading from AIM to a premium listing on the Main
Market of the LSE in order to make the shares attractive
to as wide an audience of investors as possible.
In seeking to make the Company attractive to a wider
range of investors the Board has resolved to pay
regular dividends.
In seeking to close the discount, the Board has also
approved and implemented an extensive share buy-back
programme, the details of which are set out on page 44.
Investment Performance
Description
The performance of the Company’s investment
portfolio could be poor, either absolutely or in relation
to the Company’s peers.
Mitigating Action
The Board monitors the allocation of the Company’s
portfolio to the various classes of assets and receives
regular reports on the performance of the portfolio and
on those underlying assets. The Investment Manager
attends all Board meetings and the Board visits Vietnam
for more detailed meetings, including with investee
companies, twice each year.
Fair Valuation
Description
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 in the
ordinary course of market activity.
The unlisted securities are valued at their prices on
UPCoM or using quotations from brokers, but many of
the holdings are of a size which would make them difficult
to liquidate in the ordinary course of market activity.
The fair valuation of private equity investments
is carried out according to international valuation
standards but the investments are in some cases not
readily liquid and may not be immediately realisable at
the stated carrying values.
The fair valuation of the real estate investments is
carried out in a manner consistent with international
real estate valuation guidelines and processes.
However, the assets are also illiquid (and may be part
of joint ventures) which could make a sale difficult at
the stated carrying valuations.
The values of the Company’s underlying investments
are, in the main, denominated in Vietnamese Dong
whereas the Company’s accounts are prepared in US
Dollars and investments entered into at the Company
level are denominated in US Dollars. Exchange rate
fluctuations and Vietnamese currency devaluation
could have a material effect on the NAV.
Mitigating Action
The Board reviews the valuation of the listed and
unlisted investment portfolio with the Investment
Manager each quarter and questions any unexpected
or sharp movements in market prices.
In relation to real estate and private equity
investments, the Board has appointed independent
external valuers in order to assist in determining
fair values in accordance with international financial
reporting standards.
In addition, the external auditors review the portfolio
valuations as part of the half year review and audit the
valuations at the year end.
The Company does not hedge its Vietnamese
Dong exposures.
Investment Management Agreement
Description
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 in Vietnam
and, under those circumstances, the Company
would suffer.
Mitigating Action
The Board maintains close contact with the
Investment Manager and key personnel of the
Investment Manager attend each Board meeting.
The Board visits the Investment Manager and meets
with key individuals in Vietnam twice each year.
Operational
Description
The Company is dependent on third parties for the
provision of all systems and services (in particular,
those of the Investment Manager) and any control
failures and gaps in these systems and services
could result in a lo ss or damage to the Company.
VOF Annual Report 2017VOF Annual Report 2017
44
45
Report of the Directors (cont.)
Mitigating Action
The Board receives regular reports from the Investment
Manager on its internal policies, controls and risk
management. It also receives an annual assurance
from the Investment Manager on the adequacy and
effectiveness of the internal controls of the Company.
The Investment Manager has appointed Ernst & Young
LLP (“EY LLP”) as its internal auditor and the Board has
direct unfettered access to EY LLP for any purpose. In
addition, EY LLP report regularly to the Board on their
findings. The Board has sought to ensure segregation
of functions through the appointment of Northern
Trust International Fund Administration Services
(Guernsey) Limited (“Northern Trust”) as independent
administrator, and Standard Chartered Bank as
custodian for those assets which can be held by a third
party custodian. Further details of the internal controls
which are in place are set out on pages 49 to 50.
The Investment Manager maintains a risk and
compliance department which monitors compliance
with local laws and regulations as necessary. Locally
based external lawyers (typically members of major
international law firms) are engaged to advise on
portfolio transactions where necessary. As to its non-
Vietnamese regulatory and legal responsibilities, the
Company is administered in Guernsey by Northern
Trust which reports to the Board at each Board meeting
on Guernsey compliance matters and more general
issues applicable to Guernsey companies listed on
the LSE. In addition, from time to time the Board uses
external experts to advise on specific matters.
The Investment Manager and other service providers
confirm to the Board at least annually that they maintain
anti-bribery and corruption policies and disclose if there
have been any breaches of these policies.
Legal and Regulatory
Description
Failure to comply with relevant regulation and
legislation in Vietnam, Guernsey or the UK may have an
impact on the Company.
Dividend Policy
In the financial year to 30 June 2017, the Company did
not pay any dividends. However, on 17 August 2017,
the Company announced a change in its dividend policy
and declared its first dividend.
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.
Mitigating Action
The laws and regulations in Vietnam are at an early
stage of development and are not well established.
The Board now intends that the Company will pay a
dividend representing approximately 1% of NAV twice
each year, normally declared in March and October.
Exceptionally, on 17 August 2017 the Board declared a
first interim dividend of 4.8 cents per share which was
paid to Shareholders on 27 September 2017. On 25
October 2017, the Board declared a further dividend of
4.8 cents per share.
Discount Management
The Board will continue to operate the share buyback
programme in an effort to ensure that the share price
more closely reflects the underlying NAV per share.
While no public announcement has been made in
terms of the target percentage discount or the volume
of funds to be allocated to buybacks, the Board
considers the current discount to be too high.
The Board will continue to retain responsibility for
setting the parameters for the discount management
policy, for overseeing the management of the
buyback programme and for ensuring that its policy
is implemented. The Board intends to continue to
seek to narrow the discount through the continued
use of share buybacks. The Board’s objective is to
achieve a narrowing of the discount in a manner that
is sustainable over the longer term. The Board and the
Investment Manager intend to consult regularly with
Shareholders with a view to assessing and improving
the effectiveness of the buyback programme. Further
comments on the buyback programme are set out in
the Chairman’s Statement.
Refer to note 10 for details of share buybacks during
the year under review.
Corporate Governance Statement
To comply with the UK Listing Regime, the Company
must comply with the requirements of the UK
Corporate Governance Code (the “UK Code”). The
Company is also required to comply with the Guernsey
Code of Corporate Governance (the “Guernsey Code”).
The Company is a member of the Association of
Investment Companies (the “AIC”) and by complying
with the AIC Code of Corporate Governance (“AIC
Code”) is deemed to comply with both the UK Code
and the Guernsey Code.
The Board has considered the principles and
recommendations of the AIC Code by reference to
the AIC Corporate Governance Guide for Investment
Companies (“AIC Guide”). The AIC Code, as explained
by the AIC Guide, addresses all the principles set out in
the UK Code, as well as setting out additional principles
and recommendations on issues that are of specific
relevance to Investment Companies.
The Board considers that reporting against the
principles and recommendations of the AIC Code, and
by reference to the AIC Guide (which incorporates
the UK Code), will provide clear information to
Shareholders. To ensure ongoing compliance with
these principles the Board receives and reviews a
report from the secretary, at each quarterly meeting,
identifying whether the Company is in compliance and
recommending any changes that are necessary.
Except as disclosed within this report, the Board is of
the view that throughout the year ended 30 June 2017
the Company complied with the recommendations
of the AIC Code and the relevant provisions of the UK
Code. Key issues affecting the Company’s corporate
governance responsibilities, how they are addressed
by the Board and application of the AIC Code are
presented below.
The UK Code includes provisions relating to the role of the
chief executive, executive Directors’ remuneration, the
need for an internal audit function and whistle-blowing
policy which are not considered by the Board to be
relevant to the Company, being an externally managed
investment company with a Board formed entirely of
non-executive Directors. The Company has therefore not
reported further in respect of these provisions.
Board Composition
The Board consists of four non-executive Directors,
each of whom is independent of the Investment
Manager. No member of the Board is a Director
of another investment company managed by the
Company’s Investment Manager, nor has any Board
member been an employee of the Company, its
Investment Manager or any of its service providers.
The Board has considered whether a Senior
Independent Director (“SID”) should be appointed.
However, as the Board is small and comprises entirely
non-executive directors, the Board has determined that
the appointment of a SID is not currently necessary.
knowledge.The Directors’ biographies can be found on
page 38 to 39.
Re-election of Directors
The principle set out in the UK Code is that Directors
should submit themselves for re-election at regular
intervals and at least every three years, and in any
event as soon as it is practical after their initial
appointment to the Board. It is a further requirement
that non-executive Directors are appointed for a
specific period.
However, the Board has determined that all Directors
will submit themselves for annual re-election
by Shareholders. The individual performance of
each Director standing for re-election has been
evaluated by the other members of the Board and a
recommendation will be made that Shareholders vote
in favour of their re-election at the AGM.
The Board has adopted a formal policy requiring that
Directors should stand down at the AGM following the
ninth anniversary of their initial appointment.
The Board reviews the independence of the Directors
at least annually.
Michael Gray, who was appointed to the Board in June
2009, retired at the AGM held on 21 December 2016
after not putting himself forward for re-election.
The Board believes that each Director has appropriate
qualifications, industry experience and expertise to
guide the Company and that the Board as a whole
has an appropriate balance of skills, experience and
New appointees to the Board are provided with a full
induction programme. The programme covers the
Company’s investment strategy, policies and practices.
VOF Annual Report 2017VOF Annual Report 2017 46
47
Report of the Directors (cont.)
Board Proceedings
The Directors are also given key information on the
Company’s regulatory and statutory requirements as
they arise, including information on the role of the
Board, matters reserved for its decision, the terms of
reference for the Board Committees, the Company’s
corporate governance practices and procedures and
the latest financial information. It is the Chairman’s
responsibility to ensure that the Directors have
sufficient knowledge to fulfil their role and Directors
are encouraged to participate in training courses
where appropriate.
The Directors have access to the advice and services of
a Company Secretary, who is responsible to the Board
for ensuring that Board procedures are followed.
The Company Secretary is also responsible for ensuring
good information flows between all parties.
The Board meets regularly throughout the year and
representatives of the Investment Manager are in
attendance, when appropriate, at each meeting and
most Committee meetings. The Chairman encourages
open debate to foster a supportive and co-operative
approach for all participants.
The Board has agreed a schedule of matters specifically
reserved for decision by the Board. This includes
establishing the investment objectives, strategy and
benchmarks, the permitted types or categories of
investments, the markets in which transactions may
be undertaken, the level of permitted gearing and
borrowings, the amount or proportion of the assets
that may be invested in any category of investment or
in any one investment, and the Company’s treasury and
share buyback policies.
The Board, at its regular meetings, undertakes
reviews of key investment and financial data, revenue
projections and expenses, analyses of asset allocation,
transactions and performance comparisons, share price
and NAV performance, marketing and shareholder
communication strategies, the risks associated with
pursuing the investment strategy, peer company
information and industry issues.
The Board is responsible for strategy and has
established a predetermined annual programme of
agenda items under which it reviews the objectives and
strategy for the Company at each meeting.
Board Committees
There are four Board committees in operation: Audit
Committee, Management Engagement Committee,
Remuneration Committee and Nomination Committee.
The chairmanship and membership of each Committee
throughout the year, and the number of meetings held
during the year, are shown in the table on page 48. A
summary of the duties of each of the Committees is
provided below. The terms of reference are available
on the Company’s website www.vof-fund.com
Audit Committee
The Audit Committee, which meets at least three times
a year, comprises all the Directors and is chaired by Mr
Evans following Mr Gray’s retirement at the 2016 AGM.
The Audit Committee is responsible for monitoring the
process of production and ensuring the integrity of the
Company’s accounts and advises the Board that the
accounts are fair, balanced and understandable.
One of the responsibilities of the Audit Committee is
to oversee the relationship with the External Auditor.
In discharging its responsibility to oversee the External
Auditor’s independence, the Audit Committee
considers whether any other engagements provided
by the auditor will have an effect on, or perception of,
compromising the External Auditor’s independence
and objectivity. The performance of services outside
of external audit must be specific and approved by the
Audit Committee Chairman.
The Audit Committee is also responsible for
recommending to the Board the valuation of
investments. In seeking to determine the fair value
of the Company’s real estate and private equity
investments, the Committee reviews the reports of
independent valuation specialists as well as reviewing
the Investment Manager’s valuation process. Each
individual valuation is reviewed in detail and the
recommendations of the independent valuers may be
accepted or modified. The Committee approves the
fair value of investments used to prepare the Financial
Statements. Refer to note 3 to the Financial Statements
for further information on the valuation of investments
held by the Company.
A report of the Audit Committee detailing
responsibilities and activities is presented
on pages 56 to 59.
is required. The Board has also agreed detailed
investment guidelines with the Investment Manager,
which are considered at each Board meeting.
Representatives of the Investment Manager attend
each meeting of the Board to address questions on
specific matters and to seek approval for specific
transactions which the Investment Manager is
required to refer to the Board.
The Audit Committee’s Chairman presents the
Committee’s findings to the Board at the next Board
meeting following a meeting of the Audit Committee.
The Board has delegated discretion to the Investment
Manager to exercise voting powers on its behalf, other
than for contentious or sensitive matters.
Management Engagement Committee
The Management Engagement Committee comprises
all of the Directors and is chaired by Mr Adams. The
Committee’s responsibilities include: reviewing the
performance of the Investment Manager under the
Investment Management Agreement and to consider
any variation to the terms of the agreement. The
Management Engagement Committee also reviews
the performance of the Company Secretary, Corporate
Brokers, Custodian, Administrator and Registrar and
any matters concerning their respective agreements
with the Company.
The IMA between the Company and the Investment
Manager sets out the limits of the Investment
Manager’s authority, beyond which Board approval
On 27 October 2016, the IMA was amended in
order to clarify the calculation of incentive fees.
The clarification did not result in adjustments to the
incentive fees expensed.
Remuneration Committee
The Remuneration Committee comprises all of the
Directors and is chaired by Ms Dam. The Committee’s
responsibilities include: recommending to the Board
the policy for the remuneration of the Company’s
Chairman, the Audit Committee Chairman and the
remaining non-executive Directors, and reviewing
the ongoing appropriateness and relevance of the
remuneration policy; determining the individual
remuneration of each non-executive Director;
agreeing the policy for authorising Directors’ expenses
claims; and the selection and appointment of any
remuneration consultants who advise the Committee.
The Directors’ Remuneration Report is presented
on page 60.
Nomination Committee
The Nomination Committee comprises all of
the Directors and is chaired by Mr Bates. The
Committee’s responsibilities include: reviewing
the structure, size and composition of the Board
and making recommendations to the Board in
respect of any changes; succession planning for
the Chairman and the remaining non-executive
Directors; making recommendations to the Board
concerning the membership and chairmanship of
the Board committees; identifying and nominating
for the approval of the Board candidates to fill
Board vacancies; and, before any new appointment
is recommended, evaluating the balance of skills,
knowledge, experience and diversity within the Board
and preparing an appropriate role description.
VOF Annual Report 2017VOF Annual Report 2017 48
Report of the Directors (cont.)
Board and Committee Meetings
During the year ended 30 June 2017, the number of scheduled Board and Committee meetings attended by each Director was as follows:
Number of meetings
Attendance
Steven Bates 1
Martin Adams 2
Thuy Bich Dam 3
Huw Evans 4
Michael Gray 5
Board
meetings
Audit
Committee
meeting
Management
Engagement
Committee
meeting
Nomiation
Committee
meeting
Remuneration
Committee
meeting
4
4
4
4
4
*2
6
6
6
5
6
*2
2
2
2
2
2
*1
1
1
1
1
1
*1
1
1
1
1
1
*1
*Indicates the meetings attended during their membership of the relevant Board or Committee during the year.
1 Steven Bates is Chairman of the Board and the Nomination Committee.
² Martin Adams is Chairman of the Management Engagement Committee.
³ Thuy Bich Dam is Chairman of the Remuneration Committee.
⁴ Huw Evans is the Chairman of the Audit Committee.
⁵ Michael Gray was the Chairman of the Audit Committee up until his retirement on 21 December 2016.
In addition to the scheduled meetings noted above, several ad hoc meetings of the Board were held during the year which were attended by those
Directors available at the time.
49
Appointment of new Directors
For new appointments to the Board, nominations are
sought from the Directors and from other relevant
parties and candidates are then interviewed by the
Nomination Committee. The Board has a breadth
of experience relevant to the Company, and the
Directors believe that any changes to the Board’s
composition can be managed without undue
disruption. An induction programme is provided for
newly-appointed Directors.
Board Performance
The Board has a formal process to evaluate its own
performance and that of its Chairman annually. The
Chairman leads the assessment which covers the
functioning of the Board as a whole, the effectiveness
of the Board Committees and the independence
of each Director. Where necessary the Chairman
discusses the responses with each Director individually.
The Chairman absents himself from the Board’s review
of his effectiveness as the Company Chairman.
During the year ended 30 June 2017, the review
considered the Board’s objectives and how the
contributions made individually and collectively to Board
meetings helped the Company to achieve its objectives.
The Board is satisfied that the structure, mix of skills
and operation of the Board continue to be effective
and relevant for the Company.
The Board must ensure that the Financial
Statements taken as a whole, are fair, balanced and
understandable and provide the information necessary
for Shareholders to assess the Company’s performance,
business model and strategy. In seeking to achieve
this, the Directors have set out the Company’s
investment objective and policy and explain how the
Board and its delegated Committees work and how the
Directors review the risk environment within which the
Company operates and set appropriate risk controls.
Furthermore, throughout the Annual Report the Board
has sought to provide further information to enable
Shareholders to understand the Company’s business
and financial performance.
Policy to combat fraud, bribery, corruption and
tax evasion
The Board has adopted a formal policy to combat
fraud, bribery and corruption. Furthermore, the Board
has zero tolerance to the criminal facilitation of tax
evasion. These policies apply to the Company and to
each of its Directors. Further, the policies are shared
with each of the Company’s service providers, each of
which confirms its compliance annually to the Board.
Internal Controls and Risk
(i) Risk
The Company’s risk exposure and the effectiveness of
its risk management and internal control systems are
reviewed by the Audit Committee and by the Board at
their meetings. The Board believes that the Company
has adequate and effective systems in place to identify,
mitigate and manage the risks to which it is exposed.
(ii) Management System
The Investment Manager’s Enterprise Risk
Management (“ERM”) framework provides a
structured approach to managing risk across all of its
managed funds by establishing a risk management
culture through education and training, formalised
risk management procedures, defining roles and
responsibilities with respect to managing risk, and
establishing reporting mechanisms to monitor the
effectiveness of the framework. The Audit Committee
works closely with the Investment Manager on the
application and review of the ERM framework to the
Company’s risk environment.
Regular risk assessments and reviews of internal
controls are undertaken by the Audit Committee in
the context of the Company’s investment policy. The
reviews cover the strategic, investment, operational
and financial risks facing the Company. In arriving at
its judgement of the risks which the Company faces,
the Board has considered the Company’s operations in
light of the following factors:
•
•
•
•
the nature and extent of risks which it regards
as acceptable for the Company to bear within its
overall business objective;
the threat of such risks becoming reality;
the Company’s ability to reduce the incidence and
impact of risk on its performance; and
the cost to the Company and benefits related
to the Company of third parties operating the
relevant controls.
VOF Annual Report 2017VOF Annual Report 2017 50
Report of the Directors (cont.)
(iii) Internal Control Assessment Process
Responsibility for the establishment and maintenance
of an appropriate system of internal control rests
ultimately with the Board. However, the Board is
dependent on the Investment Manager (and other
service providers) to achieve this and a process has
been established which seeks to:
• review the risks faced by the Company and the
•
•
•
•
controls in place to address those risks
identify and report changes in the risk environment
identify and report changes in the operational controls
identify and report on the effectiveness of controls
and errors arising
• ensure no override of controls by its service
providers, the Investment Manager or Administrator.
The key procedures which have been established to
provide effective internal financial controls are as follows:
•
investment management is provided by the Investment
Manager. The Board is responsible for the overall
investment policy and monitors the investment
performance, actions and regulatory compliance of
the Investment Manager at regular meetings;
• accounting for the Company and its subsidiaries
was provided by the Investment Manager up to 1
October 2015 and, from that date, the Administrator
took over accounting for the Company itself, leaving
accounting for the subsidiaries the responsibility of
the Investment Manager;
•
the provision of fund administration by Northern Trust;
• custody of listed and unlisted assets is undertaken
by Standard Chartered Bank;
•
the Management Engagement Committee monitors
the contractual arrangements with each of the
service providers and their performance under
these contracts;
• mandates for authorisation of investment
transactions and expense payments are set by
the Board and documented in the Investment
Management Agreement;
the Board receives financial information produced
by the Investment Manager on a regular basis.
Board meetings are held at least once a quarter to
review such information; and
• actions are taken to remedy any significant failings
or weaknesses, if identified. No significant failings
or weaknesses were identified during the year.
(iv) Internal Audit Function
The Investment Manager has appointed EY LLP as its
internal auditor and the Board has direct unfettered
access to EY LLP for any purpose. In addition, EY LLP
reports regularly to the Board on their findings. The
Management Engagement Committee has reviewed
the need for an internal audit function for the Company
itself. The Management Engagement Committee has
concluded that the systems and procedures employed
by the Investment Manager and the Administrator,
including their own internal audit functions, currently
provide sufficient assurance that a sound system of
internal control, which safeguards the Company’s assets,
is maintained. An internal audit function specific to the
Company is therefore considered unnecessary.
51
Directors’ Dealings
The Company has adopted a Code of Directors’ dealings
in securities.
Relations with Shareholders
A detailed analysis of the substantial Shareholders of
the Company is provided to the Directors at each Board
meeting. The Chairman and representatives of the
Investment Manager regularly meet with institutional
Shareholders to discuss strategy and to understand
their issues and concerns and, if appropriate, to discuss
corporate governance issues. The results of such
meetings are reported at the following Board meeting.
Regular reports from the Company’s brokers on investor
sentiment and industry issues are submitted to the Board.
Shareholders wishing to communicate with the
Chairman, or any other member of the Board, may
do so by writing to the Company, for the attention of
the Company Secretary, at the Registered Office. The
Directors welcome the views of all Shareholders and place
considerable importance on communications with them.
The Company aims to provide Shareholders with a full
understanding of the Company’s investment objective,
policy and activities, its performance and the principal
investment risks by means of informative Annual
and Half Year reports. This is supplemented by the
publication by the Investment Manager of a monthly
fact sheet and a weekly estimate of NAV per share.
The Board ensures that the Company is compliant with
Guernsey regulations and guidance in this regard.
Share Capital and Treasury Shares
The number of shares in issue at the year end is
disclosed in note 10 to the Financial Statements.
Directors’ Interests in the Company
As at 30 June 2017 and 30 June 2016, the interests of
the Directors in shares of the Company are as follows:
Share helded
as at
30 June 2017
Share helded
as at
30 June 2016
25,000
-
-
17,500
-
-
-
-
N/A
100,000
Steven Bates
Martin Adams
Thuy Bich Dam
Huw Evans
Michael Gray
There have been no changes to any holdings between
30 June 2017 and the date of this report.
The Company’s website, www.vof-fund.com, is
updated regularly with monthly factsheets and
provides useful information about the Company
including the Company’s financial reports and
announcements.
The Annual General Meeting of the Company provides
a forum for Shareholders to meet and discuss issues
with the Directors of the Company.
International Tax Reporting
For purposes of the US Foreign Account Tax Compliance
Act, the Company registered with the US Internal
Revenue Service (“IRS”) as a Guernsey reporting
Foreign Financial Institution (“FFI”), received a Global
Intermediary Identification Number (GUHZUZ.99999.
SL.831), and can be found on the IRS FFI list.
The Common Reporting Standard (“CRS”) is a global
standard developed for the automatic exchange
of financial account information developed by
the Organisation for Economic Co-operation and
Development (“OECD”), which has been adopted in
Guernsey and which came into effect on 1 January 2016.
The CRS replaced the UK Inter-Governmental
Agreement (“IGA”) from 1 January 2016. However, it
was still necessary to submit the 2014 and 2015 reports
for the UK IGA by 30 June 2016. The first report for CRS
was made to the Director of Income Tax in Guernsey on
27 June 2017.
VOF Annual Report 2017VOF Annual Report 2017
52
Report of the Directors (cont.)
Substantial Shareholdings
As at 30 June 2017 and 30 September 2017, the Directors are aware of the following Shareholders with holdings of more than 3% of the ordinary shares of the Company:
30 June 2017
30 September 2017
Number of
ordinary shares
Percentage of issued
share capital
Number of
ordinary shares
Percentage of issued
share capital
Shareholder
Euroclear Nominess Limited
State Street Nominees Limited
Citibank Nominees (Ireland) Limited
The Bank of New York (Nominees) Limited
Vidacos Nominees Limited
Lynchwood Nominees Limited
37,609,761
22,051,213
20,687,264
18,846,722
15,433,453
13,109,975
HSBC Global Custody Nominess (UK) Limited
10,225,021
Nortrust Nominees Limited
9,121,227
Credit Suisse Client Nominees (UK) Limited*
Chase Nominees Limited
8,757,340
18.75%
10.99%
10.31%
9.39%
7.69%
6.54%
5.10%
4.55%
4.37%
25,074,291
21,500,208
19,268,459
17,382,539
14,162,549
13,658,400
13,077,456
11,510,437
11,346,588
8,374,506
12.63%
10.83%
9.70%
8.75%
7.13%
6.88%
6.59%
5.80%
5.71%
4.22%
*Credit Suisse Client Nominee (UK) Limited held 194,855 ordinary shares as at 30 June 2017 being 0.097% of the issued share capital.
Annual General Meeting (“AGM”)
The Company’s next AGM will be held at the offices of Northern Trust at Trafalgar Court, Les Banques, St Peter Port, Guernsey, GY1 3QL at 12 noon on 14 December
2017. The Notice of Meeting is set out at the back of the Annual Report.
Ongoing Charges
Ongoing charges are the recurring expenses incurred by the Company excluding one-off expenses. Ongoing charges for the years ended 30 June 2017 and 30 June 2016
have been prepared in accordance with the AIC’s recommended methodology. The ongoing charges excluding incentive fees for the year ended 30 June 2017 were 1.9%
(30 June 2016: 1.8%). Ongoing charges including incentive fees for the year ended 30 June 2017 were 4.6% (30 June 2016: 3.0%).
53
Going Concern and Viability Statement
The Company is exposed to a number of risks and
uncertainties as listed on pages 42 to 44 and, as noted, the
Directors monitor and assess these risks on a regular basis.
The Directors confirm that their assessment of the principal
risks facing the Company is robust and, for the purposes of
complying with the Code, that they have assessed the viability
of the Company over the three years to 30 June 2020. The
Directors consider this period sufficient given the inherent
uncertainty of the investment world and the specific issues
which the Company faces in investing in Vietnam.
An additional factor which the Directors have considered
is the continuation vote which is planned to be put to
shareholders in December 2018. In seeking to ensure
that shareholders retain confidence in the Company, the
Investment Manager meets regularly with shareholders and
has an active investor relations programme. In addition, the
Directors have undertaken a number of actions aimed at
reducing the discount at which the Company’s shares have
been trading in relation to NAV, including migrating the
domicile of the Company to Guernsey, moving the quotation
on AIM to a premium listing on the Main Market of the LSE
and resolving that the Company carry out a significant share
buy-back programme. During the current year, the Directors
have declared the Company’s first dividends. The Directors
cannot predict what the outcome of the continuation vote
will be but have no present indication that the vote will
not be positive and, in making the viability statement, have
assumed that the Company will continue to operate in its
present form beyond the continuation vote.
The Directors, having considered the above risks and other
factors, have a reasonable expectation that the Company
will be able to continue in operation and meet its liabilities as
they fall due over the three-year period of their assessment.
After making enquiries and given the nature of the
Company and its investments, the Directors are also
satisfied that there are no material uncertainties and
that it is appropriate to continue to adopt the going
concern basis in preparing these Financial Statements.
Subsequent Events after the Reporting Date
On 17 August 2017, the Company announced a change in its
dividend policy and that the Company will pay a dividend of
at least 4.8 cents per share twice each year, normally declared
in March and October. Exceptionally, on the same date, the
Board declared the first dividend of 4.8 cents per share which
was paid to Shareholders on 27 September 2017.
On 24 August 2017, the Company announced that
its Investment Manager, VinaCapital Investment
Management Limited, has entered into an agreement
with VinaCapital Fund Management JSC (“VCFM”), an
affiliate of VCIM and a fully licensed and regulated fund
management company domiciled in Vietnam, to delegate
certain investment management and advisory activities.
On 25 October 2017, the Board declared a further
dividend of 4.8 cents per share.
On behalf of the Board
Steven Bates
Chairman
VinaCapital Vietnam Opportunity Fund Limited
25 October 2017
VOF Annual Report 2017VOF Annual Report 2017
54
Statement Of Directors’ Responsibilities
The Directors are responsible for preparing
Financial Statements in accordance with IFRS and
The Companies (Guernsey) Law, 2008 for each
financial period which give a true and fair view of
the state of affairs of the Company and its profit
or loss for that period. International Accounting
Standard 1 – Presentation of Financial Statements
requires that financial statements present
fairly for each financial period the Company’s
financial position, financial performance
and cash flows. This requires the faithful
representation of the effects of transactions,
other events and conditions in accordance with
the definitions and recognition criteria for assets,
liabilities, income and expenses set out in the
International Accounting Standards Board’s
(“IASB”) “Framework for the preparation and
presentation of financial statements”. In virtually
all circumstances a fair presentation will be
achieved by compliance with all applicable IFRS.
The Directors are responsible for keeping
proper accounting records which disclose with
reasonable accuracy at any time the financial
position of the Company and to ensure that
the Financial Statements have been prepared
in accordance with The Companies (Guernsey)
Law, 2008 and IFRS. They are also responsible
for safeguarding the assets of the Company and
hence taking reasonable steps for the prevention
and detection of fraud and other irregularities.
In preparing the Financial Statements the
Directors are required to:
• ensure that the Financial Statements comply with the
Memorandum & Articles of Incorporation and IFRS;
• select suitable accounting policies and apply
them consistently;
• present information including accounting
policies, in a manner that provides relevant,
reliable, comparable and
understandable information;
• make judgements and estimates that are
reasonable and prudent;
• prepare the Financial Statements on the
going concern basis, unless it is inappropriate
to presume that the Company will continue in
business; and
• provide additional disclosures when
compliance with the specific requirements of IFRS
is insufficient to enable users to understand the
impact of particular transactions, other events and
conditions on the Company’s financial position and
financial performance.
The Directors confirm that they have complied with
these requirements in preparing the
Financial Statements.
Responsibility Statement of the Directors in
Respect of the Financial Statements
Each of the Directors confirms to the best of each
person’s knowledge and belief that:
a) The Financial Statements have been prepared
in accordance with IFRS and give a true and fair
view of the assets, liabilities, financial position and
profit or loss of the Company as at and for the
year ended 30 June 2017.
b) The Annual Report includes a fair review of
the development and performance of the
business and the position of the Company,
together with a description of the principal risks
and uncertainties that the Company faces as
required by DTR 4.1.8R and DTR 4.1.11R.
Directors’ Statement
So far as each of the Directors is aware, there is
no relevant audit information of which the
Company’s auditor is unaware, and each Director
has taken all the steps they ought to have taken
as a Director to make themselves aware of any
relevant audit information and to establish that
the Company’s auditor is aware of that information.
In the opinion of the Board, the Annual Report
and Financial Statements taken as a whole, are
fair, balanced and understandable and provides
the information necessary to assess theCompany’s
performance, business model and strategy.
On behalf of the Board
Steven Bates
Chairman
VinaCapital Vietnam Opportunity Fund Limited
25 October 2017
55
Hoa Phat Group (HPG)
VOF Annual Report 2017VOF Annual Report 2017
56
57
Report Of The Audit Committee
On the following pages, we present the Report of the Audit Committee
(the “Committee”) for the year ended 30 June 2017, setting out the Committee’s
structure and composition, principal duties and key activities during the year. As
in previous years, the Committee has reviewed the Company’s financial reporting,
the independence and effectiveness of the Independent Auditor and the internal
control and risk management systems of the service providers.
Structure and Composition
The Committee is chaired by Huw Evans.
All other Directors of the Company are
members of the Committee.
Appointment to the Committee is for a period of
up to three years which may be extended for two
further three year periods provided that the
majority of the Committee remain independent
of the Investment Manager.
The Committee conducts formal meetings at least
three times a year. The table on page 48 sets out
the number of Committee meetings held during
the year ended 30 June 2017 and the number
of such meetings attended by each committee
member. The Independent Auditor is invited to
attend those meetings at which the annual and
interim reports are considered. The Independent
Auditor, Internal Auditor and the Committee
meet together every year without the presence
of either the Administrator or the Investment
Manager and at other times if the Committee
deems this to be necessary.
Principal Duties
The role of the Committee includes:
•
• monitoring the integrity of the published
Financial Statements of the Company and
advising the Board on whether, taken as a
whole, the Annual Report and Financial
Statements are fair, balanced and
understandable and provide the information
necessary for shareholders to assess the
Company’s performance, business
model and strategy;
reviewing and reporting to the Board on the
significant issues and judgements made in the
preparation of the Company’s Annual Report
and Financial Statements, having regard to
matters communicated by the Independent
Auditor, significant financial returns to
regulators and other financial information;
• monitoring and reviewing the quality and
effectiveness of the Independent Auditor
and their independence and making
recommendations to the Board on their
appointment, reappointment, replacement
and remuneration;
carrying out a robust assessment of the
principal risks facing the Company and
including in the Annual Report and Financial
Statements a description of those risks and
explaining how they are being managed or
mitigated; and
•
•
recommending valuations of the Company’s
investments to the Board.
The complete details of the Committee’s formal
duties and responsibilities are set out in the
Committee’s Terms of Reference, which can be
obtained from the Company’s Administrator.
Independent Auditor
PricewaterhouseCoopers CI LLP (“PwC CI”)
was appointed as the Independent Auditor
with effect from 24 May 2016 following the
change of domicile of the Company from the
Cayman Islands to Guernsey. Prior to this
PricewaterhouseCoopers Hong Kong was the
Independent Auditor.
The independence and objectivity of the
Independent Auditor is reviewed by the
Committee, which also reviews the terms
under which the Independent Auditor is
appointed to perform any non-audit services.
The Committee has established policies and
procedures governing the engagement of the
auditor to provide non-audit services.
These are that the Independent Auditor
may not provide a service which:
• places them in a position to audit their own work;
•
•
creates a mutuality of interest;
results in the Independent Auditor
functioning as a Manager or Employee
of the Company; and
• puts the Independent Auditor in the role
of Advocate of the Company.
The audit and any non-audit fees proposed by the
Independent Auditor each year are reviewed by
the Committee taking into account the Company’s
structure, operations and other requirements
during the period and the Committee makes
recommendations to the Board.
The Committee has examined the scope and results
of the external audit, its cost effectiveness and the
independence and objectivity of the Independent
Auditor, with particular regard to non-audit fees,
and considers PwC CI, as Independent Auditor,
to be independent of the Company.
VOF Annual Report 2017VOF Annual Report 2017
58
59
Key Activities
The following sections discuss the principal
assessments made by the Committee
during the year:
Significant Financial Statement Issues
Valuation of Investments:
The fair value of the Company’s investments at
30 June 2017 was USD974.6 million
accounting for 99.2% of the Company’s
assets (30 June 2016: USD789.7 million
and 99.2%, respectively).
In relation to the listed and unlisted
investments, the Committee satisfies itself that
the Investment Manager has used the appropriate
market values as at the Statement of Financial
Position date.
In relation to the real estate and private
equity investments, the Committee has
concentrated on ensuring that the Investment
Manager and the Independent Valuer have
applied appropriate valuation methodologies.
Members of the Committee meet the
Independent Valuer and the Investment
Manager at least annually to discuss the
valuation process. The Committee gains
comfort in the valuations produced by
reviewing the methodologies used.
The methodologies and valuations were discussed
and subsequently approved by the Committee
in meetings with the Independent Valuer and
Investment Manager in March
and October 2017.
Calculation of incentive fee
On 27 October 2016, the IMA was amended in
order to clarify the calculation of incentive fees.
The clarification did not result in adjustments
to the incentive fees expensed. The maximum
incentive fee that can be paid in any given year
in respect to either the Capital Markets Pool
or the Direct Real Estate Pool is 1.5% of the
weighted average NAV of that Pool at the Statement
of Financial Position date. Any incentive fees
earned in excess of this 1.5% cap may be paid
out in subsequent years only to the extent that
the NAV of the relevant Pool (as adjusted to
take account of cash flows such as dividends,
share buy backs and cash transferred between
pools) exceeds what the NAV would have been
this year had the fee equalled the 1.5% cap. For
the year ended 30 June 2017, an incentive fee of
USD24.6 million was earned by the Investment
Manager on the performance of the Capital
Markets Pool. The Committee took steps to
ensure the calculation was independently
verified as well as holding discussions with the
auditor to assess the level of audit work
performed on the completeness and accuracy
of the calculation and whether in their view the
methodology applied was in accordance with
the IMA. The amount which will be paid out
immediately was reduced to USD11.2 million
by the operation of the 1.5% cap.
The Audit Committee considered the probability of
whether or not the balance of USD13.4 million will
be paid out in subsequent accounting years.
It concluded that this is sufficiently likely to carry
forward the full amount as a liability
of the Company as at 30 June 2017.
Effectiveness of the Audit
The Committee held formal meetings with PwC CI
before the start of the audit to discuss formal plan-
ning, to discuss any potential issues and to agree the
scope that would be covered and, after the audit
work was concluded, to discuss the
significant issues which arose.
The Committee considered the effectiveness and
independence of PwC CI by using a number of
measures, including but not limited to:
• Reviewing the audit plan presented to them
before the start of the audit;
• Reviewing and challenging the audit findings
report including variations from the original plan;
• Reviewing any changes in audit personnel; and
• Requesting feedback from both the
Investment Manager and the Administrator.
Following this evaluation, the Committee was
satisfied that there had been appropriate focus and
challenge on the significant and other key areas of
audit risk and assessed the quality of the audit pro-
cess to be good.
Audit fees and Safeguards on Non-Audit Services
The table below summarises the remuneration paid by the Company to PwC CI and to other
PwC member firms for audit and non-audit services during the years ended 30 June 2017 and 30 June 2016.
Audit and assurance services
- Annual audit
- Interim review
Non-audit services
PricewaterhouseCoopers London
- Tax opinion on re-domicile
- Clinical improvement programme for an investment target in Vietnam
- Advisory and reporting accountant services on admission to LSE Main Market
Total
Year ended
30 June 2017
USD’000
Year ended
30 June 2016
USD’000
295
92
-
-
-
387
194
131
26
35
667
1,053
The Committee considers PwC CI to be independent
of the Company. Further, the Committee has obtained
PwC CI’s confirmation that the services provided by
other PwC member firms to the wider VinaCapital
organisation do not prejudice its independence.
Internal Control
At each of its meetings during the year, the Committee
reviewed the Investment Manager’s internal control report
and, during the year, met with EY LLP, the
internal auditor appointed by the Investment
Manager, to discuss the control environment and the
outcome of their review of the Investment Manager’s in-
ternal control. The Committee also reviewed the externally
prepared Service Organisation Control (“SOC1”) report on
the control environment in place at the Administrator.
Conclusion and Recommendation
On the basis of its work carried out over the year, and
assurances given by the Investment Manager and the
Administrator, the Committee is satisfied that the Financial
Statements appropriately address the critical judgements
and key estimates (both in respect to the amounts reported
and the disclosures). The Committee is also satisfied that
the significant assumptions used for determining the
value of assets and liabilities have been appropriately
scrutinised and challenged and are sufficiently robust.
At the request of the Board, the Committee considered
and were satisfied that the 30 June 2017 Annual Report
and Financial Statements were fair, balanced and
understandable and that they provided the necessary
information for Shareholders to assess the Company’s
performance, business model and strategy.
were not aware of any material misstatements
including matters relating to the presentation of the
Financial Statements. The Committee confirms that it is
satisfied that PwC CI has fulfilled its responsibilities with
diligence and professional scepticism.
Following the review process on the effectiveness of the
independent audit and the review of audit and non-audit
services, the Committee has recommended that PwC CI be
reappointed for the coming financial year.
For any questions on the activities of the Committee not
addressed in the foregoing, a member of the
Audit Committee remains available to attend the AGM
to respond to such questions.
PwC CI reported to the Committee that no material
misstatements were found in the course of its work.
Furthermore, both the Investment Manager and the
Administrator confirmed to the Committee that they
Huw Evans
Audit Committee Chairman
25 October 2017
VOF Annual Report 2017VOF Annual Report 2017
60
Directors’ Remuneration Report
Introduction
An ordinary resolution for the approval of the
Directors’ remuneration report will be put to the
Shareholders at the AGM to be held on
14 December 2017.
Policy on Directors’ Fees
The Board’s policy is that the remuneration of the
independent non-executive Directors should
reflect the experience and time commitment of
the Board as a whole, and is determined with
reference to comparable organisations and
available market information each year.
Independent Directors’ Fees
The fees for the independent Directors are
determined within the limit set out in the
Company’s Articles of Incorporation, which
provide that the aggregate total remuneration
paid to independent Directors shall not exceed
USD500,000 (or such higher amount as may be
approved by the Company in a general meeting)
in respect of any 12-month period.
The policy is to review the fee rates periodically,
although such a review will not necessarily
result in any changes.
Directors’ Emoluments for the Year
The Directors who served during the year received the following emoluments in the form of fees:
For the year ended 30 June 2017,
Directors remuneration remained the same as
the previous year, being USD90,000 for the
Chairman and USD75,000 for the independent
Directors, with USD5,000 for membership of the
Audit Committee and USD15,000 for
chairmanship of the same.
There are no long term incentive schemes
provided by the Company and no performance
fees are paid to Directors.
Steven Bates
Martin Adams
Thuy Bich Dam
Huw Evans*
Michael Gray**
*Appointed Audit Committee Chairman following Michael Gray’s retirement.
**Retired 21 December 2016.
Annual fee
USD
95,000
80,000
80,000
90,000
90,000
Year ended
30 June 2017 USD
95,000
Year ended
30 June 2016 USD
95,000
80,000
80,000
85,452
43,151
383,603
80,000
80,000
7,671
90,000
352,671
On behalf of the Board
Thuy Bich Dam
Chair
Remuneration Committee
25 October 2017
61
Khang Dien House (KDH)
VOF Annual Report 2017VOF Annual Report 2017 62
63
Independent Auditor’s Report To The Members Of Vinacapital
Vietnam Opportunity Fund Limited
Report on the audit of the financial statements
Our opinion
In our opinion, the financial statements give a true and
fair view of the financial position of VinaCapital Vietnam
Opportunity Fund Limited (the “Company”) as at 30 June
2017, and of its financial performance and its cash flows
for the year then ended in accordance with International
Financial Reporting Standards and have been properly
prepared in accordance with the requirements of The
Companies (Guernsey) Law, 2008.
What we have audited
The Company’s financial statements comprise:
•
•
•
•
•
the Statement of Financial Position as at 30 June 2017;
the Statement of Comprehensive Income for the year
then ended;
the Statement of Changes in Equity for the
year then ended;
the Statement of Cash Flows for the year
then ended; and
the notes to the financial statements, which include a
summary of significant accounting policies.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (“ISAs”).
Our responsibilities under those standards are further
described in the Auditor’s responsibilities for the audit of the
financial statements section of our report.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
Independence
We are independent of the Company in accordance with
the International Ethics Standards Board for Accountants’
Code of Ethics for Professional Accountants (“IESBA
Code”). We have fulfilled our other ethical responsibilities
in accordance with the IESBA Code.
Our audit approach
Context
The Company is a Guernsey domiciled closed-ended
investment company trading on the London Stock
Exchange’s Main Market and is managed by a related
party, VinaCapital Investment Management Limited
(the “Investment Manager”).
The Company is not required to prepare consolidated
financial statements, however it is structured as a
group and therefore key aspects of our audit approach
have been framed in our role as the lead engagement
team using component auditors from other PwC
network firms.
The Company, investing through its direct and indirect
subsidiaries and associates, is a diversified investment
fund focussing on capital markets, private equity and
real estate investment opportunities in Vietnam.
All such subsidiary and associate investments are
ultimately held at fair value and reflected by the Company
on its Statement of Financial Position as “Financial
assets at fair value through profit or loss”. Each year we
focus our audit work primarily on the valuation of these
investments in subsidiaries and associates accounted for
at fair value and the calculation of incentive fees payable
to the Investment Manager.
Materiality
Audit
Scope
Key Audit
Matters
Overview
Materiality
• Overall materiality was $9.50 million which
represents 1% of Net Assets.
Audit scope
• The principal activity of the Company comprises investing
in a diversified portfolio of investments in Vietnam
(referred as “underlying investments”) through a
structure of intermediate holding companies.
•
In establishing the overall approach to the Company’s
audit, we determined the type of work that needed
to be performed by us, as the lead engagement
team, or component auditors from other PwC
network firms. Where the work was performed by
component auditors, we determined the level of
involvement we needed to have in the audit work at
those components to be able to conclude whether
sufficient appropriate audit evidence had been
obtained as a basis for our opinion on the Company’s
financial statements as a whole.
materiality and assessed the risks of material
misstatement in the financial statements. In
particular, we considered where the directors made
subjective judgements; for example, in respect of
significant accounting estimates that involved making
assumptions and considering future events that are
inherently uncertain. As in all of our audits, we also
addressed the risk of management override of internal
controls, including among other matters, consideration
of whether there was evidence of bias that represented
a risk of material misstatement due to fraud.
• We tailored the audit scope taking into account the
type of underlying investments held, the accounting
processes and controls operated by the Company
and the overall market to which the Company is
exposed through its underlying investments.
• We conducted our audit of the financial statements
from the financial information and records provided
by Northern Trust International Fund Administration
Services (Guernsey) Limited (“the Administrator”)
to whom the Board of Directors has delegated the
provision of administrative functions. Our audit
also relied on key financial records provided by the
Investment Manager.
Key audit matters
• Valuation of financial assets at fair value through
profit or loss
• Calculation of incentive fee
Audit scope
As part of designing our audit, we determined
We tailored the scope of our audit in order to perform
sufficient work to enable us to provide an opinion
on the financial statements as a whole, taking into
account the structure of the Company, the accounting
processes and controls, and the industry in which the
Company operates.
Materiality
The scope of our audit was influenced by our
application of materiality. An audit is designed to
obtain reasonable assurance whether the financial
statements are free from material misstatement.
Misstatements may arise due to fraud or error. They
are considered material if individually or in aggregate,
they could reasonably be expected to influence the
economic decisions of users taken on the basis of the
financial statements.
Based on our professional judgement, we determined
certain quantitative thresholds for materiality, including
the overall Company materiality for the financial
statements as a whole as set out in the table below.
These, together with qualitative considerations, helped
us to determine the scope of our audit and the nature,
timing and extent of our audit procedures and to evaluate
Overall materiality
$9.50 million
How we determined it
1% of Net Assets
Rationale for the
materiality benchmark
We believe that Net
Assets is the most
appropriate benchmark
because this is the
key metric of interest
to investors. It is also
a generally accepted
measure used for
companies in this
industry.
the effect of misstatements, both individually and in
aggregate on the financial statements as a whole.
We agreed with the Audit Committee that we would report
to them misstatements identified during our audit above
$475,000, as well as misstatements below that amount that,
in our view, warranted reporting for qualitative reasons.
Key audit matters
Key audit matters are those matters that, in our
professional judgment, were of most significance in our
audit of the financial statements of the current period.
These matters were addressed in the context of our
audit of the financial statements as a whole, and in
forming our opinion thereon, and we do not provide a
separate opinion on these matters.
VOF Annual Report 2017VOF Annual Report 2017 64
65
Key audit matter
Valuation of financial assets at fair value through profit or loss
As disclosed in notes 3, 4, 8 and 19 to the financial statements, the Company’s
financial assets at fair value through profit or loss amount to $974.58 million as at 30
June 2017 and comprise the Company’s holdings in direct and indirect subsidiaries
and associates, investing in a pool of capital markets, private equity and real estate
investment opportunities in Vietnam.
How our audit addressed the Key audit matter
1. We updated and reconfirmed our understanding and evaluation of
management’s processes and internal controls in so far as they apply to
investment valuations, the valuation models used and the areas where significant
judgements and estimates are made;
We focused on this balance as it represents the principal element of the net asset
value as disclosed on the Statement of Financial Position as at 30 June 2017 as well as
being a key contributor to the Company’s performance during the year.
2. We attended relevant valuation meetings to understand and observe the
Company’s process of challenging and approving the valuations prepared by the
Investment Manager and those prepared by the independent valuation experts
engaged by management;
The fair value disclosed of $974.58 million has been determined based on the fair
value of (1) the underlying capital markets, private equity and real estate investments
held and (2) the other residual net assets within subsidiaries and associates as at 30
June 2017. Further details are as follows:
(a) Valuation of underlying listed and unlisted capital markets investments
As at 30 June 2017 the listed and unlisted portion of the capital markets portfolio
was fair valued at $698.54 million, representing 72% of the Company’s total financial
assets at fair value through profit or loss. The fair value of these investments is
based upon the quoted market prices per the relevant Stock Exchange at the close of
trading on 30 June 2017.
There is a risk that the fair valuation of the capital markets portfolio may be
materially misstated as a result of the incorrect application of period end market
prices or exchange rates to USD or incorrect judgements as to the underlying liquidity
of the capital markets portfolio and the consequent reliance on the closing quoted
market prices.
(b) Valuation of underlying real estate and private equity investments
As at 30 June 2017 the real estate and private equity investments were fair valued at
$127.62 million, representing 13% of the Company’s total financial assets at fair value
through profit or loss.
3. Confirmed the Company’s ownership of the direct and indirect subsidiaries and
associates by obtaining confirmations from the independent appointed registered agents;
4. We performed a review of the IFRS10 workings for the Company provided by
management with reference to the trial balances and accounting records of the
subsidiaries and associates;
5. On a sample basis, agreed the additional contributions made by the Company
to its directly held subsidiaries and associates as well as the return of capital
received by the Company from these entities to relevant supporting agreements
and similar legal documentation;
6. For the valuation of underlying listed and unlisted capital markets investments, we
have performed the following:
•
Independently re-priced all of the listed and unlisted capital markets investments
which are traded in active markets to the quoted market prices per the relevant Stock
Exchange at the close of trading on 30 June 2017;
• Re-priced all of the government bonds with reference to independent
third-party sources;
• Recalculated the fair values to USD, where required, by independently verifying to
external sources the use by management of appropriate exchange rates;
Key audit matter (cont.)
The Company’s underlying investments in real estate projects totalling $57.37 million
have been fair valued as follows:
- $53.65 million – valued by valuation experts or based on counter-signed sales
purchase agreements due to complete post-year-end; and
- $3.72 million – valued through other methodologies including internal desktop valuations.
The fair value of the Company’s underlying investments in real estate projects is
based on property valuations by specialist independent appraisers. These valuations
are based on judgements and assumptions as to the local market which are subject
to uncertainty and might result in valuations which differ materially from those that
would have been achieved in an actual disposal of the real estate investment as
at 30 June 2017.
Valuation experts were engaged by management to review the findings of the
external real estate valuation specialists and certain transactions pending completion.
The valuation experts combined their findings with the residual net assets of the
relevant holding companies, reviewed and opined on real estate investment projects
fair valued at $53.65 million.
The Company’s underlying private equity investments amounting to $70.24 million
were fair valued by valuation experts engaged by management using industry
standard private equity valuation techniques adjusted for holding companies’
residual net assets.
There is a risk that the fair valuation of the real estate and private equity investments
may be materially misstated as these fair values rely on the proper determination of
an appropriate valuation methodology, the use of judgemental inputs as well as the
skill and knowledge of the specialists engaged by management to develop and opine
on these model based valuations.
There is also the inherent risk that the Investment Manager or the Board may unduly
influence the specialist independent appraisers in their determination of the fair
valuations for these investments.
How our audit addressed the Key audit matter (cont.)
• Obtained confirmation from the Custodian of all capital markets investments held
at the period end and agreed these to the Company’s records; and
• Reviewed the trading volumes to assess whether these supported the use of the
quoted market price as a basis for the year end fair values.
7. For the valuation of underlying real estate and private equity investments, we have
performed the following:
• Obtained and reviewed the final property valuation reports prepared and issued
by specialist independent appraisers;
• Obtained and reviewed the final reports issued by management’s valuation experts
to the Board so as to understand the assumptions, judgements and valuation
methodologies adopted to determine fair value;
• Engaged internal PwC valuation experts to provide audit support reviewing and
concluding on the fair valuations of the private equity investments. The PwC valuation
experts (a) reviewed the appropriateness of valuation methodologies and approaches
and (b) reviewed and commented on the computation of the discounted cash flow
valuation models which were adopted by management’s valuation experts, including
significant assumptions such as cash flow projections, discount rates and terminal
growth rates;
• Obtained satisfactory explanations when challenging the assumptions made by
management in the applicable valuation models;
• Tested the mathematical accuracy of the valuation models and verified the significant
inputs into the models by agreement to third party sources where applicable;
• Discussions and meetings were held with management’s valuation experts to assess
their final valuation reports;
• Confirmed and assessed the independence, objectivity and competence of the real
estate valuation specialists and management’s valuation experts;
• Attended Audit Committee meetings and also read Audit Committee papers and
minutes of meetings where the fair valuations provided by management and
management’s valuation experts were discussed and agreed; and
• Performed investment existence procedures directly with investee companies to
confirm the existence and ownership of underlying investee companies holding the
real estate investments as well as the private equity investments held.
VOF Annual Report 2017VOF Annual Report 2017
66
67
Key audit matter (cont.)
(c) Valuation of other residual net assets
How our audit addressed the Key audit matter (cont.)
8. For the valuation of other residual net assets, we have performed the following:
Other residual net assets held as a component of financial assets at fair value through
profit or loss comprise cash and cash equivalents $29.58 million, short-term bank
deposits $50.00 million, and other assets net of other liabilities $68.85 million.
There is a risk that the fair valuation of the other residual net assets held within the
direct and indirect subsidiaries and associates may be materially misstated arising
from the omission of relevant assets or liabilities or the inclusion of non-existent
other assets or liabilities.
• Obtained and agreed independent bank confirmations for all intermediate
subsidiaries and associates;
• Agreed a sample of material balances of other assets and liabilities to supporting
documentation such as signed agreements; and
• Performed searches for unrecorded liabilities through testing of subsequent
payments, ensuring that none of these payments related to unrecorded liabilities
existing as at 30 June 2017.
We have concluded that the valuation of Financial assets at fair value through profit or
loss is within a reasonable range. Additionally the valuation is supported by the available
evidence with significant assumptions and valuation methodologies used assessed as
being appropriate and reasonable.
The results of our procedures identified no material errors in the fair valuation of Financial
assets at fair value through profit or loss.
Calculation of incentive fee
The incentive fee comprises amounts accrued and payable to the Investment
Manager, as calculated in accordance with the Investment Management Agreement,
to compensate for services provided in a way which aligns the remuneration with the
Company’s investment performance.
As at 30 June 2017, the Company has accrued for $23.32 million of total incentive
fees payable to the Investment Manager split as to $11.19 million payable as a
current liability with the balance of $12.13 million payable after one year. The
balance of $12.13 million payable after one year represents the portion of the
incentive fee payable in excess of a cap where the Investment Manager and the
Board have determined, that based on future investment performance, it is probable
that this will remain payable to the Investment Manager in late 2018.
The calculation of the incentive fee per the Investment Management Agreement
produced an absolute incentive fee payable of $24.64 million based on the historic
Our audit work performed to assess the accuracy and judgements made by
management in determining the accrual of the incentive fee for the year ended 30
June 2017 included:
• We obtained the analysis and calculation performed by management to support
the calculation of the absolute amount of the incentive fee and examined the
Investment Management Agreement to ensure that the methodology adopted for
the calculation of the absolute amount for the year ended 30 June 2017 was in
accordance with that agreement;
• We tested the absolute amount of the incentive fee attributable to the Investment
Manager based on the terms in the Investment Management Agreement;
• We reviewed whether the capital markets pool NAV and direct real estate
pool NAV utilised in the absolute calculation, including their allocations were
consistent with the audited balances per the financial statements;
• We assessed the reasonableness of the Company’s recognition of the incentive
Key audit matter (cont.)
performance of the Company for the year to 30 June 2017. This is different to the
total performance fee of $23.32 million accrued for in the financial statements at the
year end due to the existence of a cap on the immediate payment of the incentive fee
per the Investment Management Agreement. This cap defers the payment to later
accounting periods of a portion of the absolute incentive fee where those potential
future payments are contingent on the future performance of the Company.
Therefore as disclosed in note 3, management must exercise judgement when
determining the amount of the incentive fee which is recognised for payment after one
year from 30 June 2017 and this balance is discounted.
The incentive fee calculation, including the recognition and measurement of the
portion of the incentive fee payable after one year, is based on relatively complex
calculations with a number of data inputs and assumptions, which increases the
risk of error or manipulation. The mechanics surrounding the cap are more fully
explained in note 3 on page 80.
We focused on the accuracy and judgements made by management in the
determination and accrual of the incentive fee due to the complexity of its
calculation, the judgements required for provisions for payments due after one
year and the related party nature of the balance.
Other information
The directors are responsible for the other information. The other information
comprises the items listed on the Contents page, but does not include the financial
statements and our auditor’s report thereon.
Other than as specified in our report, our opinion on the financial statements does
not cover the other information and we do not express any form of assurance
conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read
the other information identified above and, in doing so, consider whether the other
How our audit addressed the Key audit matter (cont.)
fee in excess of the cap as at 30 June 2017 payable after one year, including the
measurement thereof, through review of management’s methodology, inputs and
assumptions as to the future.
• Our review included (a) obtaining satisfactory explanations when challenging the
assumptions made, particularly in relation to the assessment of future payments
and (b) testing the mathematical accuracy of the model and verifying the inputs
into the model by agreeing them to third party sources where applicable and;
• We discussed our work with the Board as an area where critical estimates and
judgements were exercised.
We did not identify any material differences as a result of this testing. The
assumptions used by management in recognising and measuring the incentive fee
accrued were considered to be appropriate and reasonable based on the
evidence we obtained.
information is materially inconsistent with the financial statements or our knowledge
obtained in the audit, or otherwise appears to be materially misstated. If, based on
the work we have performed, we conclude that there is a material misstatement of
this other information, we are required to report that fact. We have nothing to report
in this regard.
VOF Annual Report 2017VOF Annual Report 2017
68
69
Responsibilities of the directors for the
financial statements
The directors are responsible for the preparation of
financial statements that give a true and fair view in
accordance with International Financial Reporting
Standards, the requirements of Guernsey law and
for such internal control as the directors determine
is necessary to enable the preparation of financial
statements that are free from material misstatement,
whether due to fraud or error.
In preparing the financial statements, the directors
are responsible for assessing the Company’s ability to
continue as a going concern, disclosing, as applicable,
matters relating to going concern and using the going
concern basis of accounting unless the directors
either intend to liquidate the Company or to cease
operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the
financial statements
Our objectives are to obtain reasonable assurance about
whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error,
and to issue an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance, but is
not a guarantee that an audit conducted in accordance
with ISAs will always detect a material misstatement
when it exists. Misstatements can arise from fraud or
error and are considered material if, individually or in
aggregate, they could reasonably be expected to influence
the economic decisions of users taken on the basis of
these financial statements.
As part of an audit in accordance with ISAs, we exercise
professional judgement and maintain professional
scepticism throughout the audit. We also:
•
Identify and assess the risks of material
misstatement of the financial statements, whether
due to fraud or error, design and perform audit
procedures responsive to those risks, and obtain
audit evidence that is sufficient and appropriate
to provide a basis for our opinion. The risk of not
detecting a material misstatement resulting from
fraud is higher than for one resulting from error,
as fraud may involve collusion, forgery, intentional
omissions, misrepresentations, or the override of
internal control.
• Obtain an understanding of internal control
relevant to the audit in order to design
audit procedures that are appropriate in the
circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the
Company’s internal control.
• Evaluate the appropriateness of accounting policies
used and the reasonableness of accounting estimates
and related disclosures made by the directors.
• Conclude on the appropriateness of the directors’
use of the going concern basis of accounting and,
based on the audit evidence obtained, whether
a material uncertainty exists related to events or
conditions that may cast significant doubt on the
Company’s ability to continue as a going concern.
If we conclude that a material uncertainty exists,
we are required to draw attention in our auditor’s
report to the related disclosures in the financial
statements or, if such disclosures are inadequate,
to modify our opinion. Our conclusions are based
on the audit evidence obtained up to the date of
our auditor’s report. However, future events or
conditions may cause the Company to cease to
continue as a going concern.
• Evaluate the overall presentation, structure and
content of the financial statements, including the
disclosures, and whether the financial statements
represent the underlying transactions and events in
a manner that achieves fair presentation.
We communicate with those charged with governance
regarding, among other matters, the planned scope and
timing of the audit and significant audit findings, includ-
ing any significant deficiencies in internal control that
we identify during our audit.
We also provide those charged with governance with a
statement that we have complied with relevant ethical
requirements regarding independence, and to
communicate with them all relationships and other
matters that may reasonably be thought to bear on our
independence, and where applicable, related safeguards.
From the matters communicated with those charged
with governance, we determine those matters that
were of most significance in the audit of the financial
statements of the current period and are therefore the
key audit matters. We describe these matters in our au-
ditor’s report unless law or regulation precludes public
disclosure about the matter or when, in extremely rare
circumstances, we determine that a matter should not
be communicated in our report because the adverse
consequences o erest benefits of such communication.
Report on other legal and regulatory requirements
Under The Companies (Guernsey) Law, 2008 we are
required to report to you if, in our opinion:
• we have not received all the information and
explanations we require for our audit;
• proper accounting records have not been kept; or
•
the financial statements are not in agreement with
the accounting records.
•
was substantially less in scope than an audit and
only consisted of making inquiries and considering
the directors’ process supporting their statements;
checking that the statements are in alignment with the
relevant provisions of the UK Corporate Governance
Code; and considering whether the statements are
consistent with the knowledge acquired by us in the
course of performing our audit; and
the part of the Corporate Governance Statement
relating to the Company’s compliance with the ten
further provisions of the UK Corporate Governance
Code specified for our review.
The maintenance and integrity of the Company’s website is the
responsibility of the directors; the work carried out by the auditors
does not involve consideration of these matters and, accordingly,
the auditors accept no responsibility for any changes that may
have occurred to the financial statements since they were initially
presented on the website.
Legislation in Guernsey governing the preparation and dissemination of
financial statements may differ from legislation in other jurisdictions.
We have no exceptions to report arising from this
responsibility.
We have nothing to report in respect of the following
matters which we have reviewed:
•
•
the directors’ statement set out on page 53 in relation
to going concern. As noted in the directors’ statement,
the directors have concluded that it is appropriate
to adopt the going concern basis in preparing the
financial statements. The going concern basis
presumes that the Company has adequate resources
to remain in operation, and that the directors intend
it to do so, for at least one year from the date the
financial statements were signed. As part of our audit
we have concluded that the directors’ use of the going
concern basis is appropriate. However, because not
all future events or conditions can be predicted, these
statements are not a guarantee as to the Company’s
ability to continue as a going concern;
the directors’ statement that they have carried out
a robust assessment of the principal risks facing the
Company and the directors’ statement in relation to
the longer-term viability of the Company. Our review
This report, including the opinion, has been prepared
for and only for the members as a body in accordance
with Section 262 of The Companies (Guernsey) Law,
2008 and for no other purpose. We do not, in giving
this opinion, 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.
John Roche
For and on behalf of PricewaterhouseCoopers CI LLP
Chartered Accountants and Recognised Auditor
Guernsey, Channel Islands
25 October 2017
VOF Annual Report 2017VOF Annual Report 2017
70
Statement of Financial Position
Statement of Changes in Equity
71
ASSETS
Cash and cash equivalents
Receivables
Financial assets at fair value through profit or loss
Total assets
CURRENT LIABILITIES
Accrued expenses and other payables
NON-CURRENT LIABILITIES
Deferred incentive fees
Total liabilities
EQUITY
Share capital
Retained earnings
Total Shareholders' equity
Total liabilities and equity
Net asset value, USD per share
Net asset value, GBP per share
Notes
6
9
8
3,11
3
10
16
30 June 2017
USD’000
30 June 2016
USD’000
7,512
265
974,581
982,358
20,546
12,137
32,683
456,419
493,256
949,675
982,358
4.73
3.64
1,570
5,077
789,739
796,386
9,850
-
9,850
483,829
302,707
786,536
796,386
3.77
2.82
The Financial Statements were approved and signed by the Board of Directors on 25 October 2017.
Steven Bates
Chairman
Huw Evans
Director
Balance at 1 July 2015
Profit for the year
Total comprehensive income
Transactions with Shareholders
Shares repurchased
Balance at 30 June 2016
Balance at 1 July 2016
Profit for the year
Total comprehensive income
Transactions with Shareholders
Shares repurchased
Balance at 30 June 2017
Notes
10
10
Share capital
USD’000
512,027
-
-
Retained earnings
USD’000
206,637
96,070
96,070
(28,198)
483,829
483,829
-
-
(27,410)
456,419
-
302,707
302,707
190,549
190,549
-
493,256
Total equity
USD’000
718,664
96,070
96,070
(28,198)
786,536
786,536
190,549
190,549
(27,410)
949,675
The accompanying notes are an integral part of these Financial Statements.
The accompanying notes are an integral part of these Financial Statements.
VOF Annual Report 2017VOF Annual Report 2017 72
Statement of Comprehensive Income
Dividend income
Net gains on financial assets at fair value through
profit or loss
General and administration expenses
Accrued incentive fee
Other income
Operating profit
Profit before tax
Corporate income tax
Profit for the year
Total comprehensive income for the year
Earnings per share
- basic and diluted (USD per share)
- basic and diluted (GBP per share)
All items were derived from continuing activities.
Notes
Year ended
12
13
14
3,17
15
16
30 June 2017
USD’000
31,168
30 June 2016
USD’000
51,159
198,919
(16,548)
(23,269)
279
190,549
190,549
-
190,549
190,549
0.93
0.73
67,598
(14,826)
(8,241)
380
96,070
96,070
-
96,070
96,070
0.45
0.30
Statement of Cash Flows
Operating activities
Income before tax
Adjustments for:
Dividend income
Net gains on financial assets at fair value through profit or loss
Change in receivables
Change in accrued expenses and other payables
Dividend receipts
Net cash inflow from operating activities
Investing activities
Purchases of financial assets at fair value through profit or loss
Return of capital from financial assets at fair value through profit or loss
Sale of financial assets at fair value through profit or loss
Net cash generated from/(used in) investing activities
Financing activities
Purchases of shares into treasury
Net cash used in financing activities
Net change in cash and cash equivalents for the year
Cash and cash eguivalents at the beginning of the year
Cash and cash eguivalents at the end of the year
73
Notes
Year ended
30 June 2017
USD’000
30 June 2016
USD’000
190,549
(31,168)
(198,919)
(39,538)
4,812
22,833
31,168
19,275
(223,412)
217,963
19,526
14,077
(27,410)
(27,410)
5,942
1,570
7,512
96,070
(51,159)
(67,598)
(22,687)
2
4,770
20,827
2,912
(2,248)
-
-
(2,248)
-
-
664
906
1,570
13
19
19
19
10
6
6
The accompanying notes are an integral part of these Financial Statements.
The accompanying notes are an integral part of these Financial Statements.
VOF Annual Report 2017VOF Annual Report 2017 74
Statement of Cash Flows (cont.)
The Statement of Cash Flows does not include payments made by the Company’s subsidiary on behalf of the Company:
Non-cash disclosure
Company share repurchases
Purchases of financial assets at fair value through profit or loss
12
12
30 June 2017
USD’000
-
-
-
30 June 2016
USD’000
28,198
2,134
30,332
Notes
Year ended
The accompanying notes are an integral part of these Financial Statements.
No Va Land Investment Group (NVL)
75
Notes to the financial statements
1. General information
VinaCapital Vietnam Opportunity Fund Limited
(“the Company”) is a Guernsey domiciled closed-ended
investment company. The Company was previously a
limited liability company incorporated in the Cayman
Islands. After an Extraordinary General Meeting on
27 October 2015, Shareholders approved proposals
to change the Company’s domicile to Guernsey. This
change took place on 22 March 2016. The Company
is classified as a registered closed-ended Collective
Investment Scheme under the Protection of Investors
(Bailiwick of Guernsey) Law 1987 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 London
Stock Exchange’s (“LSE’s”) Main Market, under the
ticker symbol VOF, after being previously listed on the
LSE’s AIM market. The change occurred on 30 March
2016 following the change of domicile described above.
The Company does not have a fixed life but the Board
has determined that it is desirable that Shareholders
should have the opportunity to review the future of
the Company at appropriate intervals. Accordingly, the
Board intends that a special resolution will be proposed
every fifth year 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 and 2013 and on both occasions the resolution
was not passed, allowing the Company to continue as
currently constituted. The next shareholder vote on the
continuation of the Company is planned to be held in
December 2018.
The Financial Statements for the year ended
30 June 2017 were approved for issue by the Board
on 25 October 2017.
2. Summary of significant accounting policies
The principal accounting policies applied in the
preparation of these Financial Statements are set out
below. These policies have been consistently applied to
all years presented, unless otherwise stated.
Statement of Compliance
The Financial Statements have been prepared in accordance
with IFRS, which comprise standards and interpretations
approved by the IASB together with applicable legal and
regulatory requirements of Guernsey Law.
2.1 Basis of preparation
The Financial Statements have been prepared using
the historical cost convention, as modified by the
revaluation of financial assets at fair value through
profit or loss, and financial liabilities at fair value
through profit or loss. The Financial Statements have
been prepared on a going concern basis.
VOF Annual Report 2017VOF Annual Report 2017 76
77
The preparation of Financial Statements in conformity
with IFRS requires the use of certain critical accounting
estimates. It also requires judgement to be exercised
in the process of applying the Company’s accounting
policies. The areas involving a higher degree of
judgement or complexity, or areas where assumptions
and estimates are significant to the Financial
Statements are disclosed in note 3.
2.2 Changes in accounting policy and disclosures
a) Changes in accounting policy
The accounting policies adopted are consistent with
those of the previous financial year.
b) New standards, amendments and interpretations
issued but not yet effective
Certain new accounting standards and interpretations
have been published that are not mandatory for 30
June 2017 reporting periods and have not been early
adopted by the Company. The Company’s assessment
of the impact of these new standards, amendments
and interpretations is set out below.
- IFRS 9 Financial Instruments (Effective 1 January 2018)
- IFRS 15 Revenue from Contracts with Customers
(Effective 1 January 2018)
IFRS 9 ‘Financial Instruments’ amends IAS 39. IFRS 9
specifies how an entity should classify and measure
financial assets, including some hybrid contracts. The
standard requires all financial assets to be classified on
the basis of the entity’s business model for managing
the financial assets and the contractual cash flow
characteristics of the financial asset. There are three
principal classification categories for financial assets
which are (i) measured at amortised cost, (ii) fair
value through other comprehensive income and (iii)
fair value through profit or loss. These requirements
improve and simplify the approach for classification
and measurement of financial assets compared with
the requirements of IAS 39. The standard applies a
consistent approach to classifying financial assets and
replaces the numerous categories of financial assets in
IAS 39, each of which had its own classification criteria.
The standard also results in one impairment method,
replacing the numerous impairment methods in IAS 39
that arise from the different classification.
The Standard is effective 1 January 2018 and will
be adopted for the year ending 30 June 2019. The
Company’s financial instruments consist of equity
instruments and will continue to be valued at fair value
through profit or loss.
The Board anticipates that the adoption of these
standards effective in a future period will not have
a material impact on the financial statements of
the Company.
It is anticipated that this application of IFRS 9 will not
change the measurement and presentation of the
current financial instruments.
There are certain other current standards,
amendments and interpretations that are not relevant
to the Company’s operations.
2.3 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 fair value through profit or loss.
Any gain or loss arising from a change in the fair
value of investments in subsidiaries and associates is
recognised in the Statement of Comprehensive Income.
Refer to note 3 on further disclosure on accounting for
subsidiaries and associates.
2.4 Foreign currency translation
a) Functional and presentation currency
The functional currency of the Company is the United
States dollar (“USD”). The Company’s Financial
Statements are presented in USD.
b) Transactions and balances
Foreign currency transactions are translated into
the functional currency using the exchange rates
prevailing at the dates of the transactions or valuation
where items are re-measured. Foreign exchange
gains and losses resulting from the settlement of
such transactions and from the translation at year-
end exchange rates of monetary assets and liabilities
denominated in foreign currencies are recognised in
the Statement of Comprehensive Income.
Non-monetary items measured at historical cost are
translated using the exchange rates at the date of the
transaction. Non-monetary items measured at fair
value are translated using the exchange rates at the
date when the fair value was determined.
2.5 Financial assets
2.5.1 Classification
The Company classifies its financial assets in the following
categories: at fair value through profit or loss and loans
and receivables. The classification depends on the
purpose for which the financial assets were acquired.
a) Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss
include financial assets that are either classified as held
for trading or are designated to be carried at fair value
through profit or loss at inception. Financial assets at
fair value through profit or loss held by the Company
comprise listed and unlisted securities, investments in
subsidiaries and associates and bonds.
b) Loans and receivables
Loans and receivables are non-derivative financial
assets with fixed or determinable payments that
are not quoted in an active market. The Company’s
loans and receivables comprise “Receivables” in the
Statement of Financial Position.
2.5.2 Initial measurement, recognition,
de-recognition and measurement
Receivables are recognised initially at fair value and
subsequently measured at amortised cost using the
effective interest method, less provision for impairment.
Purchases or sales of financial assets are recognised on
the date on which the Company commits to purchase
or sell the asset.
that occurred after the initial recognition of the asset (a
‘loss event’) and that loss event (or events) has an impact
on the estimated future cash flows of the financial asset
that can be reliably estimated.
Financial assets carried at fair value through profit
or loss are initially recognised at fair value, and
transaction costs are expensed in the Statement
of Comprehensive Income. Financial assets are
derecognised when the rights to receive cash flows
from the investments have expired or have been
transferred and the Company has transferred
substantially all risks and rewards of ownership.
Financial assets at fair value through profit or loss
are subsequently carried at fair value. Loans and
receivables are subsequently carried at amortised
cost using the effective interest method less
provision for impairment.
Gains or losses arising from changes in the fair value
of the “financial assets at fair value through profit
or loss” category are presented in the Statement of
Comprehensive Income within “net gains on financial
assets at fair value through profit or loss” in the period
in which they arise. Dividend income from financial
assets at fair value through profit or loss is recognised
in the Statement of Comprehensive Income when the
Company’s right to receive payments is established.
2.6 Impairment of assets
The Company assesses at the end of each reporting
period whether there is objective evidence that a financial
asset is impaired. A financial asset is impaired and
impairment losses are incurred only if there is objective
evidence of impairment as a result of one or more events
Evidence of impairment may include indications
that the debtor is experiencing significant financial
difficulty, default or delinquency in interest or
principal payments, the probability that they will
enter bankruptcy or other financial reorganisation,
and where observable data indicate that there is
a measurable decrease in the estimated future
cash flows, such as changes in arrears or economic
conditions that correlate with defaults.
For the loans and receivables category, the amount
of the loss is measured as the difference between
the asset’s carrying amount and the present value of
estimated future cash flows (excluding future credit
losses that have not been incurred) discounted at
the financial asset’s original effective interest rate.
The carrying amount of the asset is reduced and the
amount of the loss is recognised in the Statement of
Comprehensive Income. If a loan has a variable interest
rate, the discount rate for measuring any impairment
loss is the current effective interest rate determined
under the contract. As a practical expedient, the
Company may measure impairment on the basis of an
instrument’s fair value using an observable market price.
If, in a subsequent period, the amount of the
impairment loss decreases and the decrease can be
related objectively to an event occurring after the
impairment was recognised (such as an improvement
VOF Annual Report 2017VOF Annual Report 2017 78
79
in the debtor’s credit rating), the reversal of the
previously recognised impairment loss is recognised in
the Statement of Comprehensive Income.
2.9 Trade payables
Trade payables are obligations to pay for goods or
services that have been acquired in the ordinary course
of business from suppliers.
2.7 Cash and cash equivalents
In the Statement of Cash Flows, cash and cash
equivalents includes deposits held at call with banks,
other short-term highly liquid investments with original
maturities of three months or less and bank overdrafts.
In the Statement of Financial Position, bank overdrafts
are shown within borrowings in current liabilities.
2.8 Share capital
Ordinary shares are classified as equity. Share capital
includes the nominal value of ordinary shares that
have been issued and any premiums received on the
initial issuance of shares. Incremental costs directly
attributable to the issue of new ordinary shares or
options are shown in equity as a deduction, net of tax,
from the proceeds.
Where the Company purchases its equity share capital
(treasury shares), the consideration paid, including any
directly attributable incremental costs (net of income
taxes) is deducted from equity attributable to the
Company’s equity holders.
Where such treasury shares are subsequently
reissued, any consideration received, net of any
directly attributable incremental transaction costs and
the related income tax effects, is included in equity
attributable to the Company’s equity holders.
Trade payables are recognised initially at fair value and
subsequently measured at amortised cost using the
effective interest method.
2.10 Revenue recognition
The Company recognises revenue when the amount of
revenue can be reliably measured; when it is probable
that future economic benefits will flow to the entity;
and when specific criteria have been met for each of
the Company’s activities, as described below.
Dividend income is recognised when the right to
receive payment is established.
2.11 Operating expenses
Operating expenses are accounted for on an accrual basis.
2.12 Related parties
Parties are considered to be related if one party
has the ability to control the other party or exercise
significant influence over the other party in making
financial or operational decisions. Enterprises and
individuals that directly, or indirectly through one or
more intermediary, control, or are controlled by, or
under common control with, the Company, including
subsidiaries and fellow subsidiaries are related
parties of the Company. Associates are individuals
owning directly, or indirectly, an interest in the voting
power of the Company that gives them significant
influence over the entity, key management personnel,
including directors and officers of the Company, the
Investment Manager and their close family members.
In considering related party relationships, attention is
directed to the substance of the relationship and not
merely the legal form.
2.13 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, real estate projects and
operating assets, private equity and cash (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.
Expenses and liabilities which are common to all
segments are allocated based on each segment’s share
of total assets.
3. Critical accounting estimates and judgements
3.1 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:
a) The Company has obtained funds from investors
for the purpose of providing those investors with
investment management services;
b) The Company’s business purpose is to invest funds
solely for returns from capital appreciation, investment
income or both; and
c) The performance of investments made by the
Company are 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 fair value
through profit or loss.
3.2 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 30 June 2017, 100% (30 June 2016: 100%)
of the financial assets at fair value through profit and loss
relate to the Company’s investments in subsidiaries and
associates that have been fair valued in accordance with
the policies set out below.
The underlying investments include listed and unlisted
securities, private equity and real estate assets.
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. Where
no active market exists, valuation techniques are used.
The fair values of the principal real estate and
private equity investments are estimated by a
qualified independent professional services firm
(the “independent valuer”). The valuations by the
independent valuer are prepared using a number of
approaches such as adjusted net asset valuations,
discounted cash flows, income-related multiples and
price-to-book ratio.
In cases where the underlying investments of a
subsidiary or associate are real estate projects or
operating assets, the independent valuer determines
their fair value based on valuations provided by
specialised independent professional appraisers
(“specialised appraisers”). These valuations are used
by the independent valuer as the primary basis for
estimating each subsidiary’s or associate’s fair value.
The estimated fair values provided by the independent
valuer are used by the Audit Committee as the primary
basis for estimating the fair value of real estate and
private equity investments for recommendation to the
Board. Information about the significant judgements,
estimates and assumptions that are used in the
valuation of these investments is discussed 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.
As at 30 June 2017 and 30 June 2016, the Company
classified its investments in subsidiaries and associates
as Level 3 within the fair value hierarchy, because they
are not publicly traded, even when the underlying
assets may be readily realisable.
a) Valuation of assets that are traded in an active market
The fair values of listed securities and government bonds
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 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 three
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.
VOF Annual Report 2017VOF Annual Report 2017
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81
b) Valuation of assets that are not traded in an
active market
The fair value of assets that are not traded in an
active market (for example, private equities and real
estate where market prices are not readily available)
is determined by using valuation techniques. The
independent valuer uses its judgement to select a
variety of methods and make assumptions that are
mainly based on market conditions existing at each
reporting date. The valuations may vary from the
actual prices that would be achieved in an arm’s length
transaction at the reporting date.
b.1) Valuation of investments in private equities
The Company’s underlying investments in private
equities are fair valued using discounted cash flow and
market comparison methods. The projected future cash
flows are driven by management’s business strategies
and goals and its assumptions of growth in gross
domestic product (“GDP”), market demand, inflation,
etc. The independent valuer selects appropriate
discount rates that reflect the uncertainty of the
quantum and timing of the cash flows.
b.2) Valuation of real estate and operating assets
A number of the Company’s real estate investments
are held in joint ventures with VinaLand Limited
(“VinaLand”), another company managed by the
Investment Manager. In these cases, VinaLand holds
a controlling stake in the joint ventures and therefore
exercises control over the investments. As both
companies are managed by the same Investment
Manager, each company’s investment objectives for
each property have generally been the same.
The fair values of underlying real estate properties are
based on valuations by specialised appraisers. 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 specialist
appraisers are 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 2.3.
d. discounted cash flow projections based on estimates
of future cash flows, derived from the terms of external
evidence such as current market rents, occupancy and
room rates, and sales prices for similar properties in the
same location and condition, and using discount rates that
reflect current market assessments of the uncertainty in
the amount and timing of the cash flows; and
e. recent compensation prices made public by the local
authority in the province where the property is located.
In conjunction with making its judgement for the fair
value of the Company’s underlying real estate and
operating assets, the independent valuer also considers
information from a variety of other sources including:
a. current prices in an active market for properties of
different nature, condition or location (or subject to
different lease or other contracts), adjusted to reflect
those differences;
b. recent prices of similar properties in less active
markets, with adjustments to reflect any changes in
economic conditions since the date of the transactions
that occurred at those prices;
c. recent developments and changes in laws and
regulations that might affect zoning and/or the
Company’s ability to exercise its rights in respect to
properties and therefore fully realise the estimated
values of such properties;
3.3 Incentive Fee
For the purpose of calculating any incentive fee, the
portfolio is split into two pools, the Capital Markets
Pool and the Direct Real Estate Pool. The Direct Real
Estate Pool includes directly owned real estate and
operating assets. The Capital Markets Pool incorporates
all other investments, including listed and unlisted
securities and private equity. The annual incentive fee
payable to the Investment Manager is calculated for
each Pool broadly as 15% of the increase in NAV over a
hurdle rate of 8% per annum. However the maximum
amount that can be paid in any one year in respect of
either Pool is capped at 1.5% of the weighted average
month-end NAV of that pool (“Excess Cap”). Any
incentive fee earned in excess of this 1.5% cap will be
paid out in subsequent years but only to the extent
that the NAV of that pool exceeds the level at which it
would have been had the fee equalled the Excess Cap.
Incentive fees are settled on a FIFO basis and any expense due in the current year is classified as current liabilities and any deferred incentive fees payable in subsequent years
are classified as non-current liabilities.
For the year ended 30 June 2017, an incentive fee of USD24.6 million was earned by the Investment Manager on the performance of the Capital Markets Pool. The amount which will
be paid out immediately was reduced to USD11.2 million by the operation of the 1.5% cap.
The Audit Committee considered the probability of whether or not the balance of USD13.4 million will be paid out in subsequent accounting years. It concluded that this is
sufficiently likely to carry forward the full amount as a liability of the Company as at 30 June 2017. Payment of the balance will not be before October 2018. In determining the
fair value of this liability, the Board has discounted the USD13.4 million to USD12.1 million to reflect the time value of money and the probability of payment.
No incentive fee was due in respect of the Real Estate Pool.
4. Segment analysis
There have been no changes from prior periods in the measurement methods used to determine reported segment profit or loss.
Segment information can be analysed as follows:
Statement of Comprehensive Income
Year ended 30 June 2017
Dividend income
Net gains/(losses) on financial assets at fair value through profit or loss
General and administration expenses (note 14)
Accrued incentive fee (note 17)
Other income
Profit/(loss) before tax
Year ended 30 June 2016
Dividend income
Net gains/(losses) on financial assets at fair value through profit or loss
General and administration expenses (note 14)
Other income
Profit/(loss) before tax
* Capital markets include listed as well as unlisted securities and bonds.
Capital
markets*
USD‘000
Real estate
and Operating
Assets
USD‘000
Private
equity
USD‘000
-
(6,920)
(1,350)
-
-
-
43,739
(1,047)
-
-
42,692
(8,270)
-
17,688
(2,649)
-
-
(5,745)
(1,408)
-
15,039
(7,153)
Total
USD’000
31,168
198,919
(16,548)
(23,269)
279
190,549
51,159
67,598
(23,067)
380
96,070
31,168
162,100
(14,151)
(23,269)
279
156,127
51,159
55,655
(19,010)
380
88,184
VOF Annual Report 2017VOF Annual Report 2017
82
83
Statement of Financial Position
Statement of Financial Position
As at 30 June 2017
Cash and cash equivalents
Receivables
Financial assets at fair value through profit or loss
Total assets
Current liabilities
Accrued expenses and other payables
Non-current liabilities
Deferred incentive fees
Total liabilities
Net asset value
Capital
markets*
USD‘000
Real estate
and Operating
Assets
USD‘000
Private equity
USD‘000
-
-
698,538
698,538
-
-
57,373
57,373
-
-
70,242
70,242
-
-
-
-
-
-
-
-
-
698,538
57,373
70,242
Other net
assets**
USD’000
7,512
265
148,428
156,205
Total
USD’000
7,512
265
974,581
982,358
20,546
20,546
12,137
32,683
123,522
12,137
32,683
949,675
As at 30 June 2016
Cash and cash equivalents
Receivables
Financial assets at fair value through profit or loss
Total assets
Current liabilities
Accrued expenses and other payables
Total liabilities
Net asset value
Capital
markets*
USD‘000
Real estate
and Operating
Assets
USD‘000
Private equity
USD‘000
-
-
482,746
482,746
-
-
137,268
137,268
-
-
-
-
-
-
72,952
72,952
-
-
482,746
137,268
72,952
Other net
assets**
USD’000
1,570
5,077
96,773
103,420
9,850
9,850
93,570
Total
USD’000
1,570
5,077
789,739
796,386
9,850
9,850
786,536
* Capital markets include listed as well as unlisted securities and bonds.
** Other net assets of USD148.4 million (30 June 2016: USD96.8 million) include cash and cash equivalents and other net assets of the direct subsidiaries at fair value.
VOF Annual Report 2017VOF Annual Report 2017 84
85
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.
5.1 Directly-owned subsidiaries
The Company had the following directly-owned subsidiaries as at 30 June 2017 and 30 June 2016:
Subsidiary
Vietnam Investment Property
Holdings Limited
Vietnam Investment Property Limited
Vietnam Ventures Limited
Vietnam Investment Limited
Asia Value Investment Limited
Vietnam Master Holding 2 Limited
Country of
incorporation
British Virgin
Islands (“BVI”)
BVI
BVI
BVI
BVI
BVI
VOF Investment Limited
VOF PE Holding 5 Limited
Visaka Holdings Limited
Portal Global Limited
Windstar Resources Limited
Allright Assets Limited
Vietnam Enterprise Limited
Vina QSR Limited
VOF PE Holding 3 Limited
Vinaland Heritage Limited
Sharda Holdings Limited
Hospira Holdings Limited
Navia Holdings Limited
Orkay Holdings Limited
BVI
BVI
BVI
BVI
BVI
BVI
BVI
BVI
BVI
BVI
BVI
BVI
BVI
BVI
As at
30 June 2017
% of Company
interest
30 June 2016
% of Company
interest
Nature of
the business
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
.
100.00
100.00
100.00
100.00
100.00
-
100.00
Holding company for listed, unlisted securities and real estate
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
Holding company for listed, and unlisted securities
Holding company for listed, unlisted securities and real estate
Holding company for listed, unlisted securities and real estate
Holding company for listed, and unlisted securities
Holding company for listed securities
Holding company for listed, unlisted securities, real estate,
hospitality and private equity
Holding company for listed securities
Holding company for investments
Holding company for investments
Holding company for investments
Holding company for real estate
Holding company for listed, unlisted securities and real estate
Holding company for investments
Holding company for investments
Holding company for investments
Holding company for listed securities
Holding company for private equity
Holding company for private equity
Holding company for investments
International Dairy Products (IDP)
VOF Annual Report 2017VOF Annual Report 2017 86
87
Subsidiary
Halico Investment Holding Limited
Clear Interest Group Limited
Foremost Worldwide Limited
Rewas Holdings Limited
Allwealth Worldwide Limited
Nomino Holdings Limited
Longwoods Worldwide Limited
Vina Sugar Holdings Limited
Belfort Worldwide Limited
Preston Pacific Limited
Vietnam Opportunity Fund II Pte. Ltd.
Liva Holdings Ltd
Vietnam Master Holding 1 Limited
Allright Assets Limited
Turnbull Holding Pte. Ltd.
Fraser Investment Pte. Limited
SE Asia Master Holding 7 Pte Limited
VTC Espero Pte Limited
Hawke Investments Pte Limited
Country of
incorporation
BVI
BVI
BVI
BVI
BVI
BVI
BVI
BVI
BVI
BVI
BVI
BVI
BVI
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
As at
30 June 2017
% of Company
interest
100.00
-
100.00
100.00
100.00
-
100.00
100.00
100.00
100.00
100.00
100.00
-
-
100.00
100.00
100.00
100.00
100.00
30 June 2016
% of Company
interest
100.00
100.00
100.00
100.00
100.00
100.00
-
100.00
100.00
100.00
100.00
100.00
-
100.00
100.00
100.00
100.00
100.00
100.00
Nature of
the business
Holding company for investments
Holding company for investments
Holding company for unlisted securities
Holding company for investments
Holding company for private equity
Holding company for investments
Holding company for investments
Holding company for investments
Holding company for investments
Holding company for listed securities
Holding company for investments
Holding company for investments
Holding company for investments
Holding company for real estate
Holding company for investments
Holding company for listed securities
Holding company for investments
Holding company for real estate
Holding company for investments
5.2 Indirect interests in subsidiaries
The Company had the following indirect interests in subsidiaries at 30 June 2017 and 30 June 2016:
Indirect subsidiary
Victory Holding Investment Limited
DTL Education Holding Ltd
Transvvell Enterprises Limited
Longwoods Worldwide Limited
Vietnam Hospitality Ltd
PA Investment Opportunity II Limited
Pegasus Leisure Ltd.
Howard Holding Pte. Limited
Abbott Holding Pte. Limited
Whitlam Holding Pte. Limited
Indochina Building Supplies Pte. Ltd
Yen Viet Joint Stock Company
Menzies Holding Pte. Ltd
BIVI Investments Corporation
Country of
incorporation
BVI
BVI
BVI
BVI
BVI
BVI
BVI
Singapore
Singapore
Singapore
Singapore
Vietnam
Singapore
Vietnam
Nature of the business
Holding company for listed securities
Holding company for investments
Holding company for unlisted securities
Holding company for investments
Holding company for investments
Holding company for investments
Holding company for investments
Holding company for private equity
Holding company for private equity
Holding company for private equity
Holding company for private equity
Food & Beverage products
Holding company for investments
Real estate investment
Immediate
Parent
Rewas Holdings Limited
Clear Interest Group Limited
Orkay Holdings Limited
Nomino Holdings Limited
VOF Investment Limited
Vietnam Enterprise Limited
Vietnam Investments Limited
Allwealth Worldwide Limited
Hospira Holdings Limited
Navia Holdings Limited
VOF Investment Limited
SE Asia Master Holding 7 Limited
Belfort Worldwide Limited
VOF Investment Limited
As at
30 June 2017
% of Company’s
indirect interest
100.00
-
-
-
100.00
100.00
-
80.56
100.00
61.26
100.00
-
100.00
100.00
30 June 2016
% of Company’s
indirect interest
100.00
100.00
100.00
100.00
100.00
100.00
100.00
80.56
100.00
61.26
100.00
65.00
100.00
100.00
VOF Annual Report 2017VOF Annual Report 2017 88
89
5.3 Direct interests in associates
The Company had the following directly-owned associates as at 30 June 2017 and 30 June 2016:
5.4 Indirect interests in associates
The Company had the following indirect interests in associates at 30 June 2017 and 30 June 2016:
Associate
Allwealth Asia Ltd
Sunbird Group Ltd
Perimeter Investment Limited
Daybreak Overseas Limited
Central Lion International
Bantam Investments Limited
Vietnam Property Holdings Limited
Prosper Big Investment Limited
Avante Global Limited
VinaLand Eastern Limited
Pacific Alliance Land Limited
VinaCapital Danang Resorts Limited
VinaCapital Commercial Center
Private Limited
Mega Assets Pte. Limited
SIH Real Estate Pte. Limited
Country of
incorporation
BVI
BVI
BVI
BVI
BVI
BVI
BVI
BVI
BVI
Singapore
BVI
BVI
Singapore
Singapore
Singapore
As at
30 June 2017
% of Company
interest
35.00
25.00
-
-
-
-
25.00
-
25.00
25.00
25.00
-
12.75
25.00
25.00
30 June 2016
% of Company
interest
35.00
25.00
25.00
25.00
25.00
25.00
25.00
25.00
25.00
25.00
25.00
25.00
12.75
25.00
25.00
Nature of
the business
Holding company for real estate
Holding company for real estate
Holding company for real estate
Holding company for real estate
Holding company for real estate
Holding company for real estate
Holding company for real estate
Holding company for real estate
Holding company for real estate
Holding company for real estate
Holding company for real estate
Holding company for real estate
Holding company for real estate
Holding company for real estate
Holding company for real estate
Indirect associate
Phong Phu Investment and Development
Saigon Golf JSC
Avila Co. Ltd.
Vina Dai Phuoc Corporation
Vinh Thai Urban Development Corporation
Thang Loi Textile
Hung Vuong Corporation
Country of
incorporation
Nature of
the business
Vietnam Real estate investment
Vietnam Real estate investment
Vietnam Real estate investment
Vietnam Real estate investment
Vietnam Real estate investment
Vietnam Real estate investment
Vietnam Real estate investment
Company’s subsidiary holding direct
interest in the associate
Vietnam Ventures Limited
Vietnam Ventures Limited
Vietnam Investment Property
Holdings Limited
Allright Assets Limited
VTC Espero Limited
VOF Investment Limited
VOF Investment Limited
As at
30 June 2017
% of Company’s
indirect interest
30.00
-
30 June 2016
% of Company’s
indirect interest
30.00
20.00
16.18
-
17.75
34.00
33.00
16.18
18.00
17.75
34.00
33.00
The Company’s indirect interests of less than 20% in associates at year-end are co-investments with VinaLand. The Company considers these interests as indirect associates
because, as part of the co-investment strategy, the Company can exert significant influence on these entities.
These associates may have commitments under investment agreements to acquire and develop, or make additional investments in investment properties and leasehold
land in Vietnam.
VOF Annual Report 2017VOF Annual Report 2017 90
91
5.5 Financial risks
The Company owns a number of subsidiaries and associates for the purpose of holding
investments in listed and unlisted securities, debt instruments, private equity and real
estate. The Company, via these underlying investments, is subject to financial risks which
are further disclosed in note 19. 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
Cash at banks
30 June 2017
30 June 2016
USD’000
7,512
USD’000
1,570
As at the Statement of Financial Position date, cash and cash equivalents were
denominated in USD.
The Company’s overall cash position including cash held in directly held subsidiaries as
at 30 June 2017 was USD37.1 million (30 June 2016: USD57.0 million). Please refer to
note 8 for details of the cash held by the Company’s subsidiaries.
7. Financial instruments by category
As at 30 June 2017
Cash and cash equivalents
Receivables
Financial assets at fair value through profit or loss
Total
Financial assets denominated in:
- USD
As at 30 June 2016
Cash and cash equivalents
Receivables
Financial assets at fair value through profit or loss
Total
Financial assets denominated in:
- USD
Financial assets
at fair value
through profit
or loss
USD‘000
Loans and
receivables
USD‘000
7,512
265
-
7,777
-
-
974,581
974,581
Total
USD’000
7,512
265
974,581
982,358
7,777
974,581
982,358
1,570
5,077
-
6,647
-
-
789,739
789,739
1,570
5,077
789,739
796,386
6,647
789,739
796,386
All financial liabilities are short term in nature and their carrying values approximate their fair values. There are no financial liabilities that must be accounted for at fair
value through profit or loss (30 June 2016: nil).
VOF Annual Report 2017VOF Annual Report 2017
92
93
30 June 2017
30 June 2016
9. Receivables
Issued capital
8. Financial assets at fair value through profit or loss
Financial assets at fair value through profit and loss comprise the Company’s
investments in subsidiaries and associates. The underlying assets and liabilities of
the direct subsidiaries and associates at fair value are included with those of the
Company in the following table.
Consumer goods
Construction
Financial services
Agriculture
30 June 2017
30 June 2016
Pharmaceuticals
Energy, minerals and petroleum
Cash and cash equivalents
Ordinary shares - listed
Ordinary shares - unlisted*
Government bonds
Private equity
Real estate projects and operating assets
Short-term bank deposit
Other assets, net of liabilities
USD’000
29,577
554,459
103,744
40,335
70,242
57,373
50,000
68,851
974,581
USD’000
55,430
400,005
82,741
-
72,952
137,268
-
41,343
789,739
(*) Unlisted Securities include OTC (over-the-counter) traded securities, and unlisted securities publicly
traded on UPCoM (Unlisted Public Companies Market) of the Hanoi Stock Exchange
The major underlying investments held by the direct subsidiaries and associates of
the Company were in the following industry sectors.
USD’000
265,016
135,115
39,934
23,512
32,482
9,756
174,051
60,127
45,825
40,335
USD’000
235,142
97,961
38,054
24,681
41,531
9,023
219,862
26,711
-
-
Real estate projects and operating assets
Infrastructure
Industrials
Government bonds
As at 30 June 2017, an underlying holding, Vietnam Dairy Products Joint Stock
Company, within financial assets at fair value through profit or loss amounted to
13.6% of the net asset value of the Company (30 June 2016: 14.7%). There were no
other holdings that had a value exceeding 10% of the net asset value of the Company
as at 30 June 2017 or 30 June 2016.
During the year capital has been returned to the Company as underlying investments
in the subsidiaries/associates have been realised.
When determining the fair values of financial assets at fair value through profit
or loss the Company takes into account the potential for warranty or other claims
arising on the sale of any investments based on the underlying likelihood of an event
arising and the amount that may become payable.
The changes in Level 3 financial assets at fair value through profit or loss can been
found in note 19 on page 105.
Receivables from the Investment
Manager on management fees rebate
Cash held in escrow account
Loan
30 June 2017
30 June 2016
USD’000
USD’000
259
-
6
265
380
4,697
-
5,077
Cash held in escrow account represented a deposit in United Overseas Bank Ltd that
was retained from the sale of the Company’s underlying investment, Prime Group
Joint Stock Company, held through a previously owned Singaporean subsidiary, in
2012. The retention balance served as partial security for the Company’s liability
arising from the Company’s Tax Assessment obligations. The escrow account was
released to the Company on 31 December 2016.
10. 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
Companies 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.
30 June 2017
30 June 2016
Number of
shares USD‘000
211,346,258 491,301
-
-
211,346,258 491,301
(10,725,000)
(34,882)
200,621,258 456,419
Number of
shares
324,610,259
(113,264,001)
211,346,258
(2,700,000)
208,646,258
USD‘000
725,310
(234,009)
491,301
(7,472)
483,829
Issued and fully paid at 1 July
Cancellation of treasury shares
Issued and fully paid at 30 June
Shares held in treasury
Outstanding shares at 30 June
Treasury shares
Opening balance at 1 July
Shares repurchased during the
year (note 12)
Shares cancelled during the year
Closing balance at 30 June
30 June 2017
30 June 2016
Number of
Number of
shares USD‘000
7,472
2,700,000
shares USD‘000
213,283
104,652,647
8,025,000
27,410
11,311,354
28,198
-
10,725,000
-
34,882
(113,264,001)
2,700,000
(234,009)
7,472
In October 2011, the Board sought and obtained shareholder approval to implement
a share buyback programme. By 30 June 2017, a total of 123,989,001 shares had
been bought back, a return of capital to Shareholders of approximately
USD268.9 million.
During the year, no treasury shares (30 June 2016: 113,264,001 shares) were
cancelled. The cancellation of treasury shares in the prior year did not result in
a change in the Company’s NAV per share.
VOF Annual Report 2017VOF Annual Report 2017 94
95
11. Current liabilities
12.Dividend Income
15. Income Tax Expense
Management fees payable to the Investment
Manager (note 17)
Incentive fees payable to the
Investment Manager (note 3,17)
Payables to other related parties
(note 17)
Other payables
30 June 2017
30 June 2016
USD’000
USD’000
1,461
11,187
7,160
738
20,546
993
8,241
304
312
9,850
Dividend income from a subsidiary used to pay
for the Company’s share repurchases
Dividend income from a subsidiary used to pay
for the Company’s operating expenses
Dividend income from a subsidiary used to
pay for the purchases of financial assets at fair
value through profit or loss
Dividend income
30 June 2017
USD’000
-
30 June 2016
USD’000
28,198
-
-
31,168
31,168
20,827
2,134
-
51,159
All accrued expenses and other payables are short-term in nature. Therefore, their
carrying values are considered a reasonable approximation of their fair values. Further
details on the payables to other related parties are disclosed in note 17.
Until 29 April 2016, all share buy backs were carried out under the name of Visaka Holdings
Limited, a wholly-owned subsidiary of the Company. Since 29 April 2016, all share buy
backs have been carried out under the name of the Company. The payments for the share
buy backs until 27 May 2016 were made by VOF Investment Limited (“VOFIL”),
a wholly-owned subsidiary of the Company. All purchases had been fully settled by the
Statement of Financial Position dates.
13. Net gains on financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss:
- Gains from the realisation of financial assets, net
- Unrealised gains, net
Total
14. General and Administration Expenses
Management fees (note 17(a))
Directors’ fees
Custodian, secretarial and other professional fees
Others
30 June 2017
USD’000
30 June 2016
USD’000
2,341
196,578
198,919
30 June 2017
USD’000
13,388
384
1,770
1,006
16,548
-
67,598
67,598
30 June 2016
USD’000
10,708
353
2,452
1,313
14,826
The Company was incorporated in the Cayman Islands until 22 March 2016 when it changed its domicile to Guernsey.
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 Statement of
Financial Position.
16. Earnings Per Share And Net Asset Value Per Share
(a) Basic
Basic earnings per share is calculated by dividing the profit from operations of the Company by the weighted average number of ordinary shares in issue during the year excluding
ordinary shares purchased by the Company and held as treasury shares (note 10).
Profit for the year (USD’000)
Weighted average number of ordinary shares in issue
Basic earnings per share (USD per share)
30 June 2017
190,549
205,174,967
0.93
30 June 2016
96,070
214,238,617
0.45
(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 net asset value 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 10). NAV is determined as total assets less total liabilities.
Net asset value (USD’000)
Number of outstanding ordinary shares in issue
Net asset value per share (USD per share)
30 June 2017
949,675
200,621,258
4.73
30 June 2016
786,536
208,646,258
3.77
VOF Annual Report 2017VOF Annual Report 2017
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97
17. Related parties
Investment Manager’s Fees
(a) Management fees
The Investment Manager receives a fee at an annual rate of 1.5% of the NAV, payable monthly in arrear.
Total management fees for the year amounted to USD13.4 million (30 June 2016: USD10.7 million), with USD1.5 million (30 June 2016: USD1.0 million) in outstanding accrued
fees due to the Investment Manager at the reporting date.
(b)Incentive fees
As described in note 3.3, for the year ended 30 June 2017, an incentive fee of USD 24.6 million (30 June 2016: USD8.2 million) was earned by the Investment Manager on the
performance of the Capital Markets Pool. The amount which will be paid out immediately was restricted to USD11.2 million by the operation of the cap. This amount was
outstanding as at 30 June 2017 (30 June 2016: USD8.2 million).
(c) Other balances with related parties
Receivables from the Investment Manager on management fees rebate
Payables to the Investment Manager on expenses paid on behalf of the Company
Deposit from disposal of property*
Payable to VinaLand
Certain underlying investments jointly managed by the Investment Manager
- Vietnam Infrastructure Limited
- VinaLand Limited
30 June 2017 USD’000
30 June 2016 USD’000
259
152
7,160
-
277
4,115
4,392
380
210
-
94
2,290
21,005
23,295
The remaining balance of USD13.4 million which represents the excess over the cap and may be payable in subsequent years was accrued for as at year-end as
a non-current liability. This amount has been discounted and has been recorded as USD12.1 million as at year-end.
*Refundable cash deposit received from disposal of property through a subsidiary of VinaLand Limited in which the Company has 25% interest.
The transaction completed in August 2017.
Directors’ Remuneration
The Directors who served during the year received the following emoluments in the form of fees:
Steven Bates
Martin Adams
Thuy Bich Dam
Huw Evans*
Michael Gray**
Annual fee USD
95,000
80,000
80,000
90,000
90,000
Year ended 30 June 2017 USD
95,000
80,000
80,000
85,452
43,151
383,603
Year ended 30 June 2016 USD
95,000
80,000
80,000
7,671
90,000
352,671
*Appointed Audit Committee Chairman following Michael Gray’s retirement.
**Resigned 21 December 2016.
No Directors’ fees were outstanding at the year-end (30 June 2016: Nil).
(d) Cost of treasury shares paid for by subsidiaries on behalf of the Company
As disclosed in note 12, USD28.2 million was paid by a subsidiary of the Company for the purchase of shares into treasury up to 27 May 2016 (2017: Nil).
18. Commitments
The Company’s indirect real estate associates have a broad range of commitments under investment licences which they have received for real estate projects jointly invested
with VinaLand and other agreements they have entered into, to acquire and develop or make additional investments in investment properties and leasehold land in Vietnam.
Further investments in many of these arrangements are at the Company’s discretion. The total commitment amount as at 30 June 2017 was USD36.3 million of which the
Company’s share is USD10.8 million (30 June 2016: Total commitment amount USD42.3 million of which the Company’s Share was USD12.2 million).
VOF Annual Report 2017VOF Annual Report 2017
98
99
19. Financial Risk Management
(a) Financial risk factors
The Company has set up a number of subsidiaries and
associates for the purpose of holding investments in
listed and unlisted securities, debt instruments, private
equity and real estate in Vietnam and overseas with
the objective of achieving medium to long-term capital
appreciation and providing investment income. The
Company accounts for these subsidiaries as financial
assets at fair value through profit or loss.
The Company’s overall risk management programme
focuses on the unpredictability of financial markets
and seeks to minimise potentially adverse effects on
the Company’s financial performance. The Company’s
risk management is coordinated by the Investment
Manager which manages the distribution of the assets
to achieve the investment objectives.
There have been no significant changes in the
management of risk or in any risk management policies
during the financial year to 30 June 2017.
The Company is subject to a variety of financial risks:
market risk, credit risk and liquidity risk.
(i) Market risk
Market risk comprises price risk, foreign exchange risk
and interest rate risk. Market risk is the risk that the fair
value or future cash flows of a financial instrument will
fluctuate because of changes in market prices, interest
rates and / or foreign exchange rates.
Price risk
Price risk is the risk that the value of an instrument
will fluctuate as a result of changes in market prices,
whether caused by factors specific to an individual
investment, its issuer, or factors affecting all
instruments traded in the market.
Market price sensitivity analysis
If the prices of the listed securities had increased/
decreased by 10%, the Company’s financial assets
held at fair value through profit or loss would have
been higher/lower by USD56.5 million (30 June 2016:
USD40.0 million).
The investments are subject to market fluctuations
and the risk inherent in the purchase, holding or selling
of investments and there can be no assurance that
appreciation or maintenance in the value of those
investments will occur.
The Company’s subsidiaries and associates invest in
listed and unlisted equity securities and are exposed to
market price risk of these securities.
The majority of the underlying equity investments are
publicly traded on either of Vietnam’s stock exchanges
HOSE or the Hanoi Stock Exchange (“HNX”).
All securities investments present a risk of loss of
capital. This risk is managed through the careful
selection of securities and other financial instruments
within specified limits and by holding a diversified
portfolio of listed and unlisted instruments. In addition,
the performance of investments held by the Company’s
subsidiaries is monitored by the Investment Manager
on a regular basis and reviewed by the Board of
Directors on a quarterly basis.
The Company’s associates invest in a number of real
estate projects. The fair values of the underlying
properties have a direct impact on the fair values
of these investments in associates. The Investment
Manager closely monitors indicators that may affect
property valuations. The Board of Directors reviews
these valuations every half year.
If the fair values of real estate properties had gone up/
down by 10%, the Company’s financial assets at fair
value through profit and loss would have risen/dropped
by USD5.7 million (30 June 2016: USD13.7 million).
Depending on the development stage of a project
and its associated risks, the independent valuer uses
discount rates in the range from 15% to 17% and
terminal growth rates of 3% to 5% (30 June 2016: 17%
to 21% and 3% to 5%, respectively).
As at 30 June 2017, the discount rate was 15% (30
June 2016: 15% to 19%). As at the year end, if the
discount rate had been higher/lower, the fair value of
the Company’s underlying real estate and hospitality
investments would have been decreased/increased.
Foreign exchange risk
The Company makes investments in USD and receives
income and proceeds from sales in USD. As such, at the
Company level, there is minimal foreign exchange risk.
Nevertheless, investments are made in entities which
are often exposed to the VND, and these entities are
therefore sensitive to the exchange rate of the VND
against USD. On a ‘look-through’ basis, therefore, the
Company is exposed to movements in the exchange
rate of the VND against the USD.
Interest rate risk
The Company’s exposure to interest rate risk is limited
as its cash balance at year-end is minimal. In addition,
the Company does not have interest-bearing loans,
receivables or payables. Nevertheless government
bonds are held by Group entities which are interest
bearing instruments, therefore on a ‘look- through’
basis the Company is exposed to interest rate risk.
(ii) Credit risk
Credit risk is the risk that a counterparty to a financial
instrument will fail to discharge an obligation or
commitment it has entered into with the Company.
The Company’s maximum credit exposure without
taking into account any collateral held, is limited to the
carrying amount of cash and receivables at year end.
a) Financial assets that are neither past due
nor impaired
With the exception of the receivables disclosed in note 19 (ii)(b), the cash and receivables of the Company and its
subsidiaries and associates as at 30 June 2017 and 2016 are neither past due nor impaired. Cash and majority of
receivables that are neither past due nor impaired are held with banks with high quality external credit ratings.
Credit risk for cash and receivables is considered to be limited.
b) Financial assets that are past due and impaired
At 30 June 2017 and 2016, USD11.6 million of receivables relating to the sale of a direct investment were fully
impaired. In determining the impairment the Directors have made judgements as to whether there is observable
data available indicating that there has been a significant change to the debtor’s ability to pay. The Investment
Manager is also investigating the collateral against which the loans may be secured and whether mechanisms exist
to recover value from the collateral.
(iii) Liquidity risk
Liquidity risk is the risk that the Company may not be able to generate sufficient cash resources to settle its
obligations in full as they fall due or can only do so on terms that are materially disadvantageous.
Listed securities held by the Company’s subsidiaries are considered readily realisable, as the majority are listed on
Vietnam’s stock exchanges.
At year end, the Company’s non-derivative financial liabilities have contractual maturities which are summarised in
the table below. The amounts in the table are the contractual undiscounted cash flows.
Payables to related parties (note 11)
Deferred incentive fee
Other payables (note 11)
30 June 2017
30 June 2016
Within 12
months
USD’000
19,808
-
738
20,546
Over 12
months
USD’000
-
12,137
-
12,137
Within 12
months
USD’000
9,538
-
312
9,850
Over 12
months
USD’000
-
-
-
-
VOF Annual Report 2017VOF Annual Report 2017 100
101
The Company manages its liquidity risk by investing predominantly in securities through its subsidiaries that it
expects to be able to liquidate within 12 months or less. The following table analyses the expected liquidity of the
assets held by the Company:
Cash and cash equivalents
Receivables
Financial assets at fair value through profit
or loss
30 June 2017
30 June 2016
Within 12
months
USD’000
7,512
265
846,454
854,231
Over 12
months
USD’000
-
-
128,127
128,127
Within 12
months
USD’000
1,570
5,077
636,855
643,502
Over 12
months
USD’000
-
-
152,884
152,884
Some indirect associates have made commitments that are not guaranteed by the Company. It is anticipated that
such commitments will be met from cash and investment proceeds withheld by the subsidiaries or through cash
injections by the Company.
(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 net 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 year-end is summarised as follows:
Net assets attributable to equity shareholders
30 June 2017
USD’000
949,675
30 June 2016
USD’000
786,536
(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 fair value through profit or loss as at 30
June 2017 and 30 June 2016.
The level into which financial assets are classified is determined based on the lowest level of significant input to
the fair value measurement.
Financial assets measured at fair value in the Statement of Financial Position are grouped into the following fair
value hierarchy:
As at 30 June 2017
Financial assets at fair value through profit or loss
As at 30 June 2016
Financial assets at fair value through profit or loss
Level 3
USD’000
974,581
789,739
Total
USD’000
974,581
789,739
VOF Annual Report 2017VOF Annual Report 2017 102
103
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.
If these investments were held at the Company level, they would be presented as follows:
As at 30 June 2017
Cash and cash equivalents
Ordinary shares - listed
- unlisted
Government bonds
Private equity
Real estate projects and operating assets
Short-term bank deposit
Other assets, net of liabilities
As at 30 June 2016
Cash and cash equivalents
Ordinary shares - listed
- unlisted
Private equity
Real estate projects and operating assets
Other assets, net of liabilities
Level 1
USD’000
Level 2
USD’000
Level 3
USD’000
29,577
554,459
103,555
40,335
-
-
50,000
-
777,926
55,430
400,005
-
-
-
-
455,435
-
-
189
-
-
-
-
-
189
-
-
65,704
-
-
-
65,704
-
-
-
-
70,242
57,373
-
68,851
196,466
-
-
17,037
72,952
137,268
41,343
268,600
Total
USD’000
29,577
554,459
103,744
40,335
70,242
57,373
50,000
68,851
974,581
55,430
400,005
82,741
72,952
137,268
41,343
789,739
During the year ended 30 June 2017 the Company’s Investment in Novaland transferred from Level 3 to Level 1 after it was added to the FTSE Vietnam Index in June 2017.
Airport Corporation of Vietnam, Vinatex and Quang Ngai Sugar transferred from Level 2 to Level 1 after listing on UPCoM during the year.
Investments whose values are based on quoted market prices in active markets, and are therefore classified within Level 1, include actively traded equities on HSX, HNX or
UPCoM at the Statement of Financial Position date. The Company does not adjust the quoted price for these instruments.
Bonds are valued based on the price and yield of the latest transaction of that bond found on a recognised formal stock exchange, Bloomberg or Reuters. If the price of a VND
denominated bond found on a recognised formal stock exchange, Bloomberg or
Reuters is greater than +/-1% of the previous day’s closing price, the valuation should
be based on the average price and average yield obtained from three reputable bond
brokerage companies. The reason for this is that the recorded transaction may be a
bond repo transaction, which may not reflect the fair market value of such bonds.
information. There are no significant adjustments that may result in a fair value
measurement categorised within Level 3.
Private equities, real estate and operating assets, 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 3.2.
Financial instruments which trade in markets that are not considered to be active but
are valued based on quoted 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
As at 30 June 2017
Level 3 - Range of unobservable inputs (probability-weighted average)
There were no transfers between the Levels during the year ended
30 June 2017 and 30 June 2016.
Set out below is the sensitivity analysis on the significant unobservable inputs used in
the valuation of Level 3 investments as at 30 June 2017.
Segment
Valuation
Technique
Valuation
(USD‘000)
Discount
Rate
Technical
growth
rate
Selling price
per unit
(USD‘000)
Cap
rate
Real estate
projects
Direct
comparison
19,720
N/A
N/A
N/A
240-860
Sensitivities in
selling price
per unit
(USD‘000)
Change in sales price
per square metre
10%
0%
-10%
16,590
19,720
22,850
Real estate
projects
Discounted
cash flows
11,818
15% 14.50%
N/A
N/A
N/A
Private
equity
Discounted
cash flows
61,803
15%-
17%
N/A
3%-5%
N/A
N/A
Change in
cape rate
Change in
cape rate
Sensitivities in
discount rates
and cap rates/
dividend yield
(USD‘000)
Sensitivities
inroom rates
and occupancy
rate
(USD‘000)
N/A
N/A
Change in discount rate
-1%
0%
1%
-1% 12,491 11,963 11,476
N/A
0% 12,333 11,818 11,343
1% 12,189 11,686 11,221
Change in discount rate
0%
-1%
1%
-1% 64,671 58,428 53,080
0% 68,828 61,803 55,855
1% 79,297 67,481 57,609
N/A
VOF Annual Report 2017VOF Annual Report 2017 104
105
Set out below is the sensitivity analysis on the significant unobservable inputs used in the valuation of Level 3 investments as at 30 June 2016.
Level 3 - Range of unobservable Inputs (probability-weighted average)
Segment
Real
estate
Valuation
Technique
Direct
Comparisons
Valuation
(USD’000)
Discount
Rate
Cap rate
Technical
growth
rate
Occupancy
rate
Room
rate
(USD)
Selling
price
per unit
(USD)
35,578
N/A
N/A
N/A
N/A
N/A
30 – 8,243
Real
estate
Discounted cash
flows
41,333
15%-19% 3% -14.5% N/A
N/A
N/A
N/A
Hospitality Discounted cash
flows
60,357
16.00%
11.00%
N/A
67%
237
N/A
Private
equity
Discounted cash
flows
46,151
17%-21% N/A
3% - 5%
N/A
N/A
N/A
Sensitivity analysis on management’s estimates
Change in selling price per
square meter
-10%
32,397
0%
10%
35,578
38,671
Change in discount rate
-1%
0%
1%
Change in
cap rate
-1% 45,620
0% 43,888
1% 42,500
42,910
41,333
40,048
40,408
38,948
37,778
Change in discount rate
-1%
0%
1%
Change in
cap rate
Change in
occupancy
rate
-1% 63,906
0% 63,318
1% 62,764
60,896
60,357
59,849
Change in room rate
-1%
-5% 59,827
0% 60,294
5% 60,760
0%
59,886
60,357
60,828
Change in discount rate
Terminal
growth
rate
-1%
-1% 48,026
0% 50,001
1% 52,266
0%
44,469
46,151
48,022
58,110
57,615
57,149
1%
59,944
60,420
60,896
1%
41,330
42,741
44,349
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 present value the estimated future cash flows;
• Other techniques, such as the latest market transaction price.
Changes in Level 3 financial assets at fair value through profit or loss
The fair value of the Company’s investments in subsidiaries and associates are estimated using approaches as described in note 3.2. As observable prices are not available for
these investments, the Company classifies them as Level 3 fair values.
Opening balance
Purchases
Return of capital
Sales
Net gains for the year, net (note 13)
Total unrealised gains for the year included in:
Profit
Total unrealised profit for the year
30 June 2017
30 June 2016
USD’000
789,739
223,412
(217,963)
(19,526)
198,919
974,581
196,578
196,578
USD’000
717,759
4,382
-
-
67,598
789,739
67,598
67,598
20. Subsequent events
This Annual Report and Financial Statements were approved for issuance by the Board on 25 October 2017. Subsequent events have been evaluated until this date.
On 17 August 2017, the Company announced a change in its dividend policy and that the Company will pay a dividend of at least 4.8 cents per share twice each year, normally
declared in March and October. Exceptionally, on the same date, the Company declared a first dividend of 4.8 cents per share which was paid to Shareholders
on 27 September 2017.
On 24 August, the Company announced that its Investment Manager, VinaCapital Investment Management Limited, had entered into an agreement with VinaCapital Fund
Management JSC (“VCFM”), an affiliate of VCIM and a fully licensed and regulated fund management company domiciled in Vietnam, to delegate certain investment management
and advisory activities.
On 25 October 2017, the Board declared a further dividend of 4.8 cents per share.
VOF Annual Report 2017VOF Annual Report 2017 106
Management And Administration
Directors
Steven Bates
Martin Adams
Thuy Bich Dam
Huw Evans
Michael Gray (retired 21 December 2016)
Corporate Broker
Numis Securities Limited
The London Stock Exchange Building
10 Paternoster Square
London EC4M 7LT
United Kingdom
Custodian
Standard Chartered Bank (Vietnam) Limited
Unit 1810-1815. Keangnam Hanoi Landmark Tower
Pham Hung Road
Me Tri Ward
Nam Tu Liem District
Hanoi. 1000
Vietnam
Registrar
Computershare Investor Services (Guernsey) Limited
1st Floor. Tudor House
Le Bordage. St Peter Port
Guernsey, GY1 1DB
Channel Islands
Registered Office
PO Box 255
Trafalgar Court
Les Banques
St Peter Port
Guernsey GY1 3QL
Channel Islands
Investment Manager
VinaCapital Investment Management Limited
PO Box 309
Ugland House
Grand Cayman KY1-1104
Cayman Islands
Administrator and Corporate Secretary
Northern Trust International Fund
Administration Services (Guernsey) Limited
PO Box 255
Trafalgar Court
Les Banques
St Peter Port
Guernsey GY1 3QL
Channel Islands
Independent Auditors
PricewaterhouseCoopers Cl LLP
PO Box 321
Royal Bank Place
1 Glategny Esplanade
St Peter Port
Guernsey GY1 4ND
Channel Islands
Investment Advisor
VinaCapital Investment Management Limited JSC
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
Investment Manager’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
5th Floor, Sun City Building, 13 Hai Ba Trung Street,
Hoan Kiem Dist, Hanoi, Vietnam.
Phone: +84-24 3936 4630
Fax: +84-24 3936 4629
Singapore
6 Temasek Boulevard, 42-01 Suntec Tower 4,
Singapore 038986.
Phone: +65 6332 9081
Fax: +65 6333 9081
107
Tan Son Nhat Airport/Airport Corporation of Vietnam (ACV)
VOF Annual Report 2017VOF Annual Report 2017 108
109
Notice Of 2017 Annual General Meeting
VinaCapital Vietnam Opportunity Fund Limited
(the “Company”)
Notice Of Annual General Meeting
Notice is hereby given that the 2017 Annual General Meeting of the Company will be held at the offices
of Northern Trust International Fund Administration Services (Guernsey) Limited, Trafalgar Court, Les
Banques, St Peter Port, Guernsey, Channel Islands on 14 December 2017 at 12.00 noon. (The “Meeting”).
Resolution on
Form of Proxy
Agenda
Ordinary
Resolution 1
Ordinary
Resolution 2
Ordinary
Resolution 3
Ordinary
Resolution 4
Ordinary
Resolution 5
Ordinary
Resolution 6
Ordinary
Resolution 7
Ordinary
Resolution 8
Ordinary
Resolution 9
A. To elect the Chairman of the Meeting.
B. To receive and adopt the Annual Report and Financial Statements of the Company
for the year ended 30 June 2017.
C. To receive and adopt the Directors’ Remuneration Report.
D. To re-elect PricewaterhouseCoopers CI LLP, as Auditor of the Company until the
conclusion of the next Annual General Meeting.
E. To authorise the Board of Directors to determine the Auditor’s remuneration.
F. To re-elect Steven Bates following his retirement in accordance with Article 20.3 of
the Articles of Incorporation of the Company as a Director of the Company.
G. To re-elect Martin Adams following his retirement in accordance with Article 20.3 of
the Articles of Incorporation of the Company as a Director of the Company.
H. To re-elect Thuy Dam following her retirement in accordance with Article 20.3 of
the Articles of Incorporation of the Company as a Director of the Company.
I. To re-elect Huw Evans following his retirement in accordance with Article 20.3 of
the Articles of Incorporation of the Company as a Director of the Company.
J. To receive and approve the Company’s Dividend Policy as contained within the Annual
Report and Financial Statements of the Company for the year ended 30 June 2017.
THIS DOCUMENT IS IMPORTANT AND REQUIRES
YOUR IMMEDIATE ATTENTION.
If you are in any doubt about the contents of this
document or the action you should take, you
should consult immediately your stockbroker,
bank manager, solicitor, accountant or other
financial adviser, authorised under the Financial
Services and Markets Act 2000 (as amended).
If you have sold or otherwise transferred all of
your Ordinary Shares in VinaCapital Vietnam
Opportunity Fund Limited, please send this
document and Form of Proxy, as soon as
possible, to the purchaser or transferee or to the
stockbroker, bank or other agent through whom
the sale or transfer was effected for transmission
to the purchaser or transferee.
Special
Business
Ordinary
Resolution 10
Ordinary
Resolution 11
Extraordinary
Resolution 12
K. The Company be generally and, subject as hereinafter appears, unconditionally
authorised in accordance with section 315 of the Companies Law to make market
acquisitions (within the meaning of section 316 of the Companies Law) of its issued
Ordinary Shares, provided that:
i.
The maximum number of Ordinary Shares hereby authorised to be purchased shall
be that number of Ordinary Shares up to 14.99 per cent. of the Company’s issued
Ordinary Shares (excluding Treasury Shares) in issue as at 14 December 2017;
ii. The minimum price which may be paid for an Ordinary Share is USD0.01;
iii. The maximum price which may be paid for an Ordinary Share will not exceed the higher of
(a) 5 per cent. above the average of the middle market quotations (as derived from the
Official List) for the 5 consecutive dealing days ending on the dealing day immediately
preceding the date on which the purchase is made; and (b) the higher of the price quoted
for the last independent trade and the highest current independent bid as stipulated
by Article 3(2) of the EU Buy-back and Stabilisation Regulation (No. 1052 of 2016);
iv. Any Ordinary Shares purchased may be cancelled or held in treasury;
v.
The authority hereby conferred shall expire at the conclusion of the Company’s next
Annual General Meeting, or, if earlier, on 14 March 2019 (unless previously renewed, revoked
or varied by the Company by ordinary resolution) save that the Company may make a
contract to acquire Ordinary Shares under this authority before its expiry which will or
may be executed wholly or partly after its expiration and the Company may make an
acquisition of Ordinary Shares pursuant to such a contract.
L. THAT the Directors of the Company be and are generally and unconditionally authorised
to exercise all powers of the Company to issue Ordinary Shares up to a maximum number
representing 10% of the issued ordinary share capital of the Company, such authority to
expire at the conclusion of the Company’s next Annual General Meeting or, if earlier, on 14
March 2019 (save that the Company may prior to the expiry of such period make any offer or
agreement which would or might require such Ordinary Shares to be issued after such expiry
and the directors of the Company may issue such Ordinary Shares in pursuance of any such
offer or agreement as if the authority conferred hereby had not expired).
M. THAT the pre-emption rights granted to Shareholders pursuant to Article 5.2 of the Articles of
Incorporation of the Company shall not apply in respect of the issue of up to 10% of the
issued ordinary share capital of the Company, such authority to expire at the conclusion
of the Company’s next Annual General Meeting or, if earlier, on 14 March 2019 (save
that the Company may prior to the expiry of such period make any offer or agreement
which would or might require such Ordinary Shares to be issued (or sold from treasury)
after such expiry and the directors of the Company may issue (or sell from treasury)
such Ordinary Shares in pursuance of any such offer or agreement as if the authority
conferred hereby had not expired), unless such resolution is previously revoked by the
Company’s shareholders by further Extraordinary Resolution.
Any Other Business.
By Order of the Board
For and on behalf of
Northern Trust International Fund Administration
Services (Guernsey) Limited
As Secretary
25 October 2017
Notes
A member of a company is entitled to appoint another
person as their proxy to exercise all or any of their rights to
attend and to speak and vote at a meeting of the company.
A member may appoint more than one proxy in relation to a
meeting, provided that each proxy is appointed to exercise
the rights attached to a different share or shares held by
them. A proxy need not also be a member of the company.
Details of how to appoint the Chairman of the Meeting or
another person as proxy using the Proxy Form are set out in
the notes to the Proxy Form. The requisite form is attached
hereto and must be lodged with the Company’s Registrars
at: The Pavilions, Bridgwater Road, Bristol, BS99 6ZY at least
48 hours before the time of the Meeting.
VOF Annual Report 2017VOF Annual Report 2017
110
111
Annual General Meeting
The following information to be discussed at the
forthcoming Annual General Meeting is important and
requires your immediate attention. If you are in any
doubt about the action you should take, you should
seek advice from your stockbroker, bank manager,
solicitor, accountant or other financial adviser
authorised under the Financial Services
and Markets Act 2000 (as amended).
If you have sold or transferred all of your Ordinary
Shares in the Company, you should pass this document
and Form of Proxy as soon as possible to the purchaser
or transferee, or to the stockbroker, bank or other
agent through whom the sale or transfer was effected,
for onward transmission to the purchaser or transferee.
Resolutions relating to the following items of special
business will be proposed at the forthcoming Annual
General Meeting:
Ordinary Resolution 10 (Agenda Item K)
- (Authority to buy back ordinary shares)
The resolution to be proposed will seek to renew the
authority granted to Directors enabling the Company
to purchase its own Ordinary Shares. The Directors
will only consider repurchasing shares in the market if
they believe it to be in shareholders’ interests and as a
means of correcting any imbalance between supply and
demand for the Company’s shares.
Under the Listing Rules of the Financial Conduct
Authority, the maximum price payable by the Company
for each Ordinary Share is the higher of (i) 105% of
the average of the middle market quotations of the
Ordinary Shares for the five dealing days prior to the
date of the market purchase and (ii) the higher of the
price quoted for the last independent trade and the
highest current independent bid as stipulated by Article
3(2) of the EU Buy-back and Stabilisation Regulation
(No. 1052 of 2016). The Directors are seeking authority
to purchase up to 14.99% of the Ordinary Shares
in issue as at the latest practicable date prior to
the publication of this notice. This authority, unless
renewed at an earlier general meeting, will expire at
the conclusion of next year’s Annual General Meeting
or, if earlier,on 14 March 2019.
Purchases of Ordinary Shares will be made within
guidelines established from time to time by the Board and
only in accordance with the Companies Law, the Listing
Rules and the Disclosure and Transparency Rules.
Ordinary Resolution 11 (Agenda Item L)
– (Authority to issue shares)
This resolution seeks authority for the Directors to
issue Ordinary Shares up to a maximum number
representing 10% of the Company’s issued ordinary
share capital excluding treasury shares at the date of
this notice. The Directors will only use this authority
when it is in the best interests of the Company to
issue shares and will not issue shares at a price below
the prevailing NAV. This authority will expire at the
conclusion of next year’s Annual General Meeting or,
if earlier, on 14 March 2019.
Extraordinary Resolution 12 (Agenda Item M) -
(Authority to disapply pre-emption rights)
Pursuant to the Articles of Incorporation, Directors
require specific authority from shareholders before
issuing new shares or selling shares out of treasury
for cash without first offering them to existing
shareholders in proportion to their holdings. This
resolution empowers the Directors to issue new shares
or to sell shares held by the Company in treasury,
otherwise than to existing shareholders on a pro rata
basis, in respect of up to 10% of the Company’s issued
ordinary share capital excluding treasury shares at
the date of this notice. Unless renewed at a general
meeting prior to such time, this authority will expire at
the conclusion of next year’s Annual General Meeting
of the Company or, if earlier, on 14 March 2019.
Recommendation
The Board considers the resolutions to be proposed at
the forthcoming Annual General Meeting to be in the
best interest of the Company and the members as a
whole and recommends that members vote in favour
of the resolutions to be proposed at the forthcoming
Annual General Meeting.
VOF Annual Report 2017VOF Annual Report 2017 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
+84-28 3821 9931
Fax:
Hanoi
5th Floor, Sun City Building
13 Hai Ba Trung Street,
Hoan Kiem Dist., Hanoi, Vietnam
Phone: +84-24 3936 4630
+84-24 3936 4629
Fax:
Singapore
6 Temasek Boulevard
#42-01 Suntec Tower 4
Singapore 038986
Phone: +65 6332 9081
+65 6333 9081
Fax:
www.vinacapital.com