VinaCapital
Vietnam Opportunity Fund
Annual Report and Financial Statements
for the year ended 30 June 2019
Annual Report and Financial Statements
for the year ended 30 June 2019
S
T
N
E
T
N
O
C
Section 1 | General Information
General Information
Investment Policy
04
06
Historical Financial Information
Financial Highlights
Chairman’s Statement
Section 2 | Investment Manager’s Report
Investment Manager’s Report
Listed Portfolio Review
Private Investment Review
16
24
32
Market Risks
Looking Ahead
Economic & Investment Environment
Section 3 | Financial Report and Statements
Board of Directors
56
Report of the Audit Committee
Disclosure of Directorships in Other
Directors’ Remuneration Report
Public Companies Listed on Recognised
Independent Auditor’s Report to the
Stock Exchanges
Corporate Governance Statement
Report of the Board of Directors
58
60
70
Statement of Directors’ Responsibilities
76
Members of VinaCapital Vietnam
Opportunity Fund Limited
Financial Statements
n
o
ti
a
m
r
o
f
n
I
l
a
r
e
n
e
G
08
10
12
40
41
43
78
82
84
94
Section 4 | Annex
Management & Administration
126
Notice of Annual General Meeting
129
Glossary & Alternative
Performance Measures
127
Investment Manager’s ReportFinancial Report and StatementsAnnex
GENERAL INFORMATION | GENERAL INFORMATION
GENERAL
INFORMATION
VinaCapital Vietnam Opportunity Fund Limited (the “Company” or “VOF”) is
a Guernsey domiciled closed-ended investment company. The Company is
classified as a registered closed-ended Collective Investment Scheme under
the Protection of Investors (Bailiwick of Guernsey) Law, 1987 and is subject
to the Companies (Guernsey) Law, 2008 (the “Guernsey Law”). Prior to
March 2016 the Company was a limited liability company incorporated in the
Cayman Islands.
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 considers it desirable
that Shareholders should have the opportunity to review the future of the
Company at appropriate intervals. Accordingly, the Board intends that every
fifth year a special resolution will be proposed that the Company ceases
to continue. If the resolution is not passed, the Company will continue to
operate as currently constituted. If the resolution is passed, the Board will
be required to formulate proposals to be put to Shareholders to reorganise,
unitise or reconstruct the Company or for the Company to be wound up.
The Board tabled such resolutions in 2008, 2013 and 2018 and on each
occasion the resolution was not passed, allowing the Company to continue
as currently constituted.
4
5
Annual Report 2019General InformationInvestment Manager’s ReportFinancial Report and StatementsAnnexVinaCapital Vietnam Opportunity Fund GENERAL INFORMATION | INVESTMENT POLICY
INVESTMENT
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 majority of their assets, operations,
revenues or income in, or derived from, Vietnam.
Investment Policy
All of the Company’s investments will be in Vietnam or in
companies with at least 75% of their assets, operations,
revenues or income in, or derived from, Vietnam at the
time of investment.
No single investment may exceed 20% of the 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.
6
7
Annual Report 2019General InformationInvestment Manager’s ReportFinancial Report and StatementsAnnexVinaCapital Vietnam Opportunity Fund GENERAL INFORMATION | HISTORICAL FINANCIAL INFORMATION
Years ended 30 June
2015
2016
2017
2018
2019
Statement of Comprehensive Income (USD’000)
Total income/(loss) from ordinary activities^
12,132
119,137
230,366
195,365
(9,334)
Total expenses from ordinary activities
(17,504)
(23,067)
(39,817)
(42,625)
(18,763)
Operating (loss)/profit before income tax
(5,372)
96,070
190,549
152,740
(28,097)
Income tax expense
(Loss)/profit for the year
Minority interests
-
-
-
-
-
(5,372)
96,070
190,549
152,740
(28,097)
-
-
-
-
-
(Loss)/profit attributable to ordinary equity holders
(5,372)
96,070
190,549
152,740
(28,097)
Statement of Financial Position (USD’000)
Total assets^
Total liabilities
Net assets
Share information
723,744
796,386
982,358
1,082,329
974,633
5,080
9,850
32,683
38,897
19,384
718,664
786,536
949,675
1,043,432
955,249
Basic (loss)/earnings per share (cents per share)^
Basic earnings/(loss) per share (pence per share)^
Share price at 30 June (USD)*
Share price at 30 June (GBP)*
(2.00)
-
2.50
-
45.00
30.00
2.82
2.11
93.00
73.00
3.82
2.94
77.00
57.00
4.30
3.26
(15.00)
(12.00)
4.34
3.41
Ordinary share capital (thousand shares)
219,958
208,646
200,621
194,058
184,809
Market capitalisation at 30 June (USD’000)*
549,894
588,382
766,372
834,449
802,069
Market capitalisation at 30 June (GBP’000)*
-
440,243
589,826
632,629
630,197
Net asset value per ordinary share (USD)^
Net asset value per ordinary share (GBP)*^
Ratio
Ongoing charges excluding incentive income/(fee)‡
Incentive (income)/fee₸
Ongoing charges plus incentive fee₹
3.27
-
1.7%
0.5%
2.2%
3.77
2.82
1.8%
1.2%
3.0%
4.73
3.64
1.9%
2.7%
4.6%
5.38
4.07
1.8%
2.1%
3.9%
5.17
4.06
1.7%
(0.3%)
1.4%
HISTORICAL
FINANCIAL
INFORMATION
^ The figures for 2019 above include adjustments to the share prices of some investments at 30 June 2019 in order to adjust
for pricing anomalies identified by the Board. Please refer to the Glossary for a complete explanation.
* 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
GBP using the rate of exchange at 30 June each year.
‡ Calculated as general and administration expenses divided by average NAV for the year. Ongoing charges have been prepared in accordance with the
Association of Investment Companies (“AIC”) recommended methodology.
₸ Calculated as total incentive fee divided by average NAV for the year.
₹ Calculated as the sum of general and administration expenses and total incentive fee divided by average NAV for the year.
8
9
Annual Report 2019General InformationInvestment Manager’s ReportFinancial Report and StatementsAnnexVinaCapital Vietnam Opportunity Fund
GENERAL INFORMATION | FINACIAL HIGHLIGHTS
FINANCIAL
HIGHLIGHTS
In the year to 30 June 2019, the Company’s NAV per
share decreased in US Dollar terms by 3.9% to USD5.17,
while the Company’s share price increased by 0.9% to
USD4.34, from the same date a year ago. Taking account
of dividends paid in the year to 30 June 2019, the NAV
Total Return* was -1.9%.
As at/years ended 30 June
USD
NAV per share total return*^ over the year (%)
Share price ($)
Increase in share price over the year (%)
Discount to NAV per share**^ (%)
2017
28.4
3.82
35.5
19.2
2018
16.1
4.30
12.6
20.1
2019
(1.9)
4.34
0.9
16.0
* Calculated as NAV per share as at the relevant year end plus any dividends per share paid during the year divided by NAV per share as at the
previous year end.
** Calculated as NAV per share less share price divided by NAV per share.
^ The figures for 2019 above include adjustments to the share prices of some investments at 30 June 2019 in order to adjust for pricing
anomalies identified by the Board. Please refer to the Glossary for a complete explanation.
10
11
Annual Report 2019General InformationInvestment Manager’s ReportFinancial Report and StatementsAnnexVinaCapital Vietnam Opportunity Fund
GENERAL INFORMATION | CHAIRMAN’S STATEMENT
“There are not many investment
opportunities in the world which
offer reasonably assured growth with
a developing capital market and a range
of interesting opportunities. Vietnam is
one such opportunity, and your Company
is well positioned to take advantage of it.”
Steven Bates
Chairman
CHAIRMAN’S STATEMENT
Dear Shareholder
I am pleased to report that at last year’s AGM
shareholders voted by a large majority in line with the
Board’s recommendations on each of the resolutions.
In particular, shareholders voted against Resolution 14,
the “discontinuation vote”. The Company will, therefore,
continue as presently constituted for a further five years. I
would like to thank shareholders for their support but also
to reiterate the Board’s commitment to hold a regular vote
on the continuation of the Company – the next such vote
is expected to be held at an AGM in December 2023.
Investment Strategy and Performance
Over the Company’s financial year, the stock market in
Vietnam had something of a roller coaster ride, rising at
first and then falling in line with global markets in the
fourth quarter of 2018. Since then, it has staged a decent
recovery and now sits more or less where it started,
despite the volatility in the meantime. In Sterling terms,
the Company’s NAV per share increased by 1.8% while in
US Dollars, which is the Company’s accounting currency, it
fell by 1.9%, both on a total return basis.
Although a large percentage of the Company’s assets
are either listed on a Vietnamese exchange or traded on
UPCoM (Unlisted Public Companies Market), which falls
short of an official listing, many of these positions were
originally purchased as part of a privatisation procedure or
as private equity. The Company has a mandate to pursue
opportunities in Vietnam wherever it finds them, and the
intent for some time has been to increase the allocation to
private equity positions. A large pipeline of such prospects
is being developed by the Investment Manager, but it is
taking an increasingly long time to complete transactions.
During the year, we invested in a private placement of
convertible bonds into one of the leading real estate
developers, Novaland, and in Tam Tri Medical for USD25.3
million and USD17.6 million, respectively. The Investment
Manager is hopeful that significant further capital will be
deployed in this area over the year ahead.
When valuing the Company’s portfolio at the end of the
financial year, it became clear that the closing market
prices of certain stocks on Friday 28 June 2019 were
unusually high – higher than they were on Thursday 27
June 2019 or on Monday 1 July 2019 – and, in the Board’s
view, were anomalous. This applied in particular to a
small number of stocks traded on the junior Unlisted
Public Companies Market (UPCoM), as well as some
traded on the Ho Chi Minh Stock Exchange and Hanoi
Stock Exchange. We are obliged by accounting rules to
prepare the Company’s financial statements on the basis
of closing market prices on Friday 28 June 2019, the last
business day of the Company’s financial year. However, in
reporting the investment performance for the year in the
Chairman’s Statement and in the Investment Manager’s
Report, the Board believes that it is more appropriate to
use a NAV based on the average of the closing prices of
the stocks in question on Thursday 27 June and Monday
1 July. On this basis, the NAV of the Company at the end
of the financial year was USD955.2 million, equivalent
to GBP750.6 million compared with USD979.7 million
(GBP769.8 million) in the audited accounts. This adjusted
number, as described in the Glossary, has also been used
to calculate the management and incentive fees, which
are both lower than would have been the case using the
accounting rules.
It is important to note that this adjustment was only
applied to the figures at the end of the financial year and
that the weekly and monthly NAV’s which the Company
has published subsequently are based on the “normal”
market prices and do not require any adjustment.
Dividends
Our policy remains to pay a dividend of approximately 1%
of NAV twice each year, in March and October. Your Board
believes that paying a steady dividend is a key element in
attracting investors with the aim of helping to reduce the
discount over time.
12
13
GENERAL INFORMATION | DUMMYVinaCapital Vietnam Opportunity Fund General InformationInvestment Manager’s ReportFinancial Report and StatementsAnnexAnnual Report 2019
GENERAL INFORMATION | CHAIRMAN’S STATEMENT
In line with this policy:
advice of a professional advisor or via online share
dealing platforms.
Plc, JPMorgan Chinese Investment Trust Plc and Montanaro
UK Smaller Companies Investment Trust Plc.
• On 27 March 2019, an interim dividend of 5.5 US
cents per share in respect of the half year ended 31
December 2018 was declared; and
We have also carried out several structural reforms, & have:
Investment Management Fees
• On 24 October 2019 a second interim dividend of 5.5
•
US cents per share in respect of the financial year to 30
June 2019 was declared.
These two dividends in total represent approximately 2% of
the NAV per share as at the end of the financial year ended
30 June 2019.
•
•
•
I would note that while the payments are in effect made
from capital reserves, the dividend income generated by the
portfolio of the Company’s subsidiaries is growing and in the
current year amounted to a gross total of USD18.7 million
(2018: USD18.2 million). This compares with the cost of the
dividend of USD20.5 million.
Although both dividends in respect of the year were
declared by the Board as interim dividends, a Resolution
will be proposed at the AGM that shareholders approve the
Company’s dividend policy.
Discount Management
The discount at which the Company’s shares trade to
NAV decreased over the course of the year, from 20.1%
as at the end of June 2018 to 16.0% on the last working
day of June 2019.
We have a continuing strategy to try to reduce the discount
focusing on seeking to manage any excess supply of shares
while devoting much time and effort to creating demand.
During the financial year under review, 9.2 million shares
were bought back, representing 4.4% of the shares in issue
at the start of the year. In order to limit the number of
shares held in treasury, the Company cancelled 10.4 million
treasury shares during the current financial year.
Changed the Company’s listing venue to the premium
segment of the London Stock Exchange. This
subsequently resulted in it being included in the FTSE
250 Index;
Changed the domicile to Guernsey;
Commenced the payment of dividends; and
Changed our arrangement with our Investment
Manager so that management of our assets is
delegated to a regulated entity in Vietnam.
I would note that the discount has been relatively stable in
recent months in the mid-teens. Nevertheless, the Board
is not complacent about a discount which is still wide in
the context of investment companies generally, and we are
alert to the risks that this presents. Our efforts to reduce
the discount will continue.
The Board
As reported in the Annual Report for the year ended 30
June 2018, Julian Healy was appointed to the Board and to
its committees on 23 July 2018 and Martin Adams retired
from the Board on 10 December 2018.
Kathryn Matthews joined the Board as a non-executive
Director and a member of its committees with effect from
10 May 2019. Kathryn has 36 years’ experience in the
financial services industry. She has held executive positions
in global asset management businesses in the UK and
Hong Kong, including Chief Investment Officer, Asia Pacific
ex Japan at Fidelity International based in Hong Kong and
Head of Portfolio Strategies Group & Global Equities Team
at Fidelity Investments in the UK. She began her career at
Baring Asset Management, holding a broad range of roles
over sixteen years, including as the Head of Institutional
Business, Europe & UK.
As at 30 June 2018, some USD23.4 million of incentive
fees were carried forward in the Company’s financial
statements for potential payment in subsequent years,
provided that certain conditions were met. During the
year ended 30 June 2019 USD5.2 million was clawed
back, resulting in an incentive fee accrual at the year end
of USD18.2 million. Following publication of this year’s
financial statement some USD14.7 million of this will be
paid out, with the remaining USD3.5 million potentially to
be paid out in the following financial year, which has been
discounted to USD3.2 million in the accounts to reflect the
time value of money. Shareholders should note that the
Outlook
Vietnam has at some points in the history of its capital
markets seemed to be disconnected from wider world
events. As the markets have become more sophisticated,
and the investor base has broadened, so its correlation
with global markets looks to have increased. This past
year, it has been difficult to hide from the sell-off triggered
by the Federal Reserve’s tightening of monetary policy in
the second half of 2018, or indeed from the rally which
followed the reversal of that policy in the first quarter of
2019. Market participants have also had to deal with the
vicissitudes of a volatile political scene in both Washington
and Beijing. While in some ways, the advantage of ‘not
being China’ helped as the US sought friends in the region,
the spill over from the trade war has inevitably affected
Vietnam, which runs a large trade surplus with the US. None
of this geopolitical noise is going away and it will likely lead
to greater volatility in markets. Nevertheless, the macro-
economic situation in the country remains remarkably
positive, as you can read in Michael Kokalari’s review,
included after Andy Ho’s Investment Manager’s Report.
amount to be paid out was reduced below the contracted
sum with the agreement of the Investment Manager in
light of the anomalous market prices at the 2019 year end
described above.
The effect of clawing back USD5.2 million of the accrued
incentive fees is to increase moderately the year-end NAV.
AGM
This year’s AGM will take place at 10 a.m. on 5 December
2019 at Aztec Group, Trafalgar Court, Les Banques, St
Peter Port, Guernsey, GY1 3PP. Notice of the AGM is set
out in the Annual Report and Financial Statements.
Shareholders are most welcome to attend the AGM in
person or to vote by proxy.
has introduced a large number of stimulus measures
to counteract the effects of weakening trade and to
rebalance its economy towards domestic consumption. In
aggregate, these are less powerful than those unleashed
in previous downturns, but the targets suggest that
the Chinese government is serious about lessening the
economy’s dependence on its export engine. It is likely
that, over time, Chinese investment in Vietnam will
increase much as has happened with other countries in
the region. The combination of low costs, an educated
population and improving infrastructure is indicative of
continued rapid growth.
As I have said in previous statements, there are not
many investment opportunities in the world which offer
reasonably assured growth with a developing capital market
and a range of interesting opportunities. Vietnam is one
such opportunity and your Company is well positioned to
take advantage of it.
In attempting to stimulate demand in recent years, we
have focused time, effort and resources on marketing and
promotion and it is pleasing to note an increase in the
number of private investors who own shares, either on the
Kathryn currently serves as a non-executive director of
Pendal Group and APERAM SA and sits on the Board of the
UK ring-fenced entity of Barclays Bank. She has previously
served as a non-executive director of Rathbone Brothers
Looking more broadly, the world is experiencing a further
round of easy money, despite the maturity of the cycle,
and this is supportive of equity markets in general. China
Steven Bates
Chairman
VinaCapital Vietnam Opportunity Fund Limited
24 October 2019
14
15
Annual Report 2019VinaCapital Vietnam Opportunity Fund General InformationInvestment Manager’s ReportFinancial Report and StatementsAnnex
INVESTMENT MANAGER’S REPORT | INVESTMENT MANAGER’S REPORT
INVESTMENT
MANAGER’S REPORT
The Investment Manager’s review of the portfolio and outlook is followed by a
detailed discussion of Vietnam’s economy from VinaCapital’s Chief Economist.
Andy Ho
Managing Director &
Group Chief Investment Officer
16
17
DUMMY |INVESTMENT MANAGER’S REPORTVinaCapital Vietnam Opportunity Fund Annual Report 2019General InformationInvestment Manager’s ReportFinancial Report and StatementsAnnex INVESTMENT MANAGER’S REPORT | INVESTMENT MANAGER’S REPORT
Portfolio Highlights¹ :
Market overview
• Accounting for the dividends paid, VOF’S NAV per
share declined by 1.9% as at 30 June 2019 financial
year (“FY2019”).
• VOF paid a total of USD20.5 million in dividends (or
USD0.11 per share), equivalent to a yield of 2.1% of NAV
per share and 2.5% of share price as at 30 June 2019.
• Over the previous three financial years to 30 June
2016, 2017 and 2018, VOF delivered total returns of
15.4%, 25.6% and 16.8% in USD terms, respectively.
• VOF ended FY2019 with a total NAV of USD955.2
million or USD5.17 per share, and a total market
capitalisation of USD802.1 million or a share price of
USD4.34 per share, representing a discount of 16.0%.
• VOF’s share price increased by 0.9% in US Dollar terms
and by 4.6% in Sterling terms over the 12 months
ending 30 June 2019.
• During the financial year the Fund acquired 9.2 million
VOF shares at a cost of USD39.6 million under its share
buy-back programme. Furthermore, as part of the
new fee arrangements agreed during the fiscal year
2018 whereby 25% of the performance fee that is paid
to the Investment Manager is used to purchase VOF
shares, the Investment Manager acquired 0.9 million
VOF shares at a cost of USD3.7 million.
6.0
5.0
4.0
3.0
2.0
1.0
0.0
4
1
-
n
u
J
4
1
-
c
e
D
5
1
-
n
u
J
5
1
-
c
e
D
6
1
-
n
u
J
6
1
-
c
e
D
7
1
-
n
u
J
7
1
-
c
e
D
8
1
-
n
u
J
8
1
-
c
e
D
9
1
-
n
u
J
Share price
NAV per share
Chart: VOF’s NAV per share and share price (USD terms), last
five years to 30 June 2019. Note that from March 2016 on
migration from AIM to the premium listing of the LSE Main
Market, VOF’s share price is quoted in British Sterling pence.
Source: Bloomberg, VinaCapital.
¹ The figures in the Investment Manager’s Report include adjustments to
the share prices of some investments at 30 June 2019 in order to adjust
for pricing anomalies identified by the Board. Please refer to the
Glossary for a complete explanation.
18
The financial year, which ended 30 June 2019, was a
volatile one, with markets whipsawed by a combination
of an escalation, de-escalation and re-escalation of trade
tensions between the US and China, an uncertain outlook
for global growth, and the dramatic easing of monetary
policy around the world. On the domestic front, Vietnam
had to grapple with concerns including the government’s
crackdown on corruption and improper land transfers
related to real estate projects.
While not immune to the extraneous forces, Vietnam’s
economy and capital markets demonstrated a level of
resiliency because of the strength of its domestic economy
and robust macroeconomic fundamentals, including; lower
than expected inflation; a stable local currency against the
US Dollar, coupled with strong flows from foreign direct
investment (“FDI”); and foreign indirect investments (“FII”).
During the financial year, we saw the US – China trade war
worsen. This dispute – at least for the time being – seems
to be positive for Vietnam and the country has been a net
beneficiary of the diversion of trade and investment away
from China.
Many multi-nationals, including Chinese exporters, have
diverted resources towards Vietnam in order to produce
goods for export to the US. Typically, these businesses
would place additional orders for goods made in Vietnam
and have them directly shipped to the US; however there
is an issue of scale and capacity as most Vietnamese
businesses are already operating at full capacity and are
reluctant to expand production fearing that this trade
dispute may only be short-term and therefore lead to
idle capacity once these orders revert back to Chinese
manufacturers should an eventual peace be declared in
this trade war.
Having said that, even before the onset of the trade
war in early 2018, we had already witnessed global
manufacturers shift production to Vietnam in order to take
advantage of the country’s low manufacturing wages and
electricity prices, improving infrastructure, supply-chain
proximity to China and the region, and accommodative
business environment.
The trade war has only accelerated a migration of
production to Vietnam. This in turn has increased
demand for industrial land and labour, both of have
which have seen significant increases in value and cost.
During the first half of 2019 we saw many signs of further
reductions in interest rates from central banks around
the world. We have heard numerous arguments that
central banks, including the US, are reducing interest
rates (many into negative territory) in order to devalue
their currencies in an effort to protect their export-driven
industries. Since Donald Trump’s presidency, the US trade
deficit has reached a record level, possibly because the
US Dollar (“USD”) has strengthened significantly against
major currencies including the Chinese Yuan (“CNY”),
which in August 2019 surpassed the optically significant
CNY7.0 exchange rate to the USD. Historically (such as in
2015) when the CNY materially devalued, the Vietnam
Dong (“VND”) also depreciated. However, the CNY’s
recent weakness has not led to downward pressure on
the VND because Vietnam’s USD reserves have grown
significantly and currently represent about four months’
worth of import value and Vietnam is currently enjoying
a trade surplus. These issues are further discussed in the
economic section of this report.
Over the past 18 months, the Vietnamese Government
has been aggressive in rooting out improper transfers
of real estate properties. As a result, several listed
companies were caught up in the review, which placed
intense scrutiny over land purchases and transfers.
Many real estate development projects are still awaiting
government approval and there appears to be a
reluctance to push forward on such approvals until some
clarity is reached on the land sale and auction process. As
such, many real estate companies found it challenging to
raise capital in late 2018 and into 2019. This created an
opportunity for our investment team to structure several
deals to address such risks and concerns. We discuss in
more detail one such deal later in this report.
During the first half of 2019, the government issued
almost USD4.5 billion worth of bonds and corporates
issued USD4 billion of bonds, allowing the bond market
to circulate and trade approximately USD24 billion worth
of debt papers as at 30 June 2019.
Proceeds of government bond issuances typically go
towards funding public infrastructure projects, but with
the significant slowdown in project approvals due to the
ongoing anti-corruption campaign, a lot of cash remains
idle and deposited in State Owned Commercial banks
(“SOCB”) like Vietcombank, BIDV and Vietinbank. As a
result, these SOCBs are flush with capital and given the
cap on credit growth of 14%, many of these banks are
re-deploying the capital into government bonds, driving
yields down significantly (to 3.5% to 4.5% for 5- and 10-
year tenors). At the same time, private banks do not have
access to this capital due to more stringent and prudent
measures and therefore find themselves having to attract
deposits by offering 7.5% to 8.5% annual interest rates.
Portfolio review
3.0% 1.4%
13.4%
16.9%
Listed equity, 65.3%
Unlisted equity, 16.9%
Private equity, 13.4%
Bonds, 3.0%
Operating assets, 1.4%
65.3%
Chart: VOF’s portfolio by asset class (excluding cash and
other receivables and payables), % NAV as at 30 June 2019.
Source: VinaCapital.
• During the financial year, VOF sold USD224 million of
investments in listed and unlisted equities.
•
• VOF benefited from several major exits from its capital
markets portfolio, with a gross total of USD154 million
sold, including stakes in Vinamilk (HOSE:VNM), FPT Corp
(HOSE: FPT), Viglacera (HOSE: VGC), Hoa Phat Group
(HOSE: HPG), and Vietcombank (HOSE: VCB).
Sales from the private equity portfolio included
American Homes Vietnam, a leading ceramic
manufacturer (discussed in the December 2018 interim
report), and the last remaining direct real estate
investment in late 2018.
The Company invested USD155.1 million, in two private
equity investments totalling USD42.9 million, and
the balance in listed and unlisted equities via private
placements and privately negotiated investments.
•
19
Annual Report 2019VinaCapital Vietnam Opportunity Fund General InformationInvestment Manager’s ReportFinancial Report and StatementsAnnex
INVESTMENT MANAGER’S REPORT | INVESTMENT MANAGER’S REPORT
•
Total cash available at the beginning and end of the
financial year was USD34.2 million (including short-
term deposits) and nearly USD32.9 million (or 3.4% of
NAV), respectively.
VOF’s decline of 1.9% on a total return basis was less than
the VN Index, which was down 2.6%, in USD terms. The
capital markets component of VOF’s portfolio, which lost
6.1%, represented 80% of VOF’s total NAV. As a result,
the capital markets component contributed a loss of 4.8%
towards VOF’s total return. The capital market component’s
underperformance against the VN Index was due primarily
to losses attributed to HPG (-21.2%) and Coteccons
Construction (HOSE: CTD) (-30.5%) during the financial year.
These two larger holdings make up 13.5% of VOF’s NAV as
at 30 June 2019.
During the financial year, CTD’s share price was adversely
affected by persistent rumours that a consortium led by
the largest shareholder, Kusto had acquired a large stake in
CTD which would allow them to veto certain shareholders’
decisions proposed by the Board of Directors which could
affect the operations of the company. At the last AGM held in
April 2019, Kusto voiced their disapproval of management’s
recommendation to merge an affiliate company into CTD.
As a result of the tensions between the management and
the largest shareholder, some shareholders have decided to
divest their holdings and appear to be selling indiscriminately,
regardless of the valuation.
Once again, similar to the discussion first raised in last year’s
annual report, if we look at the VOF portfolio through an
alternative lens, one that classifies how we initially entered
the investments that are currently held in the portfolio
rather than how they are presented by their current asset
class, this may help illustrate our private equity and privately
negotiated approach to investing. As at 30 June 2019, VOF’s
total NAV of USD955.2 million consisted of assets that were
invested through essentially four paths²:
•
•
•
Private placement and Pre-IPO: 16.9% (FY2018: 17.6%)
of VOF’s total NAV is the carrying value of companies
that VOF entered through a private placement with
certain investment rights. Investments in this group
include Coteccons Construction (“CTD”). Some of these
investments have also gone on to list on Vietnamese
stock exchanges.
Equitisation: 20.7% (FY2018: 25.6%) of VOF’s total
NAV is the carrying value of companies that VOF
entered through the equitisation process. Investments
in this group include Vinamilk (“VNM”) and Airports
Corporation of Vietnam (“ACV”). Over the current
financial year some of these investments moved to the
listed equity portfolio; and
Shares purchased on the listed stock market:
11.5% (FY2018: 10.6%) of VOF’s total NAV is the carrying
value of shares acquired directly on the Ho Chi Minh
Stock Exchange or the Hanoi Stock Exchange
Typically, VOF will retain listed investments where we feel
that the investment gains in the coming years can surpass
a minimum hurdle of 15% per annum. Depending on the
risk profile, if the investment does not have the potential
to expand its P/E ratio to a peer average level or deliver
meaningful EPS growth to surpass the minimum hurdle,
then we will look to exit the holding. At the time of writing,
companies in VOF’s unlisted portfolio are expected to deliver
an average EPS growth in excess of 20% over the coming year,
while the weighted average P/E ratio of listed companies in
the VOF portfolio is 16.0x at the end of the financial year.
In summary, we aim to invest in private, off-market
opportunities that are not widely available to the general
market and almost 80% of the opportunities evaluated by
the investment team are into these opportunities. Over
time, several of these investments may migrate to the listed
portfolio through an IPO and listing process or exit through
an M&A process.
Private equity: 46.6% (FY2018: 42.5%) of VOF’s total
NAV is the carrying value of companies that VOF entered
through the private equity route. Investments in this
group include Hoa Phat Group (“HPG”) and Phu Nhuan
Jewelry (“PNJ”) which have subsequently listed.
In certain cases, we may accumulate additional shares of
listed companies in the portfolio on the market in order
to build a strategic stake that will enable us to command a
premium upon an exit to a strategic buyer. Otherwise, we will
typically view the listing of the privately held company as a
means to exit and sell the shares.
² The above numbers do not include real estate, cash, receivables & payables.
•
20
Notable sector weight changes
Our bottom-up investment approach means that the
portfolio is benchmark and sector agnostic – it is not
managed against an active benchmark like the VN Index.
Nevertheless, it may be useful to understand the sector
allocation, and changes in exposure, compared to that of
last year.
Real estate & construction
Food & beverage
Construction Materials
Financial services
Infrastructure
Consumer discretionary
Industrials
Pharmaceuticals
& health care
Mining, Oil & Gas
Utilities
Cash and Others
Agriculture
Hospitality
0.0%
5.0% 10.0% 15.0% 20.0%
%NAV FY2019
%NAV FY2018
Chart: VOF portfolio by sector allocation, % NAV, FY2019
and FY2018.
Overall, the sector weightings have remained more-or-
less consistent with the prior year, with no significant
rotation due to structural or cyclical changes:
• Real estate & construction: In recent years we have
sold all of our direct real estate (“DRE”) holdings,
with the last divestment being Green Park (Thang
Loi) Estate done during FY2019. VOF has re-invested
some of the proceeds from these DRE divestments
back into the real estate sector through investments
in public and private equity transactions of real
estate related companies;
Construction materials: The decrease in exposure
is largely due to profit taking during the year on our
largest holding, Hoa Phat Group (“HPG”) as well as
the stock’s price decline during the course of the
financial year;
Food & beverage: Further to profit taking during
•
•
FY2018, in FY2019 VOF continued to reduce the
position in Vinamilk (“VNM”) as we believed that the
milk company is fully valued. Nevertheless, the Food
& beverage sector remains in our top three sector
allocations as companies in this sector stand to
benefit from increasing wealth creation and domestic
consumption. Over the course of the financial year,
VNM’s share price declined by 10.3%; and
Financial services: VOF invested into Ho Chi Minh
Development Bank (HOSE: “HDB”) and Orient
Commercial Bank (OTC: “OCB”) via private equity and
pre-IPO process in 2017. In the current financial year,
the weighting to the financial services sector rose
from 11.2% to 12.5%.
•
Sector return attribution and contribution
Sector
% NAV
Sector
total return
Real estate & construction
Food & beverage
Construction Materials
Financial services
Infrastructure
Consumer discretionary
Pharmaceuticals & health care
Industrials
Mining, Oil & Gas
Utilities
Agriculture
Hospitality
Cash and others
17.5%
14.9%
14.6%
12.5%
9.5%
8.3%
4.5%
4.5%
3.9%
3.2%
2.4%
1.4%
3.0%
-3.8%
3.5%
-12.5%
-3.0%
-6.1%
0.9%
12.4%
-2.8%
1.7%
9.7%
28.7%
15.8%
Table: VOF portfolio by sector, % NAV as at 30 June 2019,
sector total return on a gross basis.
Source: VinaCapital.
Capital markets review
If one were to look at the Vietnam Index (“VN Index”) at 30
June 2018 and again at 30 June 2019, one would see a very
stable market which lost about 1% in local currency terms
21
Annual Report 2019VinaCapital Vietnam Opportunity Fund General InformationInvestment Manager’s ReportFinancial Report and StatementsAnnex
INVESTMENT MANAGER’S REPORT | INVESTMENT MANAGER’S REPORT
during the twelve months to end at 950 points (or down by
2.6% in USD terms). However, during this financial year, the
VN Index was actually quite volatile, hitting a high of 1,024
points in October 2018 and subsequently declining to a
low of 881 points in January 2019, and then trading range-
bound to end at 950 points at the end of the financial year,
with an average trailing twelve month Price to Equity ratio
(“TTM P/E”) of 16.5x (Source: Bloomberg).
105
100
95
90
8
1
-
n
u
J
8
1
-
g
u
A
8
1
-
t
c
O
8
1
-
c
e
D
9
1
-
b
e
F
9
1
-
r
p
A
9
1
-
n
u
J
VOF
VNIndex
Chart: Relative performance of VOF (NAV per share,
total return basis) versus Vietnam Index (VN Index),
USD terms, FY2019.
Source: Bloomberg, VinaCapital research
During FY2019, Vietnam’s stock market was primarily
driven by foreign inflows and outflows. Since the market
does not have any pension or endowment funds as
anchors to give the market depth and breadth, these
foreign flows have created a significant amount of
volatility. During the financial year, Vietnam enjoyed a net
foreign inflow of USD2.2 billion, including several large
off market transactions that were primarily led by South
Korean investors, including SK Group which invested
USD1.0 billion into Vingroup (HOSE: VIC) (USD250 million
in secondary shares, and USD750 million of new shares
issued), and USD430 million invested into Masan. In fact,
during 1H2019 foreign indirect investment net inflows
reached an impressive USD1.3 billion, following USD930
million invested during 2H2018, and a record USD3.7 billion
invested over 1H2018. If we exclude the inflows from off
market transactions (e.g., IPOs, secondary and primary
issuances), then the net inflow from foreign buying directly
on the stock exchange was a paltry USD4.0 million for the
entire financial year! This shows the difficulty of accessing
the market and the importance that off market and put-
through transactions have on market liquidity.
22
The effects of foreign inflows were also amplified as foreign
investors’ options were generally limited to a handful of
blue-chip stocks that had available foreign ownership room.
Consequently, with such large volumes of money chasing
so few public equity opportunities, the valuations of some
blue-chip stocks have also been amplified and are currently
beyond what we would deem as fair value based on their
growth potential. Furthermore, as a consequence of a
number of mega IPOs that took place during the first part
of calendar year 2018, which saw significant foreign interest
and led to record valuation levels that appear unjustified,
many (if not most) of the 2018 IPOs are currently below
their initial offering prices, leaving many investors nursing
large losses. We have seen a dearth of IPO and equitisation
activities over the past 12 months as valuations have
retreated, and both companies and government have been
reluctant to take the path of IPO and privatisation in the
current environment of uncertainty.
As at 30 June 2019, the market had 748 companies listed
on the Ho Chi Minh Stock Exchange (“HOSE”) and the Hanoi
Stock Exchange (“HNX”), with a total market capitalisation
of approximately USD145 billion or 60% of 2018 GDP. The
UPCoM Exchange (Unlisted Public Companies Market),
which is a junior exchange of HNX, has an additional
839 listed companies with a total market capitalisation
of USD43 billion. Vietnam is currently part of the MSCI
Frontier Market Index, and there is a hope that it will
graduate into the MSCI Emerging Market Index at some
point in the next two years.
The VN Index as at 30 June 2019 traded at an average TTM
P/E of 16.5x according to Bloomberg. A survey of local
analysts, including those within VinaCapital’s research
team, forecast year-on-year earnings per share (“EPS”)
growth of between 10% to 15% for 2019. If we compare
these figures against Vietnam’s neighbours, on an earnings
basis, Vietnam continues to do well. The market trades at
a P/E ratio that is 17% below regional peers, which average
19.8x as at 30 June, while EPS growth is generally higher.
It is pertinent to pause and focus our lens on the effect
that certain large, blue-chip companies have on the current
market and index performance. Most noticeable, with
possibly the largest impact on the market volatility and
performance, are the Vingroup group of companies, which
include three large, publicly listed companies: holding
company, Vingroup (HOSE: VIC); real estate development
company, Vinhomes (HOSE: VHM); and retail mall operator,
Vincom Retail (HOSE: VRE). These companies enjoy the
benefit of large blocks of foreign ownership room available
to foreigners (VIC 17.2%, VHM 15.1% and VRE 32.3%
available, respectively).
According to Bloomberg, these three publicly listed
companies have a combined market capitalisation of
approximately USD32 billion as at 30 June 2019 and make
up about 23.2% of the VN Index. The level of cross holdings
between VIC, which is the holding company, and VHM and
VRE is significant, in excess of 66% on average for each
company. Furthermore, they trade at valuations that are
outsized compared to the market and their peers. For
example, VIC trades at a TTM P/E of 83.0x, while VHM
trades at a P/E of 16.6x and a price-to-book (P/B) ratio of
6.1x, while VRE trades at a TTM P/E of 31.5x and P/B of
2.8x as at 30 June 2019 (Source: Bloomberg). If we were
to remove these three companies from the VN Index, the
index would trade at a P/E of approximately 14.0x rather
than 16.5x.
During the financial year, we witnessed periods when
large fluctuations in the share prices of the Vingroup of
companies caused large movements in the overall index.
Naturally, if investors hold any, or all, of the Vingroup of
companies, they will be exposed to its volatility. Over the
course of the financial year, we have seen the share price
of VIC increase by 7.6%, VHM decrease by 11.8%, and VRE
increase by 9.9% in local currency, while the VN Index
decreased by 1.1% in VND terms over the same period.
However, there are many active fund managers that
have taken an underweight exposure to this group of
companies due to factors that may include opinions
on high valuations, low liquidity, or other fundamental
concerns. VOF does not track the VN Index and therefore
it is possible when companies with large index weightings
perform well, we may from time-to-time underperform.
We do not hold any of the Vingroup companies. We are
disciplined with regards to entry and exit valuations and
continue to focus on opportunities that are not widely
available to the general market.
Equitisations of State-Owned Enterprises (SOEs)
Pulling back the lens to look at the overall IPO and
privatisation (or “equitisation” as it is known in Vietnam)
activities over the past 12 months, the dearth of
opportunities of meaningful size has made this less
appealing for our strategy. Furthermore, many investors
did not do so well participating in the IPOs that occurred
in 2018 and therefore have shown little interest in 2019,
especially not at the valuations which many sponsors and
their sell-side advisors were expecting.
While we do have a list of State-Owned Enterprises
(“SOEs”) that plan to equitise in the coming year, the timing
remains unclear. The significant slowdown in equitisations
has been caused by several key issues that the government
must still resolve, including the value and transfer of land
holdings owned by the SOEs. As mentioned in last year’s
Annual Report, we postulated that the pace of equitisation
of SOEs was expected to decline significantly but we did
not expect it to stop completely.
Although market conditions have improved somewhat
for smaller equitisation opportunities, large equitisations
remain stymied as Vietnam’s current anti-corruption
campaign appears to have significantly delayed the
approval process for equitisations, due to causes that we
have mentioned above.
In the meantime, the government continues to divest
shares in companies that have already equitised. During
FY2019, the government divested additional shares in
Viglacera (HOSE: VGC), and Danang Rubber Company
(HOSE: DRC):
• VGC is the largest glass producer in Vietnam. They
produce window-panes for office buildings and for
industrial use. VOF participated in the equitisation of
VGC but we have since sold shares at a profit (IRR of
22.1%) after this company listed on HOSE; and
• DRC owns large rubber plantations and is one the
largest producers of radial and bias tires in Vietnam.
VOF also invested in DRC when it first equitised, and
we subsequently took profit (IRR of 26.8%) once it
listed on HOSE.
23
Annual Report 2019VinaCapital Vietnam Opportunity Fund General InformationInvestment Manager’s ReportFinancial Report and StatementsAnnex INVESTMENT MANAGER’S REPORT | LISTED PORTFOLIO REVIEW
LISTED PORTFOLIO
REVIEW
The table below sets out VOF’s top 10 listed equity holdings as at 30 June 2019. The top ten positions now account for
56% of the portfolio, down from 59% as of last year, and 82% as of two years ago:
Investee company
Sector
Entry classification
1. Hoa Phat Group (HPG)
Construction materials
Private Equity
2. Khang Dien House (KDH)
Real estate & construction
Private Equity
3. Airports Corporation of Vietnam (ACV)
Infrastructure
Equitisations
4. Phu Nhuan Jewelry (PNJ)
Consumer discretionary
Private Equity
5. Vinamilk (VNM)
6. Eximbank (EIB)
Food & beverage
Equitisations
Financial services
Private Placement
7. Quang Ngai Sugar (QNS)
Food & beverage
Private Placement
8. Vietjet Air (VJC)
9. Coteccons (CTD)
Industrials
Private Placement
Real estate & construction
Private Placement
10. Orient Commercial Bank (OCB)
Financials
Private Placement
2018
% NAV
14.6
2019
% NAV
10.9
7.2
8.2
5.5
8.5
3.7
2.8
3.7
2.5
2.4
9.0
8.2
6.2
5.8
5.2
3.1
2.9
2.6
2.5
Total
59.1
56.4
Table: Listed equity holdings, % of total NAV as at 30 June 2018 compared to 30 June 2019.
Source: Bloomberg, VinaCapital Research
During FY2019, VOF had between 30 and 40 holdings in its listed portfolio and we would like to highlight several of the
larger holdings to provide a sense of how they are performing:
24
25
INVESTMENT MANAGER’S REPORT | DUMMYDUMMY |INVESTMENT MANAGER’S REPORTVinaCapital Vietnam Opportunity Fund Annual Report 2019General InformationInvestment Manager’s ReportFinancial Report and StatementsAnnex INVESTMENT MANAGER’S REPORT | LISTED PORTFOLIO REVIEW
1. HOA PHAT GROUP (HPG)
LISTED ON HOSE
Hoa Phat Group is Vietnam’s largest steel manufacturer.
HPG holds the leading position in the construction steel
segment, with market share at 25% which is significantly
higher than the second-largest company. The company
also holds the leading position in the steel pipe segment
with a 30% market share.
HPG’s earnings in the first half of 2019 were USD 172
million, a decrease of 13% y-o-y on due to a decline
in gross margin resulting from a much higher cost of
a key input, iron ore, and capacity constraints. Steel
revenue growth of 7% was achieved by a combination
of an increase of 13% in volume and a 4% decrease in
the average selling price. The main driver of long-term
growth is capacity expansion, which includes a new steel
sheet line (increasing annual capacity by 400,000 tons).
Meanwhile, the construction of the large new Dung Quat
project, an addition of four million tons of total capacity,
remains on track; phase one will add two million tons of
annual capacity for construction steel and is due to be
operational in 2019.
The current valuation of HPG is 7.8x based on its TTM
earnings which remains attractive given their solid
fundamentals. At this multiple, HPG continues to trade
at a discount to peers, and we feel that the stock is
undervalued. As at 30 June 2019, HPG accounted for
10.9% of VOF’s total NAV.
26
27
INVESTMENT MANAGER’S REPORT | DUMMYVinaCapital Vietnam Opportunity Fund Annual Report 2019General InformationInvestment Manager’s ReportFinancial Report and StatementsAnnex
INVESTMENT MANAGER’S REPORT | LISTED PORTFOLIO REVIEW
2. KHANG DIEN HOUSE (KDH)
LISTED ON HOSE
Khang Dien House is one of the best-known property
developers in Ho Chi Minh City (HCMC). The company has an
excellent track record in many town house and villa projects
and owns one of the largest land banks for residential
development in HCMC (400 ha in total land area). In recent
years, KDH has experienced strong demand for its landed
projects in east HCMC in areas such as Districts 2 and 9,
where the infrastructure has rapidly improved.
In February 2018, KDH acquired Binh Chanh Investment
and Construction (BCI), a major player in the west of
HCMC, via a share swap. KDH has been actively tapping
into BCI’s low-cost land bank and has begun launching
major landed projects in 2018. Considering the affordability
and rising demand in the mid-end market, we expect a
strong absorption in KDH’s upcoming high-rise projects.
Furthermore, KDH’s apartments were of higher construction
and management quality with more competitive prices than
its main competitors.
Management estimates 2019 net profit growth to be around
30% y-o-y, 16% higher than the company’s initial target.
Profit will be largely driven by the delivery of units pre-sold
in 2018 and 2019. KDH is trading at a 2019 P/E ratio of 12.3x
and a price-to-book ratio of 1.7x. As at 30 June 2019, KDH
accounted for 9.0% of VOF’s total NAV.
28
29
INVESTMENT MANAGER’S REPORT | DUMMYDUMMY |INVESTMENT MANAGER’S REPORTVinaCapital Vietnam Opportunity Fund Annual Report 2019General InformationInvestment Manager’s ReportFinancial Report and StatementsAnnex
INVESTMENT MANAGER’S REPORT | LISTED PORTFOLIO REVIEW
3. AIRPORTS CORPORATION OF VIETNAM (ACV)
LISTED ON UPCOM
Airports Corporation of Vietnam operates 22 airports
and develops aviation infrastructure in Vietnam.
For the first half of 2019, the company reported
revenue of USD385 million and profit of USD159
million, representing revenue growth of 12% and
profit growth of 20% year-on-year. For the full year
2019, we expect revenue growth at 14% and profit at
14% despite the slowdown in international passenger
growth (4.5% in 1H2019 vs. 22% in 1H2018).
However, at the recent AGM at the end of June
2019, management announced that earnings would
receive a boost because ACV would be able to collect
licensing fees from busy international airports such
as Cam Ranh and Da Nang airports which are not
100% owned.
The stock trades at a substantial premium to other
large cap stocks in Vietnam, but we think that this is
justified given its monopoly position and continued
growth from domestic passengers who have been
attracted by lower ticket prices, greater convenience
and new low-cost airlines, making air travel the
optimal choice.
The listing progress to HOSE has been delayed due to
issues around the ownership of airfield assets and land.
ACV plans to invest in Terminal 3 at Tan Son Nhat Airport,
the busiest airport in Vietnam, which will increase its
capacity by 20 million passengers per year (+66%). We
expect this will significantly add to earnings in three
years’ time.
As at 30 June 2019, ACV’s 2019 P/E ratio is 27.2x, and
EV/EBITDA of 18.4x as compared with regional peers’
valuations at P/E ratio of 30.7x, and EV/EBITDA 16.8x.
We believe that ACV’s valuation versus peers is quite
attractive given a lower P/E multiple but higher earnings
growth rate. However, as the stock trades on UPCoM, its
daily liquidity is modest (just over USD1 million per day),
a number of large global funds are unable to access it.
Once the stock moves to the main bourse this may act as
a significant catalyst. As at 30 June 2019, ACV accounted
for 8.2% of VOF’s total NAV.
30
31
INVESTMENT MANAGER’S REPORT | DUMMYDUMMY |INVESTMENT MANAGER’S REPORTVinaCapital Vietnam Opportunity Fund Annual Report 2019General InformationInvestment Manager’s ReportFinancial Report and StatementsAnnex
INVESTMENT MANAGER’S REPORT | PRIVATE INVESTMENT REVIEW
PRIVATE INVESTMENT
REVIEW
In the current environment, we have found that private
investments are also taking much longer to incubate
and close. During FY2019 we reviewed approximately
25 investment opportunities totalling nearly USD650
million but have only focused on a little over a dozen
opportunities. It is taking us much longer to move
beyond the term sheet stage to closure and ultimately
investment primarily because we are discovering material
differences in our understanding of these businesses once
due diligence activities have completed. This is indeed
disappointing and has meant that we have had either
to walk away from a deal because we no longer have
conviction in the management team (or sponsor) or must
engage in further negotiations to protect the interest of
the fund through a variety of mechanisms.
Performance
commitment
Management
involvement
Corporate
governance/
ESG
Target IRR
+20-25%
Milestone
disbursements
Downside
protection
Exit plan
Diagram: VOF private investment framework,
target IRR 20-25%.
Source: VinaCapital.
32
Within our investment framework, if the exit horizon via
an IPO is beyond one year, VOF typically seeks and receives
the right to: (1) perform financial, legal, operational and
environmental, social and governance due diligence;
as well as (2) obtain some form of minority protections
and performance commitments over the following three
years, with associated financial penalties in the event that
commitments are not met; and (3) participation rights on
the Board of Directors and/or Management.
VOF made two private investments during FY2019,
deploying USD42.9 million.
In late 2018, VOF deployed USD17.6 million into Tam Tri
Medical Joint Stock Company, a second active hospital
platform for VOF. Tam Tri Medical operates four profitable
hospitals in south and central Vietnam with capacity of
over 500 beds.
In late 2018 VOF invested USD25.3 million into a
structured investment with a leading listed real estate
developer to provide them capital in return for a
fixed internal rate of return (“IRR”) of 17% along with
several forms of security pledges. The investment also
had a running annual yield of 10% and a call option to
acquire shares in the company at the closing price on
the investment date (subject to anti-dilution rights)
exercisable at the maturity date of the bond.
These investments demonstrate the typical privately
negotiated investment terms not readily available to the
public and contain meaningful downside protections, profit
commitments from the sponsors, and minimum IRRs.
We continue to see exciting investment opportunities
arising from the domestic economy. As households enjoy
the benefits of growing wealth through higher wages
and capital gains from property and other investments,
families are spending more on basic goods and services
such as health care, education, food and beverage, banking
and property.
Sectors where we are actively evaluating investments
include hospitality and conference operators, food and
beverage businesses, packaging businesses, construction
materials, and financial services. In addition, because
of the uncertainty and opportunities presented from
the on-going global trade war, we are also focusing on
businesses that benefit from the migration / diversion
of manufacturing to Vietnam, into sectors such as
construction materials and logistics. These investments
cover a broad spectrum of investment types by entry
method, from pure private equity investments into
private companies, private placements, and pre-IPO
opportunities. As always, we would like to target more
private investment opportunities but note, as always, that
some of the investments in the portfolio may quickly move
from private to public equity as private companies seek to
IPO their shares.
Private equity / privately negotiated investments
Name
Industry
Tam Tri Medical JSC
Pharmaceuticals and Health care
International Dairy Product
Food and Beverage
Thai Hoa International Hospital
Pharmaceuticals and Health care
An Cuong Wood-Working
Construction Materials
Orient Commercial Bank³
Financial Services
Ricons Construction Investment⁴
Real Estate and Construction
Saigon Pearl Group
Real Estate and Construction
Total Investment
Cost (USDm)
Actual
Revenue
2018
(USDm)
Projected
Revenue
2019
(USDm)
Revenue
Growth
(%)
17.2
56.8
6.3
166.7
216.9
402
73.9
23.1
62.6
8.3
187.2
241.7
475.2
111.6
34.3
10.2
31.7
12.3
11.4
18.2
51.1
17.6
35.2
11.7
17.7
15.9
10.9
16.8
125.8
Industry
Total Investment
Cost (USDm)
Minimum IRR (%)
Maturity
Real Estate development company bond
Real Estate and Construction
Food & Beverage company bond
Food and Beverage
Total
25.3
20.7
46.0
17%
15%
12/2020
09/2019
³ OCB entered via a private placement investment. The company is currently unlisted and trades over-the-counter (“OTC”). The investment is classified
under the “Unlisted Equities”portfolio.
⁴ Ricons entered via a private placement investment. The company is currently unlisted and trades OTC. The investment is classified under the
“Unlisted Equities”portfolio.
We highlight below some of the achievements from our private equity portfolio investments over the course of the
financial year:
33
Total
Name
Annual Report 2019VinaCapital Vietnam Opportunity Fund General InformationInvestment Manager’s ReportFinancial Report and StatementsAnnex INVESTMENT MANAGER’S REPORT | PRIVATE INVESTMENT REVIEW
1. AN CUONG WOOD - WORKING JOINT
STOCK COMPANY (ACW)
VOF and its co-investor currently own 18.4% of ACW, with VOF’s effective
holding at 11.3%.
ACW is the largest interior wood working company in Vietnam, producing
wood-based panels, kitchen cabinets and equipment and other interior home
furnishing components.
For the first six months of 2019, ACW delivered USD82.5 million in revenue, a
20% y-o-y growth in VND terms. The new Dat Cuoc factory came into operation
4 months earlier than expected and is contributing significantly to the 2019
revenue. During the last quarter, 2Q2019, with the transition well on track,
revenue grew by 32% quarter-on-quarter.
The key target for 2019 is to ramp up operations in the new factory and
improve capacity utilization, which is expected to lead to much higher gross
margins. The new Dat Cuoc factory has state-of-art technology with increased
use of automation and less dependency on manual labour. For example, though
both existing factories have the same capacity, the newer Dat Cuoc factory only
requires one quarter of the labour compared to the old factory.
As at June 2019, Sumitomo Forestry owns 20% of ACW with the latest
acquisition of 10% occurring in early 2019 at a total post investment equity
valuation of USD417 million. Sumitomo Forestry is the leading furniture
manufacturer in Japan and has a joint venture in Vietnam producing material
board for wood-based panel products.
34
35
INVESTMENT MANAGER’S REPORT | DUMMYDUMMY |INVESTMENT MANAGER’S REPORTVinaCapital Vietnam Opportunity Fund Annual Report 2019General InformationInvestment Manager’s ReportFinancial Report and StatementsAnnex
INVESTMENT MANAGER’S REPORT | PRIVATE INVESTMENT REVIEW
2. INTERNATIONAL DAIRY PRODUCTS (IDP)
In November 2014, VOF, along with an investment
partner, acquired 70% of a distressed dairy company
called Bavi (named after the province in which the fresh
milk is sourced). Over the next 18 months up to the
middle of 2016, we renamed the company International
Dairy Products (“IDP”) and embarked on the first phase
of a restructuring process. Our focus was on addressing
the company’s capital structure, fixed assets, and
portfolio of products.
The investment team continues to make progress with
this restructuring and over the course of this past financial
year, we finally began to witness positive signs from
these efforts. During the first half of 2018, the company
generated revenue growth of 12% while competitors
declined compared to the same period last year. Various
cost savings were applied that returned IDP to profitability
in 2018. During 1H2019, IDP delivered approximately
USD33.6 million in net revenue (10.6% y-o-y increase) and
USD2.4 million in net income. The company also delivered
over USD4.0 million in EBITDA over the past six months,
surpassing the whole 2019 annual budget by 10%.
The improvement to EBITDA stems from: (1) sales
improvement on both domestic and exporting markets
thanks to a revised and effective trade strategy and
attractive consumer promotion programs; (2) a new
marketing strategy, switching from traditional to digital
channels; (3) switching materials to save cost but still
maintaining a high level of quality; (4) major cuts in G&A
expenses via re-organisation; and (5) the merger of a small
factory into a mega factory to save on operational costs.
36
37
INVESTMENT MANAGER’S REPORT | DUMMYDUMMY |INVESTMENT MANAGER’S REPORTVinaCapital Vietnam Opportunity Fund Annual Report 2019General InformationInvestment Manager’s ReportFinancial Report and StatementsAnnex INVESTMENT MANAGER’S REPORT | PRIVATE INVESTMENT REVIEW
3. THAI HOA INTERNATIONAL
HOSPITAL JOINT STOCK
COMPANY (THH)
VOF currently owns 81.1% of THH, with the remaining stake
owned by THH’s CEO and management team. THH is the
largest private group of general hospitals in the Mekong
Delta region with over 400 beds. THH, located 150 km
away from HCMC, has emerged as a high-quality brand
within the local market and has strong support from the
local government. The hospital’s CEO is a surgeon and
obstetrician with over 20 years of experience at Tu Du
Hospital, the largest obstetrics hospital in Vietnam, located
in Saigon. In 2019, Thai Hoa expects to post USD8 million in
revenue, a year-on-year increase of 33%.
THH owns and operates a hospital in Dong Thap with
a designed capacity of over 200 beds and over 200
professionals including 25 experienced doctors, medical
advisors, and highly skilled nurses. A second hospital with
over 200 beds is near completion in Hong Ngu City about
50 km from the existing hospital. Awaiting final approval,
the hospital will open in 4Q 2019 and is expected to
accommodate 70,000 to 80,000 outpatient visits in the first
year of operation, equivalent to 200 to 220 outpatient visits
per day. The new hospital enjoys favourable investment
conditions from the government, including subsidised
interest on both government and commercial loans, low
land acquisition costs, and long-term tax exemptions.
38
39
INVESTMENT MANAGER’S REPORT | DUMMYDUMMY |INVESTMENT MANAGER’S REPORTVinaCapital Vietnam Opportunity Fund Annual Report 2019General InformationInvestment Manager’s ReportFinancial Report and StatementsAnnex
INVESTMENT MANAGER’S REPORT | MARKET RISKS
LOOKING AHEAD |INVESTMENT MANAGER’S REPORT
MARKET RISKS
LOOKING AHEAD
Market valuations today have returned to historical
norms, trading in-line with the regional peer averages
and are reasonable compared to forecast growth rates.
Nevertheless, we do see some risks that require monitoring.
The question revolves around whether the current market
can sustain its onwards trajectory, whether the weight of
inflows from foreign investors will retreat in times of market
shock, and whether there are sufficient domestic actors to
sustain a deep and broad market. We believe that today’s
market conditions are different from in the past and so are
the associated risks. The top three areas of concern for the
Vietnamese market today that bear repeating are:
•
External volatility: In 2018 and into early 2019 we
witnessed how the US market and global currency
volatility can have a negative impact on Vietnam’s
stock markets. External shocks and volatility could
force some foreign investors to retreat, putting
pressure on Vietnamese markets as well as on the
Vietnamese Dong;
• Margin lending: Market analysts estimate that this
currently stands at approximately USD1.4 billion, or
1.40% of the total market capitalisation of Vietnam’s
main bourses. The level of margin lending remains high
relative to historic levels and any sudden volatility on
the downside could trigger a downward spiral effect
driven by the forced liquidation of margin positions; and
Inflation and interest rates: Although this risk is on the
lower side as global rates have reached historic lows,
it is one that we are nevertheless acutely aware of and
monitoring. A more detailed discussion of these risks is
presented in our chief economist’s update that follows.
•
We also believe that the Vietnamese stock market today is
more reasonably valued than at its height in 2006 where the
average P/E ratio was at times over 30x; today the market
trades at 16.5x (and less if we remove certain anomalies
in the index constituents). The size and depth of today’s
market is significantly larger with over 700 listed companies.
Furthermore liquidity, which is driven by both foreign and
domestic investors, is significantly higher and thus lessens
various market risks relative to 2006.
40
Environmental, Social and Corporate Governance
As more institutional investors invest into Vietnam and
Vietnamese businesses expand, environmental, social and
corporate governance (ESG) related matters have taken on
greater importance. In recent years, we have witnessed
situations in which shareholder value declined significantly
when businesses polluted the environment, ignored global
standards, relocated families from their land without
adequate compensation, or did not adhere to international
best practice with respect to corporate governance. Using
guidelines from development finance institutions such as
the FMO (the Dutch development bank) and the IFC (the
International Finance Corporation), we have developed
a framework to identify ESG risks at potential investee
companies, and help businesses improve their practices,
where appropriate, by incorporating ESG terms as part of our
overall terms of investment in private opportunities.
VinaCapital has committed to adopting and implementing
the Principles of Responsible Investment (PRI), which
VinaCapital believes is in the best long-term interests of
our investors, and which contributes to a more long-term
oriented, transparent, sustainable and well-governed
investment market.
The PRI is the world’s leading proponent of responsible
investment. It works to understand the investment
implications of ESG factors and to support its international
network of investor signatories in incorporating these factors
into their investment and ownership decisions. The PRI acts
in the long-term interests of its signatories, of the financial
markets and economies in which they operate and ultimately
of the environment and society as a whole.
The PRI is truly independent. It encourages investors to
use responsible investment to enhance returns and better
manage risks but does not operate for its own profit; it
engages with global policymakers but is not associated with
any government; it is supported by the United Nations.
Over the past 24 months, Vietnam’s stock markets
have increased their depth, size, and liquidity, due in
part to the listing of large companies, many of which
now have market capitalisations of over USD1 billion.
The total market capitalisation of Vietnam’s two stock
exchanges almost reached the country’s annual GDP.
As more companies list, we expect the market size and
depth to increase with greater liquidity, which may lead
to P/E ratios expanding once again to be in line with the
regional average.
Looking forward, we believe that our strong pipeline of
potential investments can deliver returns which exceed
market averages. Historically, the VOF portfolio has
consistently delivered top quartile performance within
the lowest quartile of NAV volatility. Through our focus
on privately negotiated investments (with shareholder
agreements, exit provisions and downside protections) in
companies that offer strong growth potential, we seek a
more consistent return over time for our investors.
The stock markets’ expansion has led to a marked
increase in the number of investors participating in
public markets. Listed Vietnamese companies are
becoming increasingly investor-friendly, which will make
it even easier for investors to participate. Accordingly,
we feel that there is less of a need for VOF to focus on
companies that are already listed, but rather refocus on
private opportunities.
Quantitative easing is back on the cards through low
(and in some instances, negative) interest rates, and the
US administration’s policies focusing on trade protection
could lead global stock markets to become less directional
and more volatile. With this in mind, we think that a
focus on privately negotiated deals with an emphasis on
valuation will be even more important to generate a good
absolute return, regardless of whether the investment is
via a listed, non-listed or private equity opportunity.
Early Stage
Growth Stage
IPO/M&A Exit
VOF focuses on growth stage
companies with strong fundamentals
Diagram: VOF focuses on growth stage companies and
takes them through to IPO or M&A.
Source: VinaCapital.
Another attribute of these private opportunities is that
they offer VOF a greater range of exit options. VOF
may exit these companies once they undertake an IPO
and list on the local stock exchanges or exit by selling
a meaningful stake to a strategic buyer, commanding a
valuation premium in most circumstances. When market
conditions are strong and when the average trading P/E
ratio is above 15x, we find that most of these private
companies will seek to list on the local stock exchanges
as soon as possible. When market conditions are weak
and where the average trading P/E ratio is below 15x,
historically we have found that the most attractive
exit path is through a trade sale to a strategic acquirer.
Looking ahead, VOF’s asset allocation strategy can be
summarised as follows:
•
•
Private investments: This is an area where historically,
as with equitisation, VOF has done well. We currently
have several companies in our pipeline that we think
may be ready for investment in the next 12 months;
SOE Equitisations: The pipeline is ever-changing
with timing uncertain as some SOE equitisations are
delayed or cancelled. In terms of size, equitisations
are usually large, so that the dollar amount that
can be disbursed by investors such as VOF is not a
41
Annual Report 2019VinaCapital Vietnam Opportunity Fund General InformationInvestment Manager’s ReportFinancial Report and StatementsAnnex INVESTMENT MANAGER’S REPORT | LOOKING AHEAD
ECONOMIC & INVESTMENT ENVIRONMENT |INVESTMENT MANAGER’S REPORT
•
problem: for example, the Government’s planned
sale of a 20% stake in Airports Corporation of
Vietnam (second tranche) would be worth USD1.4
billion based on the current market price; and
Listed equities: Divest large positions that are fully
valued, with a preference for block sales. We remain
index-agnostic and valuation and growth driven,
focusing on sectors that we believe offer growth based
on the on the domestic economy.
There is no doubt that Vietnam’s economy has developed
rapidly over the past few years. Nonetheless, it bears noting
that the country continues to be a frontier market, which
can produce conditions that are unpredictable, and which
requires VOF to stay vigilant and ahead of the market.
As more foreign and domestic investors participate in
Vietnam’s growth, numerous ETFs, both domestic and
international, are being created for investors to access
Vietnam at a low cost. However, given the illiquid nature
of the market and the anomalies created by the foreign
ownership limits still largely in place, we are seeing existing
market participants take advantage of the illiquid nature of
the market to restructure in advance of ETF activities, and in
some instances profiting at the expense of ETFs.
strategy of focusing on opportunities not widely available
to the market, coupled with VinaCapital’s ability to perform
due diligence, obtain minority projections and participate
at the board or management level, while introducing strong
ESG practices, helps position VOF to deliver strong risk-
adjusted returns for its shareholders in the years to come.
In summary, 2019 has produced a mix of successes and
disappointments. We remain ever vigilant to the market
risks but must look beyond the market turmoil and
volatilities to ensure that are we are able to deliver superior
risk adjusted returns and performance on our investments
to our investors. The team remain dedicated and focused on
ensuring that the negotiations of private equity and privately
negotiated investments deliver the returns and protections
that have been the hallmark of our investing over the past
16 years for this Fund. We hope to be able to close and
announce several exciting new investments over the course
of the next financial year.
As always, and, on reflection of this past financial year, we
appreciate the support and confidence that the Board and
shareholders have entrusted in me and the team.
We continue to see weak corporate governance being
practised by many listed companies, which can degrade not
just shareholder value, but also confidence in the market
as a whole. To that end, we believe that VOF’s continuing
Andy Ho
Managing Director and Group Chief Investment Officer
24 October 2019
42
ECONOMIC &
INVESTMENT ENVIRONMENT
Vietnam’s macro economy was stable throughout 2018, a
trend that has continued into 2019, as evidenced by modest
inflation, a relatively stable Vietnam Dong (VND) exchange
rate, and steady interest rates. This stability, coupled with
robust yet sustainable GDP growth, supported Vietnamese
stock, bond, and real estate prices during VOF’s FY2019, and
we are sanguine about the prospects for continued price
appreciation during VOF’s coming financial year.
GDP growth driven by consumption and manufacturing
Manufacturing accounts for nearly 20% of Vietnam’s
economy, and grew by 13% in 2018, and at an 11.2%
y-o-y pace in 1H19. The robust growth of Vietnam’s
manufacturing sector contributed about 2% to Vietnam’s
overall GDP growth rate, and was reflected in a near-
record high reading of Vietnam’s Purchasing Managers’
Index (PMI) of 52.5 at end-1H19, making Vietnam one
of only a handful of countries in the world with PMI
readings above the ‘50’ expansion-contraction threshold
at that time.
Vietnam’s GDP grew by 7.1% in 2018, and we expect
the country’s economy to grow at a slightly slower -
although still robust - pace in 2019, driven by domestic
consumption and the continued expansion of the country’s
manufacturing output. The economy grew by 6.8% y-o-y
from 1H18 to 1H19, and we expect that GDP growth for
2019 will be slightly above 6.5%.
8
6.6% 6.7%
6.4%
6
5.5%
5.8%
5.2%
7.4%
7.7% 7.5%
7.3%
6.7% 6.8%
6.8% 6.7%
4
2
0
Q1-16 Q2-16 Q3-16 Q4-16 Q1-17 Q2-17 Q3-17 Q4-17 Q1-18 Q2-18 Q3-18 Q4-18 Q1-19 Q2-19
GDP Growth (% yoy)
Source: General Statistics Office of Vietnam (GSO)
Household consumption accounts for nearly two thirds
of Vietnam’s economy. It grew by approximately 9.4% in
2018, and at an estimated 8.7% y-o-y pace in 1H19. This
robust growth contributed over 5% to Vietnam’s overall
GDP growth rate and was supported by a record high level
of consumer confidence. Vietnam’s consumers were the
world’s third most confident in early 2019, according to
market research firm Nielsen.
Manufacturing growth was supported by a 9% growth of
Foreign Direct Investment (FDI) in 2018 to USD19 billion
and 8% y-o-y growth in 1H19, because the majority
of Vietnam’s FDI inflows are deployed into increasing
the country’s productive capacity. That said, the global
“Peak Smartphone” phenomenon started weighing on
manufacturing output growth in 2018. Note that we
estimate that mobile phone production accounts for
over 10% of Vietnam’s manufacturing output, and that
production fell by about 10% y-o-y in 1H19, after being flat
in 2018, resulting in the slight dip in Vietnam’s GDP growth
from 1H18 to 1H19.
Finally, the decline of China’s GDP growth to a reported 27-
year low at end-1H19 is also weighing on Vietnam’s growth
to some extent. Tangible evidence includes plunges in:
•
•
The number of Chinese tourists visiting Vietnam (a
3% y-o-y drop in 1H19, comparable to what Thailand
also experienced, but far from the 49% growth in
2017 to 24% in 2018), who account for about one
third of all tourist arrivals; and
The growth in exports to China, which is the third-
largest destination for Vietnam’s exports; in 2017
exports to China grew by 61%, 17% in 2018, and
were flat in 1H19, although this compares favourably
with a 17% y-o-y drop in South Korea’s exports to
China in 1H19.
43
Annual Report 2019VinaCapital Vietnam Opportunity Fund General InformationInvestment Manager’s ReportFinancial Report and StatementsAnnex
INVESTMENT MANAGER’S REPORT | ECONOMIC & INVESTMENT ENVIRONMENT
5.0
4.0
3.0
2.0
1.0
7
1
-
n
u
J
7
1
-
p
e
S
7
1
-
c
e
D
8
1
-
r
a
M
8
1
-
n
u
J
8
1
-
p
e
S
8
1
-
c
e
D
9
1
-
r
a
M
9
1
-
n
u
J
Core CPI y-o-y (%)
CPI y-o-y (%)
Headline & Core Inflation
Source: Government Statistics Office of Vietnam (GSO)
Despite the plunge in Vietnam’s inflation rate during
FY2019, deposit and lending interest rates at local banks
were more-or-less unchanged at circa 5-6% for short term
deposits on average (although some smaller banks paid
interest rates of over 8% p.a. to attract 1-year deposits),
circa 8% lending rates for short term loans, and 10-11%
lending rates for loans with a one-year maturity.
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
6
1
-
n
u
J
6
1
-
g
u
A
6
1
-
t
c
O
6
1
-
c
e
D
7
1
-
b
e
F
7
1
-
r
p
A
7
1
-
n
u
J
7
1
-
g
u
A
7
1
-
t
c
O
7
1
-
c
e
D
8
1
-
b
e
F
8
1
-
r
p
A
8
1
-
n
u
J
8
1
-
g
u
A
8
1
-
t
c
O
8
1
-
c
e
D
9
1
-
b
e
F
9
1
-
r
p
A
9
1
-
n
u
J
1-week Interbank Interest Rate
5-year G-bond Yield
5-year Government Bond Yield vs. 1-week Interbank
Interest Rate
Source: Bloomberg
Macro-economic stability, inflation and interest rates
Vietnam’s policy makers continue to prioritise macro-
economic stability, and those efforts were supported
by a circa 20% drop in world oil prices from end-1H18 to
end-1H19, which helped to reduce Vietnam’s headline
Consumer Price Index (CPI) inflation from 4.7% y-o-y to
2.2% over that time.
We estimate that the decline in oil prices, albeit in
highly volatile market conditions during VOF’s FY2019,
reduced Vietnam’s inflation by about one percentage
point. Meanwhile, the drop in food price inflation from
5.1% y-o-y at end-1H18 to 2.4% at end-1H19 reduced
the headline CPI inflation rate by an estimated one
percentage point, and that a plunge in the growth rate
in medical prices from 13% to 0% reduced CPI inflation
by 0.8 of a percentage point. The drop in medical price
inflation was attributable to the curtailment of the
government’s administrative price hikes for medical
services, while the lower rise in food prices, which
contribute 36% of the CPI basket, occurred as a result of
African Swine Fever (“ASF”).
That last point is counterintuitive because global pork
prices surged by nearly 20% in 1H19, but ASF first spread
to Vietnam in February 2019, about six months after
its initial outbreak in China. ASF actually depressed the
price of pork in Vietnam by circa 25% y-o-y at end-1H19
because farmers aggressively sold their healthy pigs on to
the market before those swine had a chance to become
infected with ASF. However, over 10% of Vietnam’s pig
population has now been culled, so the price of pork,
which contributes about 6% of Vietnam’s CPI basket, will
certainly soar by the end of the year. Note that pork prices
in China soared by over 30% y-o-y as of end-1H19, which
explains why China’s 8% food price inflation at end-1H19
was so much higher than Vietnam’s.
44
Furthermore, interbank interest rates and the yields on
Vietnam Government Bonds (VGBs) remained very low.
Short-term interbank rates averaged below 4%, so 10-year
VGB yields ended FY2019 nearly unchanged at 4.7%, which
is much lower than Indonesia (7.4%), and also lower than
the Philippines (5.1%), which both have similar inflation
rates to Vietnam, and which both have investment grade
credit ratings, versus Vietnam’s BB rating.
The surprisingly low level of interbank interest rates
was partly a by-product of Vietnam’s central bank’s
accumulation of nearly USD6 billion of FX reserves in
2018, and over USD8 billion of reserves in 1H19 – which
increased the State Bank of Vietnam’s (SBV’s) total FX
reserves to nearly USD68 billion or over 25% of Vietnam’s
GDP at end-1H19. Those purchases of USD by the SBV
were only partly “sterilised” by the issuance of T-Bills that
drained excess liquidity from the money market, so much
of the residual liquidity generated by the SBV’s FX reserve
accumulations flowed into the nation’s commercial banks.
Finally, the surprisingly low level of VGB yields was partly
due to the Government’s slow progress on infrastructure
construction. In 1H19, the Government only achieved
about one quarter of its planned expenditure on the
development of ports, highways, and airports, so the net
issuance of VGBs (i.e., gross issuance of government bonds
minus maturing bonds), plunged by 75% y-o-y.
That said, we have recently seen signs of a pick-up in
infrastructure construction, so this specific tailwind for the
bond market is unlikely to persist, but with global central
banks clearly signalling their intention to embark on a new
round of monetary easing in 2H19, be believe that it is
very unlikely that interest rates in Vietnam will increase
substantially over the coming financial year.
Further to that last point, we note that Philippines 10-
year bond yields plunged by 300 basis points (bps) from
8.2% in late 2018 to 5.1% at end-1H19, driven by foreign
inflows because international investors are “chasing yield”
as global interest rates plunge to low, and even negative,
levels. Foreign investors are not major holders of Vietnam
Government Bonds, but the dramatic experience of the
Philippines suggests that the possibility of foreigners
pouring money into the local bond market will prevent
yields from increasing significantly over the next year.
Macro-economic stability and the Vietnamese Dong
In addition to the modest decline in world oil prices during
VOF’s FY2019, the relative stability of the value of the
US Dollar over the financial year also aided Vietnam’s
government’s efforts to maintain a stable macroeconomic
environment during that time.
The value of the USD, measured through the US Dollar
Index (DXY) index increased by less than 2% from end-
1H18 to end-1H19, and the unofficial value of the VND
depreciated by less than 2% over that time, so that the
value of Vietnam’s currency was essentially stable, or even
appreciated somewhat against some of the world’s other
major currencies. Specifically, Vietnam’s Nominal Effective
Exchange Rate (NEER) against a trade-weighted basket of
Vietnam’s trading partners was essentially flat in FY2019.
24,000
23,500
23,000
22,500
22,000
21,500
21,000
4
1
-
n
a
J
4
1
-
r
p
A
4
1
-
l
u
J
4
1
-
t
c
O
5
1
-
n
a
J
5
1
-
r
p
A
5
1
-
l
u
J
5
1
-
t
c
O
6
1
-
n
a
J
6
1
-
r
p
A
6
1
-
l
u
J
6
1
-
t
c
O
7
1
-
n
a
J
7
1
-
r
p
A
7
1
-
l
u
J
7
1
-
t
c
O
8
1
-
n
a
J
8
1
-
r
p
A
8
1
-
l
u
J
7
1
-
t
c
O
9
1
-
n
a
J
9
1
-
r
p
A
9
1
-
l
u
J
Upper band
OTC (Mid)
VND Official vs. Unofficial Exchange Rate
Source: State Bank of Vietnam
This stability was reflected in the fact that the unofficial
value of the USD-VND exchange rate traded in close
proximity to the official rate, as can be seen in the chart
above. Furthermore, the price of gold in Vietnam traded
in close proximity to world gold prices in 1H19, and even
often traded below world gold prices during that time.
Market participants view the premium (or discount) of
gold prices in Vietnam to world gold prices as an important
sentiment indicator that demonstrates the willingness of
locals to hold VND, because the import of gold is strictly
controlled by the Vietnamese government. In times
45
Annual Report 2019VinaCapital Vietnam Opportunity Fund General InformationInvestment Manager’s ReportFinancial Report and StatementsAnnex
INVESTMENT MANAGER’S REPORT | ECONOMIC & INVESTMENT ENVIRONMENT
of low confidence in the VND, such as during the brief,
rumour-ridden episode at the end of 2016 when India’s
government demonetised its large currency notes, the gold
price premium in Vietnam soared from its typical 6-7%
to over 15%. During FY2019, the gold price premium in
Vietnam fell from 6% to -1%.
Finally, it appears that the government is targeting FX
rate stability versus the USD, in order to encourage
capital inflows from foreign investors, which helps to
explain why the VND has been much more stable against
the USD in recent years than have the currencies of
Vietnam’s EM ASEAN peers.
Two factors have supported the stability of the VND:
• Vietnam enjoyed current account surpluses averaging
over 4% of GDP for each of the past seven years. Also,
we estimate that Vietnam’s net imports of oil and
refined petroleum products equate to about 1-2% of
GDP, which contrasts to India, Thailand and China,
who import about 45-75% of the oil that they consume
(although Thailand enjoys an 8% of GDP current
account surplus, thanks to its huge tourism industry).
105%
100%
95%
90%
85%
80%
75%
Argentina
South Africa
Turkey
Indonesia
Philippines
India
Mexico
Brazil
China
Malaysia
Vietnam
Thailand
Russian Federation
4
1
-
n
a
J
4
1
-
l
u
J
5
1
-
n
a
J
5
1
-
l
u
J
6
1
-
n
a
J
6
1
-
l
u
J
7
1
-
n
a
J
7
1
-
l
u
J
8
1
-
n
a
J
8
1
-
l
u
J
9
1
-
n
a
J
9
1
-
l
u
J
USD vs. VND
EM ASEAN currencies vs. USD
VND vs. EM ASEAN Currencies
Source:Bloomberg
China followed this strategy in the wake of the 1997
Asian Financial Crisis, when it spent copiously to support
the Chinese Yuan at a time when the currencies of other
Asian countries plummeted. The confidence that this
strategy engendered in foreign investors was one factor
that helped to encourage an enormous wave of foreign
investment into China in the 2000’s.
-6
-4
-2
0
2
4
6
8
The US-China Trade War
Current Account as % of GDP (2018)
Source: International Monetary Fund
The central bank’s public commitment to intervene in the
currency market if the VND depreciates by more than 2%,
the credibility of which is backed-up by the SBV’s increase
in Vietnam’s FX reserves to about four months’ worth of
imports at end-1H19. That said, although the International
Monetary Fund (IMF), World Bank and others recommend
emerging markets (EMs) to maintain a minimum of three
months’ worth of FX reserves, according to the IMF’s
alternate, more sophisticated metric, Vietnam still needs
to accumulate another USD20 billion worth of FX reserves
to meet its minimum safety threshold.
Perhaps the most high-profile issue affecting Vietnam
over the past year has been the degree to which it might
benefit from the US-China trade war. We were among
the earliest to espouse the view that Vietnam is the
country that will benefit the most from this dispute, for a
number of reasons:
1. Approximately 60% of the high-tech products (i.e.,
mobile phones, computers, TVs, etc.) that the US
imports are currently made in China, and about
half of China’s exports to the US are of high-tech
products, versus 20% for Vietnam. On the other
hand, only about one-third of Vietnam’s overall
exports are of high-tech products, and nearly half of
Vietnam’s exports to the US are still garments and
footwear. All of this implies a significant increase
in Vietnam’s electronics production if a protracted
trade war prompts the relocation of production
from China to Vietnam.
2. The primary impact of the US-China trade war is the
acceleration of the existing trend of manufacturers
moving their production facilities from China to
Vietnam, motivated by the anticipated ~20% cost
savings entailed, according to a recent survey of
Chinese manufacturers by Standard Chartered
Bank. Those cost savings are primarily attributable
to a two-thirds wage differential for factory wages
between China and Vietnam (i.e., Vietnam’s factory
wages are two-thirds below China’s).
All of that said, we believe that the trade war presents
three risks for Vietnam:
1. The Chinese could devalue the USD-CNY exchange
rate past the widely watched ‘7’ level, which would
damage sentiment in Vietnam’s stock market. We
believe that the impact of a depreciation of the CNY
on Vietnam’s economy would be minimal, but the
impact on investor sentiment would be significant.
In 2015, the 5% depreciation of the CNY against the
USD prompted a similar magnitude depreciation
of the VND, even though Vietnam was running a
current account surplus at that time, inflation was
under 1%, and GDP growth was very robust.
Furthermore, the sudden depreciation of the CNY
in August 2015 triggered an almost immediate 15%
sell-off in Vietnam’s stock market, driven partly by
concerns that the selloff of China’s currency would
pressure Vietnamese policy makers to depreciate
the VND, in order to maintain the country’s export
competitiveness with China. We believe that such
concerns are unfounded because, as mentioned
above, wages in Vietnam are only one-third of
those in China, and Chinese 5% wage inflation
is comparable to Vietnam’s 6-7% annual wage
increases, so a modest depreciation of the CNY is
unlikely to impact Vietnam’s export competitiveness.
Some local analysts are also worried that a
depreciation of the CNY would widen Vietnam’s
10% of GDP trade deficit with China in 2019, which
would degrade Vietnam’s overall trade balance.
However, we also believe this concern is unfounded,
partly because most of the products that Vietnam
imports from China are production materials and
intermediate goods, rather than consumer goods.
2. Firms attempting to evade tariffs on US imports from
China appear to have aggressively “re-exported”
products to the US via Vietnam in 1H19, which
spawned concerns by US officials, and even by
President Trump, who lamented what he perceives
as trade abuses by Vietnam in a television interview
in June 2019. In 1H19 Vietnam’s exports to the US
soared by 27% y-o-y, which increased Vietnam’s
trade surplus with the US from USD16 billion in 1H18
to USD21 billion in 1H19. At the same time, imports
from China surged by 18% y-o-y, so Vietnam ran an
almost identical mirror trade deficit of USD19 billion in
1H19. This statistical evidence seems to substantiate
anecdotal evidence that some firms have been
importing products from China, and then doing a
minimal amount of processing and value-add to those
products before exporting the finished goods to the
US as products that were “Made in Vietnam”.
In our view, the possibility that this phenomenon
instigates retribution from the US trade authorities
poses the biggest risk to Vietnam from the trade
war. For that reason, we are encouraged that the
Vietnamese government recently took solid steps
to clamp down on this practice, and we believe
that such steps will be sufficient to appease the US
authorities, especially in light of our view that the
US has a strong vested interest in maintaining good
relations with Vietnam for geopolitical reasons, given
China’s growing influence with the governments of
several of Vietnam’s regional peers.
3. Concerns that the acceleration of the movement
of production facilities from China to Vietnam is
depleting the supply of available skilled workers and
straining the country’s physical infrastructure. A few
reports in the international media suggested that
46
47
Annual Report 2019VinaCapital Vietnam Opportunity Fund General InformationInvestment Manager’s ReportFinancial Report and StatementsAnnex
INVESTMENT MANAGER’S REPORT | ECONOMIC & INVESTMENT ENVIRONMENT
“Vietnam is Full” to new FDI because of the deluge of
new trade war related investment, including a four-
fold surge in newly registered FDI from China (albeit
from a low base) to USD1.7 billion.
We published a research report titled “Is Vietnam
Full to New FDI?” in which we came to the conclusion
that Vietnam actually has reasonable spare labour/
industrial land/logistics capacity to absorb FDI
inflows over the next few years (for example, less
than 10% of the workforce is currently employed
by FDI companies, and over 40% still works in
agriculture). However, if a deluge of FDI equivalent to
5% of China’s existing FDI stock were to relocate to
Vietnam, we would expect wage inflation to rapidly
increase from 7% to 12%, and both the country’s
stock of industrial land and its logistics capacity
would need urgently to be increased.
Structural growth drivers: Emerging middle class
and industrialisation
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.
We estimate that just over 20% of Vietnam’s citizens
are currently in the middle class. The Boston Consulting
Group, market-research firm Nielsen, and others expect
that proportion to rise to one-third within the next few
years, making Vietnam’s middle class one of the fast-
growing in the world.
The two primary drivers of the emergence of Vietnam’s
middle class are industrialisation and the country’s 3%
urbanisation rate. Only about 36% of Vietnam’s citizens
live in the country’s major cities, versus 59% in China, and
Vietnamese urban incomes are nearly double rural ones,
according to the General Statistics Office of Vietnam (GSO).
Industrialisation is a major growth driver because
manufacturing still only contributes less than 20% of
Vietnam’s GDP. Manufacturing peaked at circa 30%
of GDP in each of the “Asian Tiger” economies, so
industrialisation is likely to be a major Vietnam growth
driver for years to come.
48
The banking sector
The system-wide credit growth of Vietnam’s commercial
banks fell from 17% in 2017 to 14% in 2018 but
rebounded from 6.1% year-to-date (YTD) in 1H18 to 7.3%
YTD in 1H19, although the SBV set a system-wide credit
growth target of 14% for 2019.
Loan growth continues to be driven by the extension of
consumer loans, which grew by an estimated 28% y-o-y
at end-1H19. Consumer loans account for about 20%
of banks’ total outstanding loans, or circa 26% of GDP,
which is comparable to the consumer credit to GDP ratios
of Vietnam’s EM peers. Mortgages account for about half
of consumer loans, so banks’ lending to homebuyers also
supported Vietnam’s real estate market.
The deceleration in the pace of Vietnam’s loan growth
from 2017 to 2018 and 2019 was motivated by the SBV’s
efforts to support the government’s macro-economic
stability objectives and was manifest by a plunge in
consumer credit growth from 65% in 2017 to 30% in 2018.
The SBV’s clamp-down on credit growth was also
motivated by the desire to strengthen the health of the
country’s banks, given the IMF’s recent assessment that
“Vietnam’s banking sector has long been the country’s
Achilles heel”, and that banking sector fragility still poses
risks to the country.
The IMF believes that rapid credit growth and the
payment of cash dividends by State Owned Commercial
Banks (SOCBs) to the government have depleted banks’
capitalisation, while overly restrictive Foreign Ownership
Limits (FOL) have impeded some banks’ ability to
raise new capital. Further to that last point, the IMF
recommends the government to lift the FOL of some
banks from the current statutory limit of 30% to above
50%, in order to attract qualified strategic investors, but
the government may also need to inject public money
into some systemically important SOCB’s which need
circa USD5 billion of new capital.
Nine Vietnamese banks have already implemented
the Basel II capital adequacy standard before the
government’s 2020 target, motivated in part by the SBV’s
willingness to assign higher credit growth quotas to those
banks. Also, banks stepped up the resolution of legacy
Non-Performing Loans (NPLs), although Vietnam’s 6.5%
system wide NPL ratio (including loans held by the Vietnam
Asset Management Company) is still higher than the 4-5%
NPLs that are typical of other emerging markets.
Rising real estate prices are helping banks to resolve
NPLs, because the majority of those loans are backed
by real estate collateral, but government implemented
macro-prudential regulations that are weighing on the
real estate sector somewhat, but that are aimed at both
preventing the emergence of another real estate bubble,
are bolstering the health of the banking sector.
In 2018, the government raised the risk weighting on
real estate loans from 150% to 200% for the purpose
of calculating banks’ Capital Adequacy Ratios (CAR),
and in 2019 the SBV cracked down on certain loopholes
by which this regulation was being circumvented. The
government has also been steadily tightening Asset
Liability Management (ALM) regulations in order to
prevent duration mismatches, so some of the smaller
banks in Vietnam that want to extend mortgages to
homebuyers have started paying deposit rates of above
8% on 1-year deposits in order to comply with the new
ALM regulations.
The net result is that mortgage rates in Vietnam increased
by about 50-100 bps in 2018, but have been essentially
flat in 1H19, which is weighing on the real estate market
somewhat, but a much bigger issue for the real estate
market in 2018, and especially in 2019, has been a
government anti-corruption campaign (described below)
that significantly slowed new project approvals in HCMC.
The property sector
In 2018, the prices of new apartments launched for sale
(i.e., the “primary market”) were essentially flat in each
of the three main segments: high-end (over USD2,000
per square meter (/sqm)), mid-tier (USD1,000-2,000/
sqm; total unit prices ~USD70,000), and affordable
(~USD1,000/sqm). The combined, total number of
units sold in Ho Chi Minh City and Hanoi, as well as the
number of units launched for sale, both declined by
about 10%, and then total unit sales plunged by nearly
40% from 1H18 to 1H19, although apartment prices
increased by about 10% y-o-y in the first half of 2019.
The unusual plunge in the volume of sales, concurrent
with a healthy increase in prices is attributable to
a regulatory crack down on property developers
in HCMC that limited the launch of new apartment
units. Issues regarding land acquisition were subject
to government review stemming from improprieties
involving high-ranking government officials and senior
banking executives. Additionally, the supply of new
units in the Thu Thiem area of HCMC was constricted
over land ownership disputes which delayed the zoning
permissions necessary for the launch of several new
large and high-profile projects.
The restrictions on new supply inflated certain segments
of the market and prompted a circa 10-20% increase
in the price of existing apartments in the secondary
market, thus more-or-less closing the gap between
the prices in the secondary and primary markets.
Unsurprisingly, there was also a fairly large differential
between the increase in apartment prices from 1H18
to 1H19 in Hanoi (+3% y-o-y), and in supply-constrained
HCMC (+14% y-o-y).
In 2020-21, a pent-up supply of new housing units is
expected to be unleashed on the market as outstanding
legal issues are resolved. The resulting surge in supply
will put severe downward pressure on prices – especially
in HCMC – but it is also likely that the government will
make significant progress towards its long-term plan
for the development of HCMC from now to 2030, which
could help to stabilise prices somewhat.
The “2030 Construction Master Plan” covers topics
such as planning for highways and railway lines out
to geographic areas that will eventually become the
suburbs of HCMC in years to come. This is likely to
encourage speculators to bid up the prices of previously
very cheap plots of land in areas identified for future
growth, similar to the mini bubble in property prices that
unfolded during 2018 in certain peripheral geographies
of HCMC, such as District 9.
49
Annual Report 2019VinaCapital Vietnam Opportunity Fund General InformationInvestment Manager’s ReportFinancial Report and StatementsAnnex
INVESTMENT MANAGER’S REPORT | ECONOMIC & INVESTMENT ENVIRONMENT
Finally, although the number of newly constructed
apartments that are sold annually in HCMC and Hanoi
doubled, from about 30,000 units in 2011 to about 60,000
units in 2018, the amount of housing being developed for
middle-class workers is still insufficient, and the housing
that is being developed for that segment is still affordable
to those prospective homebuyers.
Risks
In our opinion, the primary risks to Vietnam’s stock
market and economy are external. We see little
likelihood of past endogenous issues (e.g., reckless
money supply growth) significantly perturbing Vietnam’s
macro-economic stability. The two biggest exogenous
risks in our view are that a surge in the value of the
USD will cause a contagion in EM currency markets and
stock markets, and/or that a significant escalation of
trade tensions will damage global investors’ sentiment
and lead to a steep depreciation in the value of China’s
currency as discussed above.
Finally, if an EM FX contagion were to unfold, we believe
that Vietnam’s exchange rate and stock market would
probably outperform those of its EM peers, given the
country’s persistent current account surpluses.
Michael Kokalari
Chief Economist
24 October 2019
50
51
Annual Report 2019VinaCapital Vietnam Opportunity Fund General InformationInvestment Manager’s ReportFinancial Report and StatementsAnnex
INVESTMENT MANAGER’S REPORT | VINACAPITAL MANAGEMENT TEAM
VINACAPITAL
MANAGEMENT
TEAM
Don Lam
Brook Taylor
Andy Ho
Group Chief Executive Officer
Group Chief Operating Officer
Managing Director and Group Chief Investment 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 USD3.3 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.
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.
Andy Ho is Managing Director and Group 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 almost USD1 billion. He holds
an MBA from the Massachusetts Institute of Technology
and is a Certified Public Accountant in the United States.
52
53
INVESTMENT MANAGER’S REPORT | DUMMYDUMMY |INVESTMENT MANAGER’S REPORTVinaCapital Vietnam Opportunity Fund Annual Report 2019General InformationInvestment Manager’s ReportFinancial Report and StatementsAnnex INVESTMENT MANAGER’S REPORT | VINACAPITAL MANAGEMENT TEAM
Loan Dang
Duong Vuong
Deputy Managing Director
Deputy Managing Director
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 10 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 charter
holder having gained the CFA designation in 2001.
Khanh Vu
Deputy Managing Director
Michael Kokalari
Chief Economist
With over nine 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 five 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 maximising
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.
54
55
INVESTMENT MANAGER’S REPORT | DUMMYDUMMY |INVESTMENT MANAGER’S REPORTVinaCapital Vietnam Opportunity Fund Annual Report 2019General InformationInvestment Manager’s ReportFinancial Report and StatementsAnnex
FINANCIAL REPORT AND STATEMENTS | BOARD OF DIRECTORS
Steven Bates
Thuy Bich Dam
Huw Evans
Julian Healy
Kathryn Matthews
Non-executive Chairman
(Independent)
(Appointed 5 February 2013)
Non-executive Director
(Independent)
(Appointed 7 March 2014)
Non-executive Director
(Independent)
(Appointed 27 May 2016)
Non-executive Director
(Independent)
(Appointed 23 July 2018)
Non-executive Director
(Independent)
(Appointed 10 May 2019)
Steven Bates is an experienced
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.
BOARD
OF DIRECTORS
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 Founding President 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.
Julian Healy has long and extensive
experience of banking and investment
management in emerging markets
and particularly in Central and
Eastern Europe. He is a Member
of the Institute of Chartered
Accountants in England and Wales. He
also acts as a non-executive director
in a number of other companies.
Kathryn has over 37 years’
experience in financial services.
Her last executive role was as Chief
Investment Officer, Asia Pacific (ex
Japan), for Fidelity International.
Prior to that, Kathryn held senior
appointments with William M Mercer,
AXA Investment Managers, Santander
Global Advisers and Baring Asset
Management. She is a non-executive
Director of a number of companies
and a trustee of two charities.
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.
56
57
DUMMY |GENERAL INFORMATIONAnnual Report 2019VinaCapital Vietnam Opportunity Fund Investment Manager’s ReportFinancial Report and StatementsAnnexGeneral Information FINANCIAL REPORT AND STATEMENTS | DISCLOSURE OF DIRECTORSHIPS IN OTHER PUBLIC COMPANIES
DISCLOSURE OF DIRECTORSHIPS IN
OTHER PUBLIC COMPANIES LISTED
ON RECOGNISED STOCK EXCHANGES
Directorships
Company Name
Steven Bates
BMO Capital & Income Investment Trust PLC
Magna Umbrella Fund plc (Ireland)
The Biotech Growth Trust PLC
Third Point Offshore Investors Limited
Martin Adams (Retired 10 December 2018)
Aberdeen Latin America Income Fund Limited
Vietnam Phoenix Fund Limited
Kubera Cross-Border Fund Limited
Marwyn Value Investors Limited
Thuy Bich Dam
None
Huw Evans
Standard Life Investments Property Income Trust Limited
Third Point Offshore Investors Limited
Julian Healy
Fondul Proprietatea
Kathryn Matthews (Appointed 10 May 2019)
Aperam S.A.
Barclays Bank UK PLC
Pendal Group Ltd
Stock Exchange
London
Ireland
London
London
London
Ireland
London
London
-
London
London
London and Romania
London
London
Australia
The Board are required to declare any potential conflicts at each meeting. During the year no
Director had reported any potential conflicts that may affect their independence.
58
59
DUMMY |GENERAL INFORMATIONAnnual Report 2019VinaCapital Vietnam Opportunity Fund Investment Manager’s ReportFinancial Report and StatementsAnnexGeneral Information FINANCIAL REPORT AND STATEMENTS | CORPORATE GOVERNANCE STATEMENT
CORPORATE
GOVERNANCE STATEMENT
To comply with the UK Listing Regime, the Company
must comply with the requirements of the UK Corporate
Governance Code issued in 2016 (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 issued in 2016 (the
“AIC Code”) is deemed to comply with both the UK Code
and the Guernsey Code.
The Board has considered and complies with the principles
and recommendations of the AIC Code by reference to
the AIC Corporate Governance Guide for Investment
Companies (the “AIC Guide”). The AIC Code, as explained
by the AIC Guide, addresses all of the principles set out in
the UK Code, as well as setting out additional principles
and recommendations on all of the principles 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),
provides clear and relevant information to Shareholders.
To ensure compliance with these principles the Board
receives and reviews a report from the Company
Secretary at each Board meeting, identifying whether
the Company is in compliance and recommending any
changes that are necessary.
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.
The Board acknowledges the publication of the updated
AIC Code during 2019 (the “2019 AIC Code”) which is
applicable to accounting periods beginning on or after
1 January 2019. The current reporting period began
prior to 1 January and as such the Board has reported
with reference to the 2016 AIC Code in this document,
has implemented the 2019 AIC Code and will report
with reference to that Code in the next set of financial
statements, for the year ending 30 June 2020.
There is no information that is required to be disclosed
under Listing Rule 9.8.4.
Board Composition
The Board consists of five 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 Investment Manager, nor has
any Board member been an employee of the Company,
its Investment Manager or any of its service providers.
Except as disclosed in this report, the Board is of the view
that throughout the year ended 30 June 2019 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.
Huw Evans was appointed as the Senior Independent
Directors (“SID”) at a meeting of the Board on 10 May
2019. The position of SID provides shareholders with
someone whom they can contact if they have concerns
which cannot be addressed through the normal channels.
The SID is also available to act as an intermediary
between the other Directors and the Chairman (if
required). The role serves as an important check and
balance in the governance process.
that Directors, including the Company’s Chairman, 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.
The Board seeks to ensure that any vacancies arising are
filled by the best qualified candidates. The Board has not
adopted a formal diversity policy but acknowledges the
benefits of diversity and is committed to ensuring that
the Company’s Directors bring a wide range of skills,
knowledge, experience, backgrounds and perspectives
to the Board. The Board does not feel that it would be
appropriate to set diversity targets as all appointments
are made on merit, and in the context of the skills,
knowledge and experience that are needed for the
Board to be effective. Part of the remit of the Board’s
Nomination Committee is, before any new appointment
is recommended, evaluating the balance of skills,
knowledge, experience and diversity within the Board.
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, background
and knowledge. The Board comprises three men and
two women, one of whom is resident in Vietnam. The
Directors’ biographies can be found within the Board of
Directors section.
Re-election and tenure of Directors
The individual performance of each Director standing for
election or 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 election or
re-election at the AGM on 5 December 2019.
Board Proceedings
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 is responsible for strategy and has established
an annual programme of agenda items under which it
reviews the objectives and strategy for the Company at
each meeting.
The Board, at its regular meetings, undertakes reviews of:
key investment and financial data, revenue projections
and expenses, analyses of asset allocation, transactions,
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 principle set out in the UK Code is that Directors
should submit themselves for annual re-election 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. The Board has adopted a formal policy requiring
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
60
61
Annual Report 2019VinaCapital Vietnam Opportunity Fund Investment Manager’s ReportFinancial Report and StatementsAnnexGeneral Information FINANCIAL REPORT AND STATEMENTS | CORPORATE GOVERNANCE STATEMENT
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 Investment Management Agreement between the
Company and the Investment Manager sets out the limits
of the Investment Manager’s authority, beyond which
Board approval 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 Board has delegated discretion to the Investment
Manager to exercise voting powers on the Company’s
behalf, other than for contentious or sensitive matters
which are referred to the Board.
At Board meetings the Directors are 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 the Company Secretary, who is responsible to the
Board for ensuring that the directors are aware of the
procedures to be followed. The Company Secretary is
also responsible for ensuring good information flows
between all parties.
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 below. A summary
of the duties of each of the Committees is provided
below. The terms of reference can be obtained from the
Company’s Administrator.
Audit Committee
The Audit Committee, which meets at least three times a
year, comprises all of the Directors and is chaired by Huw
Evans. The Chairman of the Company is a member of the
Audit Committee but does not chair it. His membership
of the Audit Committee is considered appropriate given
the Chairman’s extensive knowledge of the financial
services industry and given that the full Board consists
of only five individuals.
The Audit Committee is responsible for monitoring the
process of production and ensuring the integrity of the
Company’s Financial Statements and advises the Board
whether the Annual Report and Financial Statements 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
External Auditor will have an effect on, or perception
of, compromising the External Auditor’s independence
and objectivity. The provision of services in addition to
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,
where an Independent Valuer has been retained, their
recommendation may be accepted or modified. Refer to
note 3 to the Financial Statements for further information
on the valuation of investments held by the Company.
As set out under Internal Controls and Risk within the
Corporate Governance Statement, the Company’s risk
exposure and the effectiveness of its risk management
and internal control systems are reviewed by the
Audit Committee and considered by the Board at each
scheduled meeting. An internal audit function specific to
the Company is considered unnecessary.
of the remuneration policy; determining the individual
remuneration of each non-executive Director; and
the selection and appointment of any remuneration
consultants who advise the Committee.
The Directors’ Remuneration Report is presented after
the Report of the Audit Committee.
A report of the Audit Committee detailing responsibilities
and activities is presented after the Statement of
Directors’ Responsibilities.
The Audit Committee Chairman presents the Committee’s
findings to the Board at the next Board meeting following
a meeting of the Audit Committee.
Management Engagement Committee
The Management Engagement Committee comprises all
of the Directors and, following Martin Adams’ retirement
on 10 December 2018, is chaired by Julian Healy. The
Committee’s responsibilities include reviewing the
performance of the Investment Manager under the
Investment Management Agreement and considering 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.
During the year, the Management Engagement
Committee oversaw the selection of Aztec Group to
replace Northern Trust as administrator of the Company.
Remuneration Committee
The Remuneration Committee comprises all of the
Directors and is chaired by Thuy Bich 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
Nomination Committee
The Nomination Committee comprises all of the Directors
and is chaired by Steven 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. The Chairman absents
himself from discussions on succession to his own role.
During the year, the Nominations Committee oversaw
the search for two new directors, one of which was
carried out by Stephenson Executive Search Limited
and the other by Sapphire Partners. After interviewing a
number of candidates, the Committee recommended the
appointment of Julian Healy and Kathryn Matthews to
the Board on 23 July 2018 and 10 May 2019, respectively.
No other connection exists between the Company and
Stephenson Executive Search Limited or Sapphire Partners.
Board and Committee Meetings
During the year ended 30 June 2019, the number of
scheduled Board and Committee meetings attended by
each Director was as follows:
62
63
Annual Report 2019VinaCapital Vietnam Opportunity Fund Investment Manager’s ReportFinancial Report and StatementsAnnexGeneral Information FINANCIAL REPORT AND STATEMENTS | CORPORATE GOVERNANCE STATEMENT
Number of meetings
Attendance
Steven Bates
Martin Adams¹
Thuy Bich Dam
Huw Evans
Julian Healy²
Kathryn Matthews²
Board
meetings
Audit
Committee
meetings
Management
Engagement
Committee
meetings
Nomination
Committee
meetings
Remuneration
Committee
meetings
5
5
3
5
5
5
1
5
5
2
5
5
5
-
4
4
2
4
4
4
-
2
2
1
2
2
2
-
1
1
1
1
1
1
-
¹ Martin Adams retired from the Board on 10 December 2018.
² Julian Healy and Kathryn Matthews were appointed to the Board on 23 July 2018 and 10 May 2019 respectively.
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.
a whole, the effectiveness of the Board Committees and
the independence of each Director. The Chairman absents
himself from the Board’s review of his effectiveness as the
Company Chairman.
Appointment of new Directors
For new appointments to the Board, nominations are
sought from the Directors and from other relevant
parties, and when appropriate, independent search
consultants are appointed. Candidates are then
interviewed by members of 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. As
required by the provisions of the UK Code which require
a FTSE 350 company to have its annual evaluation carried
out in conjunction with an independent agency every
three years, in 2019 the Board appointed Lintstock Ltd as
the Company’s external evaluator. The Chairman leads the
assessment which covers the functioning of the Board as
During the year ended 30 June 2019, the review which
was facilitated by Lintstock Ltd considered the Board’s
objectives and how the contributions made individually
and collectively to Board meetings helped the Company
to achieve its objectives. Following this review, 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 Annual Report and
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 in which the
Company operates and set appropriate risk controls.
Furthermore, throughout the Annual Report the Board has
sought to provide comprehensive 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 zero tolerance to the criminal facilitation
of tax evasion, fraud, bribery or corruption. This approach
applies to the Company and to each of its Directors.
Further, this approach is communicated to 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 considered by the
Board at each scheduled meeting. 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.
(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; and
ensure no override of controls by the Investment
Manager or Administrator or any other service providers.
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 subsidiaries by
Aztec Group;
the provision of fund administration by Aztec Group;
custody of certain listed and unlisted assets is
undertaken by Standard Chartered Bank;
the Management Engagement Committee monitors
the contractual arrangements with each of the key
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
•
64
65
Annual Report 2019VinaCapital Vietnam Opportunity Fund Investment Manager’s ReportFinancial Report and StatementsAnnexGeneral Information
FINANCIAL REPORT AND STATEMENTS | CORPORATE GOVERNANCE STATEMENT
meetings are held at least four times per year to
review such information; and
actions are taken to remedy any significant failings or
weaknesses, if identified.
•
(iv) Internal Audit Function
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.
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 Company’s website, www.vof.vinacapital.com, is
updated regularly with monthly factsheets and provides
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.
Directors’ Interests in the Company
As at 30 June 2019 and 30 June 2018, the interests of the Directors in shares of the Company are as follows:
Shares held
as at 30 June 2019
Percentage
of total shares
at 30
June 2019
Shares held
as at
30 June 2018
Percentage
of total shares
at 30
June 2018
Steven Bates
25,000
0.014%
25,000
0.013%
Martin Adams (retired on 10 December 2018)
Thuy Bich Dam
Huw Evans
Julian Healy (appointed 23 July 2018)
Kathryn Matthews (appointed 10 May 2019)
-
-
35,000
15,000
-
-
-
0.019%
0.008%
-
-
-
-
-
35,000
0.018%
-
-
-
-
Directors’ Dealings
International Tax Reporting
There have been no changes to any holdings between 30 June 2019 and the date of this report.
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 are available to meet Shareholders
to discuss strategy and to understand any issues and
concerns which they may have and, if appropriate, to
discuss corporate governance issues. The results of such
meetings are reported at the following Board meeting.
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 was adopted in Guernsey and which came
into effect on 1 January 2016.
Regular reports from the Company’s brokers on investor
sentiment and industry issues are submitted to the Board.
The Company made its latest report for CRS to the
Guernsey Director of Income Tax in June 2019.
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. As highlighted in the Report
of the Board of Directors, Huw Evans acts as the Senior
Independent Director of the Company, and shareholders
can contact Mr Evans via the Company Secretary or the
Company’s brokers if they have concerns which cannot be
addressed through the normal channels.
66
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 11 to the Financial Statements.
Substantial Shareholdings
As at 30 June 2019 and 30 September 2019, the Directors are aware of the following Shareholders with holdings of more
than 3% of the ordinary shares of the Company:
Shareholder
Euroclear Nominees Limited
The Bank of New York (Nominees) Limited
Citibank Nominees (Ireland) Designated
Activity Company
State Street Nominees Limited
Lynchwood Nominees Limited
Aurora Nominees Limited
Annual General Meeting (“AGM”)
30 June 2019
30 September 2019
Number of
ordinary
shares
Percentage
of issued
share capital
Number of
ordinary
shares
Percentage
of issued
share capital
17,709,159
12,541,357
12,018,615
8,792,450
6,872,325
6,152,913
9.58%
6.79%
6.50%
4.76%
3.72%
3.33%
16,698,389
17,287,316
9,031,137
8,525,465
7,007,825
6,058,072
9.04%
9.35%
4.89%
4.61%
3.79%
3.28%
The Company’s next AGM will be held in Guernsey at the offices of Aztec Group at 10:00 a.m. on 5 December 2019. The
Notice of Meeting is set out at the end of the Annual Report.
67
Annual Report 2019VinaCapital Vietnam Opportunity Fund Investment Manager’s ReportFinancial Report and StatementsAnnexGeneral Information
FINANCIAL REPORT AND STATEMENTS | CORPORATE GOVERNANCE STATEMENT
Ongoing Charges
Ongoing charges are the recurring expenses incurred by
the Company excluding one-off expenses. Ongoing charges
for the years ended 30 June 2019 and 30 June 2018 have
been prepared in accordance with the AIC’s recommended
methodology. The ongoing charges excluding incentive fees
for the year ended 30 June 2019 were 1.70% (30 June 2018:
1.77%). Ongoing charges including incentive fees for the year
ended 30 June 2019 were 1.39% (30 June 2018: 3.99%). The
figure for ongoing charges including incentive fees is lower
this year than that excluding incentive fees because USD5.2
million previously accrued was clawed back.
Going Concern and Viability Statement
The Company is exposed to a number of principal risks
and uncertainties as listed in the Report of the Board of
Directors and, as noted, the Directors monitor and assess
these risks on a regular basis. The Directors confirm that they
believe 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 2022. 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.
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.
The Directors believe that, having considered the Company’s
investment objective (see Investment Policy), financial
risk management and associated risks and in view of the
liquidity of investments, the income deriving from those
investments and its holding in cash and cash equivalents,
the Company has adequate financial resources and
suitable management arrangements in place to continue in
operational existence for a period of at least twelve months
from the date of approval of these financial statements and
therefore the financial statements have been prepared on a
going concern basis.
68
69
Annual Report 2019VinaCapital Vietnam Opportunity Fund Investment Manager’s ReportFinancial Report and StatementsAnnexGeneral Information
FINANCIAL REPORT AND STATEMENTS | REPORT OF THE BOARD OF DIRECTORS
REPORT OF THE BOARD
OF DIRECTORS
The Board of Directors (the “Board”) submits its Annual
Report together with the Audited Financial Statements
(the “Financial Statements”) of the Company for the year
ended 30 June 2019.
The Company is registered in Guernsey as a closed-
ended investment company with limited liability. Up to
31 October 2018 the registered office of the Company
was PO Box 255, Trafalgar Court, Les Banques, St Peter
Port, Guernsey, GY1 3QL. Since 1 November 2018 the
registered office of the Company has been PO Box 656,
Trafalgar Court, Les Banques, St Peter Port, Guernsey,
GY1 3PP.
On 30 March 2016, the Company’s shares were admitted
to the Main Market of the LSE with a Premium Listing.
Prior to that date, the Company’s shares were traded on
the AIM market of the LSE.
The Company’s investments continue to be managed by
the Investment Manager.
Principal Activities
is not passed, the Company will continue to operate as
currently constituted. If the resolution is passed, the
Directors will be required to formulate proposals to be put
to Shareholders to reorganise, unitise or reconstruct the
Company or for the Company to be wound up. The Board
tabled such resolutions in 2008, 2013 and 2018 and on
each occasion the resolution was not passed, allowing the
Company to continue as currently constituted.
Investment Policy and Valuation Policy
The Company’s investment objective and investment policy
are set out earlier in the Financial Statements. The valuation
policy can be found in note 2 to the Financial Statements.
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:
Through its investments in subsidiaries and associates,
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 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.
Life of the Company
The Company does not have a fixed life but the Board
considers it desirable that Shareholders should have
the opportunity to review the future of the Company
at appropriate intervals. Accordingly, the Board intends
that every fifth year a special resolution will be proposed
that the Company ceases to continue. If the resolution
A discussion of progress against the KPIs is included in the
Chairman’s Statement.
The progress of the Company against which the KPIs have
been assessed at 30 June 2019 is based on the adjusted
NAV, to seek to rectify anomalous pricing at the year-end, as
described in the Chairman’s Statement and the Glossary.
The PRI is truly independent. It encourages investors
to use responsible investment to enhance returns and
better manage risks, but does not operate for its own
profit; it engages with global policymakers but is not
associated with any government; it is supported by the
United Nations.
Risk Management
The Board considers risk management to be a function
of its Audit Committee. Please refer to the Report of the
Audit Committee for further information on the operation
of this Committee. In order to address 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
on the following pages together with a description of
the mitigating actions taken by the Board. The Board has
concluded that, while recognising the escalation of global
trade tensions and their effect on the Asian region, the
key risks to the Company remained within the same range
over the year. No new risk categories have been identified
during the year.
Environmental, Social and Corporate Governance Issues
As more institutional investors invest into Vietnam and
Vietnamese businesses expand, Environmental, Social
and Corporate Governance (ESG) related matters have
taken on greater importance. In recent years, we have
witnessed situations in which shareholder value declined
significantly when businesses polluted the environment,
ignored global standards, relocated families from
their land without adequate compensation, or did
not adhere to international best practice with respect
to corporate governance. Using guidelines from
development finance institutions such as the FMO (the
Dutch development bank) and the IFC (the International
Finance Corporation), we have developed a framework
to identify ESG risks at potential investee companies,
and help businesses improve their practices, where
appropriate, by incorporating ESG terms as part of our
overall terms of investment in private opportunities.
VinaCapital has committed to adopting and
implementing the Principles of Responsible (PRI)
Investment, which VinaCapital believes is in the
best long-term interests of our investors, and which
contributes to a more long-term oriented, transparent,
sustainable and well-governed investment market.
The PRI is the world’s leading proponent of responsible
investment. It works to understand the investment
implications of ESG factors and to support its
international network of investor signatories in
incorporating these factors into their investment and
ownership decisions. The PRI acts in the long-term
interests of its signatories, of the financial markets and
economies in which they operate and ultimately of the
environment and society as a whole.
70
71
Annual Report 2019VinaCapital Vietnam Opportunity Fund Investment Manager’s ReportFinancial Report and StatementsAnnexGeneral Information FINANCIAL REPORT AND STATEMENTS | REPORT OF THE BOARD OF DIRECTORS
Vietnamese Market Risk
Investment Performance
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.
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.
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.
Changes in the equilibrium of international trade caused,
for example, by the imposition of tariffs could affect the
Vietnamese economy and the companies in which the
Company is invested.
The economy could also be affected by any escalation in
geopolitical tensions in the region and elsewhere.
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 its 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, from the Broker and from the UK Marketing
and Distribution partner, Frostrow Capital LLP, 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.
In 2016, the Company migrated its domicile from the
Cayman Islands to Guernsey 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 investors
seeking an income 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 in note 11 of
the Financial Statements.
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 at these prices in the ordinary
course of market activity.
The unlisted securities are valued at their quoted prices
on UPCoM or using quotations from brokers, but many
of the holdings are of a size which would make them
difficult to liquidate at these prices in the ordinary course
of market activity.
The fair valuation of private equity and operating asset
investments is carried out according to international valuation
standards but the investments are not readily liquid and may
not be immediately realisable at the stated carrying values.
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. The Company
does not hedge its Vietnamese Dong exposures, so exchange
rate fluctuations 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 focuses in particular on any unexpected or sharp
movements in market prices. As set out in the Chairman’s
Statement, the Board identified anomalies in the pricing of
certain securities at the balance sheet date and has adjusted
these prices in reporting the investment performance for
the year in the Chairman’s Statement and in the Investment
Manager’s Report.
In relation to the principal operating assets and private
equity investments, the Board has appointed independent
external valuers in order to assist in determining fair values
of the investments in accordance with international financial
reporting standards.
In addition, PricewaterhouseCoopers CI LLP (the “External
Auditor”) reviews the overall portfolio valuation as part of the
half year review and subjects the overall portfolio valuation to
audit procedures as at the year end.
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 key individuals in Vietnam
twice each year.
72
73
Annual Report 2019VinaCapital Vietnam Opportunity Fund Investment Manager’s ReportFinancial Report and StatementsAnnexGeneral Information FINANCIAL REPORT AND STATEMENTS | REPORT OF THE BOARD OF DIRECTORS
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 the Administrator) and any control
failures or gaps in these systems and services could result in
a loss or damage to the Company.
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
their internal controls.
The Board has sought to ensure segregation of functions
during the year through the appointment of Aztec Group 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 within the Report of the
Board of Directors.
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.
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
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 Aztec Group 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.
Distribution Policy
Dividend Policy
In August 2017, the Company announced a change to its
dividend policy and declared its first dividend.
The Board intends that the Company will pay a dividend
representing approximately 1% of NAV twice each year,
normally declared in March and October.
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 11 of the Financial Statements for details
of share buybacks during the year under review.
The policy will be subject to shareholder approval at
each annual general meeting.
Subsequent Events after the Reporting Date
Share buybacks
The Company may also distribute capital by means of
share buybacks when the Board believes that it is in
the best interests of shareholders to do so. The share
buyback programme will be subject to shareholder
approval at each annual general meeting.
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.
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.
On 24 October 2019, the Board declared a dividend of
5.5 US cents per share. The dividend is payable on or
around 27 November 2019 to shareholders on record at
1 November 2019.
On behalf of the Board
Steven Bates
Chairman
VinaCapital Vietnam Opportunity Fund Limited
24 October 2019
74
75
Annual Report 2019VinaCapital Vietnam Opportunity Fund Investment Manager’s ReportFinancial Report and StatementsAnnexGeneral Information FINANCIAL REPORT AND STATEMENTS | STATEMENT OF DIRECTORS’ RESPONSIBILITIES
DUMMY |SECTION 1
STATEMENT OF DIRECTORS’
RESPONSIBILITIES
The Directors are responsible for preparing the Financial
Statements for each financial period which give a true
and fair view of the state of affairs of the Company and
of its profit or loss for that period in accordance with
International Financial Reporting Standards (“IFRS”) and
the Guernsey Law. 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 also 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 Guernsey Law 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.
The Directors are responsible for the oversight of the
maintenance and integrity of the corporate and financial
information in relation to the Company’s website; 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.
In preparing the Financial Statements the Directors are
required to:
•
•
•
ensure that the Financial Statements comply with the
Company’s 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
Directors’ Statement
The Directors consider that the Annual Report and
Financial Statements, taken as a whole, are fair, balanced
and understandable and provide information necessary
for Shareholders to assess the Company’s position,
performance, business model and strategy. 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 2019.
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.
So far as each of the Directors is aware, there is no
relevant audit information of which the Company’s
External Auditor is unaware, and each Director has
taken all of the steps that they ought to have taken as a
Director to make themselves aware of any relevant audit
information and to establish that the Company’s External
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 provide the information necessary to assess the
Company’s performance, business model and strategy.
On behalf of the Board
Steven Bates
Chairman
VinaCapital Vietnam Opportunity Fund Limited
24 October 2019
76
77
DUMMY |GENERAL INFORMATIONAnnual Report 2019VinaCapital Vietnam Opportunity Fund Investment Manager’s ReportFinancial Report and StatementsAnnexGeneral Information
FINANCIAL REPORT AND STATEMENTS | REPORT OF THE AUDIT COMMITTEE
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 2019, 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 External 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. Julian
Healy and Kathryn Matthews joined the Committee on
their appointments to the Board on 23 July 2018 and 10
May 2019, respectively. Each member of the Board of
Directors, including the Chairman, is considered to have
extensive knowledge of the financial services industry and
it is therefore deemed appropriate that all Directors are
members of the Audit 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 in the Report of the Board of
Directors sets out the number of Committee meetings
held during the year ended 30 June 2019 and the number
of such meetings attended by each committee member.
The External Auditor is invited to attend those meetings
at which the annual and interim reports are considered.
The External Auditor and the Committee meet 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 (i) fair, balanced and
understandable and (ii) 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 External
Auditor, significant financial returns to regulators and
other financial information;
•
• monitoring and reviewing the quality and
effectiveness of the External 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.
•
•
External Auditor
PricewaterhouseCoopers CI LLP (“PwC CI”) was
appointed as the External Auditor with effect from
24 May 2016 following the change of domicile of the
Company from the Cayman Islands to Guernsey. Prior to
this date PricewaterhouseCoopers Hong Kong was the
External Auditor.
The independence and objectivity of the External
Auditor is reviewed by the Committee, which also
reviews the terms under which the External Auditor
is appointed to perform any non-audit services. The
Committee has established policies and procedures
governing the engagement of the External Auditor to
provide non-audit services. These are that the External
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 External Auditor functioning as a
Manager or Employee of the Company; and
puts the External Auditor in the role of Advocate of
the Company.
The audit and any non-audit fees proposed by the External
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 External Auditor, with particular
regard to non-audit fees, and considers PwC CI, as External
Auditor, to be independent of the Company.
Key Activities
The following sections discuss the principal assessments
made by the Committee during the year:
Risk Management
The Committee received and reviewed detailed reports
on the principal risks facing the Company from the
Investment Manager. The Committee’s reviews focused
on changes to the risks and also considered whether
the Company was subject to any new or emerging risks,
taking account of the views of the Investment Manager, of
other service providers and of Committee members’ own
awareness of issues which may affect the Company.
Significant Financial Statement Issues
Valuation of Investments:
The fair value of the Company’s investments at 30 June
2019 was USD983.0 million accounting for 98.4% of the
Company’s assets (30 June 2018: USD1,067.5 million and
98.6%, respectively).
In relation to the listed and unlisted investments, the
Committee confirmed that the Investment Manager has
used the market values published by the relevant stock
exchanges as at the Statement of Financial Position date.
However, the Committee also identified that a number
of these market values had moved significantly prior to
the balance sheet date and fell immediately thereafter.
The Committee considered that these movements were
anomalous and reported its concerns to the Board.
In relation to the real estate and private equity
investments, the Committee ensured that the Investment
Manager and, where relevant, 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 the Investment Manager
in August and October 2019.
The Board regularly reviews the movement in valuations year
on year including sensitivity factors affecting the valuations.
Calculation of incentive fee and determination of the fair
value of the liability:
During the year the Committee reviewed the basis of the
incentive fee calculation. With effect from 30 June 2018
the basis of the incentive fee was changed and this is set
out in notes 3 and 15(b) of the Financial Statements.
The Committee took steps to ensure that the calculation
was independently verified by CES Limited and that the
calculation is complete, accurate and in accordance with
the Investment Management Agreement. There was no
incentive fee earned by the Investment Manager during
the year.
78
79
Annual Report 2019VinaCapital Vietnam Opportunity Fund Investment Manager’s ReportFinancial Report and StatementsAnnexGeneral Information
FINANCIAL REPORT AND STATEMENTS | REPORT OF THE AUDIT COMMITTEE
The maximum incentive fee that can be paid in any given
year is 1.5% of the weighted average NAV of the Company
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 (as
adjusted to take account of cash flows such as dividends
and share buy backs) exceeds what the NAV would have
been at the relevant accounting year end had the fee
equalled the 1.5% cap.
The deferred liability carried forward from 30 June 2018
was USD 23.7 million, which was subject to the clawback
provisions introduced in 2018. For the purposes of
calculating the amount of incentive fee to be paid out, the
Board and Investment Manager have agreed that it is more
appropriate to use an adjusted calculation based on the
average of the closing prices of certain stocks on Thursday
27 June and Monday 1 July. The result was that USD5.2
million was clawed back from the accrued incentive fees,
resulting in a total incentive fee accrued of USD18.2 million
as at 30 June 2019, of which USD14.7million will be paid
out immediately on publication of this Annual Report. The
remaining USD3.5 million will be paid out in the following
financial year provided that the relevant conditions are
met, and has been discounted to USD3.2 million in the
financial statements to reflect the time value of money.
Effectiveness of the Audit
The Committee held formal meetings with PwC CI before
the start of the audit to discuss formal planning, to discuss
any potential issues, 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 process 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 2019 and 30 June 2018.
Year ended
30 June 2019
USD’000
Year ended
30 June 2018
USD’000
Audit and
assurance services
- Annual audit
- Interim review
Total
276
82
358
297
94
391
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.
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 of the
amounts reported and the disclosures). The Committee
is also satisfied that the significant assumptions used
to determine the values 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 2019 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.
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
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 will be available to attend the AGM to
respond to such questions.
Huw Evans
Audit Committee Chairman
24 October 2019
80
81
Annual Report 2019VinaCapital Vietnam Opportunity Fund Investment Manager’s ReportFinancial Report and StatementsAnnexGeneral Information
FINANCIAL REPORT AND STATEMENTS | DIRECTORS’ REMUNERATION REPORT
GENERAL INFORMATION | DUMMY
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 5 December 2019.
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. At the AGM on 10 December
2018, a resolution was approved by shareholders to
increase the maximum aggregate total remuneration to
USD650,000.
The policy is to review the fee rates periodically, although
such a review will not necessarily result in any changes.
For the year ended 30 June 2019, Directors’ individual
annual 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.
Directors’ Emoluments for the Year
The Directors over the past two years have received the following emoluments in the form of fees:
Steven Bates
Martin Adams (retired 10 December 2018)
Thuy Bich Dam
Julian Healy (appointed 23 July 2018)
Huw Evans
Kathryn Matthews (appointed 10 May 2019)
Year ended
Annual fee
USD
30 June 2019
USD
30 June 2018
USD
95,000
80,000
80,000
80,000
90,000
80,000
95,000
35,562
80,000
75,342
90,000
11,397
95,000
80,000
80,000
-
90,000
-
387,301
345,000
There are no long term incentive schemes provided by the
Company and no performance fees are paid to Directors.
On behalf of the Board
Thuy Bich Dam
Chair
Remuneration Committee
24 October 2019
82
83
DUMMY |GENERAL INFORMATIONAnnual Report 2019VinaCapital Vietnam Opportunity Fund Investment Manager’s ReportFinancial Report and StatementsAnnexGeneral Information
FINANCIAL REPORT AND STATEMENTS | INDEPENDENT AUDITOR’S REPORT
INDEPENDENT AUDITOR’S
REPORT TO THE MEMBERS
OF VINACAPITAL VIETNAM
OPPORTUNITY FUND LIMITED
Report on the audit of the financial statements
Our opinion
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for 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
2019, 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.
Independence
We are independent of the Company in accordance with
the ethical requirements that are relevant to our audit
of the financial statements of the Company, as required
by the Crown Dependencies’ Audit Rules and Guidance.
We have fulfilled our other ethical responsibilities in
accordance with these requirements.
What we have audited
The Company’s financial statements comprise:
Our audit approach
•
•
•
•
•
the statement of financial position as at 30 June 2019;
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.
Context
The Company is a Guernsey domiciled closed-ended
investment company trading on the London Stock Exchange’s
Main Market and is managed by, VinaCapital Investment
Management Limited (the “Investment Manager”).
The Company, investing through its direct and indirect
subsidiaries and associates, is a diversified investment fund
focusing 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 on these investments in subsidiaries and
associates accounted for at fair value and the calculation of
incentive fees payable to the Investment Manager.
OVERVIEW
Materiality
Key Audit
Matters
Audit
Scope
Materiality
• Overall materiality was USD9.8 million (2018: USD10.4
million) which represents 1% of net assets (2018: 1%
of net assets).
Audit scope
•
The principal activity of the Company comprises
investing in a diversified portfolio of investments in
Vietnam (referred to as “underlying investments”)
through a structure of unconsolidated intermediate
holding companies.
The Company and the unconsolidated intermediate
holding companies are administered by Aztec
Financial Services (Guernsey) Limited (“the
Administrator”), as such all financial information
and records are now available in Guernsey. In prior
years, the financial information and records of the
unconsolidated intermediate holding companies were
kept on-site in Vietnam by the Investment Manager.
In establishing the overall approach to the Company’s
audit, we determined the type of work that needed
to be performed by us or by any assisting teams from
other PwC network firms.
•
•
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
the Administrator to whom the Board of Directors has
delegated the provision of administrative functions.
We also had significant interaction with the Investment
Manager in completing aspects of our overall audit work.
Key audit matters
• Valuation of financial assets at fair value through
profit or loss
Calculation of incentive fee
•
84
85
Annual Report 2019VinaCapital Vietnam Opportunity Fund Investment Manager’s ReportFinancial Report and StatementsAnnexGeneral Information FINANCIAL REPORT AND STATEMENTS | INDEPENDENT AUDITOR’S REPORT
Audit scope
As part of designing our audit, we determined 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 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 the effect of misstatements, both individually
and in aggregate on the financial statements as a whole.
Overall
Company
materiality
How we
determined it
Rationale for
the materiality
benchmark
USD9.8 million (2018: USD10.4 million)
1% of net assets (2018: 1% of net assets)
We believe that net assets is the most
appropriate benchmark because this is the
key metric of interest to shareholders. It
is also a generally accepted measure used
for companies in this industry.
We agreed with the Audit Committee that we would
report to them misstatements identified during our
audit above USD490,000 (2018: USD520,000), 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.
Key audit matter
How our audit addressed the Key audit matter
Valuation of financial assets at fair value through
profit or loss
As detailed in notes 3 and 8 to the financial statements,
the Company’s financial assets at fair value through profit
or loss amount to USD983.0 million as at 30 June 2019
(2018: USD1,067.5 million) 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.
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 2019 as well
as being a key contributor to the Company’s performance
during the year.
The fair value disclosed has been determined based on
the fair value of (1) the underlying capital markets, private
equity and real estate investment held and (2) the other
residual net assets within subsidiaries and associates
as at 30 June 2019. Further details, including the risks
considered are as follows:
a. Valuation of underlying listed and unlisted capital
markets investments
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;
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;
3. Confirmed the Company’s ownership of the direct
and indirect subsidiaries and associates by obtaining
confirmations from the independent appointed
registered agents;
4. 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;
5. For the valuation of underlying listed and unlisted capital
markets investments, we have performed the following:
As at 30 June 2019 the listed and unlisted portion
of the capital markets portfolio was fair valued
at USD785.9 million (2018: USD892.7 million),
representing 79.9% (2018: USD83.6%) 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 relevant to 30
June 2019, or where applicable, relevant and reliable
broker quotes at this date.
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
•
•
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 relevant to 30 June 2019;
For those capital market investments fair
valued by management using broker quotes,
we challenged management to justify their
use of specific brokers, their independence
and competence to provide that quotation.
Additionally, we also sighted the original broker
quotes received by management to substantiate
the prices used at 30 June 2019, independently
obtained price confirmations from selected
brokers and performed our own assessment
of the brokers’ independence, objectivity and
86
87
Annual Report 2019VinaCapital Vietnam Opportunity Fund Investment Manager’s ReportFinancial Report and StatementsAnnexGeneral Information
FINANCIAL REPORT AND STATEMENTS | INDEPENDENT AUDITOR’S REPORT
judgements made as to whether the market in
which the investments trade is actually active and
the consequent reliance on the closing quoted
market prices. There is also a risk that in fair valuing
the unlisted capital markets investments, that
inappropriate broker quotes may be used which are
not indicative of prices at which the investments could
be traded at in the market.
b. Valuation of underlying real estate and private
equity investments
As at 30 June 2019 the underlying real estate
and private equity investments were fair valued
at USD165.4 million (2018: USD145.6 million),
representing 16.8% (2018: 13.6%) of the Company’s
total financial assets at fair value through profit or loss.
These investments are valued on bases considered
most appropriate by the Directors, including:
Real estate investments
•
Property valuations provided by independent
specialist 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 underlying real estate
investment as at 30 June 2019; and
• Valuation experts were engaged by management
to review the findings of the independent
specialist appraisers. The valuation experts
combined their findings with the residual net
assets of the relevant holding companies and
reviewed and opined on the overall real estate
investment projects’ fair value.
•
competence as well as assessing the authenticity
of the documentation from the brokers;
Recalculated the fair values to USD, where required,
by independently verifying to external sources the
use by management of appropriate exchange rates;
• 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.
6. 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 the
independent specialist appraisers, valuation
experts and 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;
•
Private equity investments
•
Fair values determined by valuation experts
engaged by management using industry standard
private equity valuation techniques adjusted
for the relevant holding companies’ residual net
assets; and
• Discussions and meetings were held with
•
management’s valuation experts to assess their
ongoing and final valuation reports;
Confirmed and assessed the independence,
objectivity and competence of the real estate
specialist appraisers and management’s
valuation experts;
• Other methodologies including internal
• Attended Audit Committee meetings and also
desktop valuations.
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 independent specialists
and experts 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 independent specialists and experts
in their determination of the fair valuations for
these investments.
C. Valuation of other residual net assets
Other residual net assets held as a component of
financial assets at fair value through profit or loss
comprise cash and cash equivalents USD16.9 million
(2018: USD19.3 million) and other assets net of other
liabilities of USD14.8 million (2018: USD9.9 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.
•
read Audit Committee papers and minutes 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.
7. For the valuation of other residual net assets,
we have performed the following:
• 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 2019.
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.
No significant issues or concerns were noted with regard
to the valuation of financial assets at fair value through
profit or loss which required reporting to those charged
with corporate governance.
88
89
Annual Report 2019VinaCapital Vietnam Opportunity Fund Investment Manager’s ReportFinancial Report and StatementsAnnexGeneral Information
FINANCIAL REPORT AND STATEMENTS | INDEPENDENT AUDITOR’S REPORT
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, as amended by
any agreed variation letters (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 2019, the Company has accrued for USD17.9
million (2018: USD35.9 million) of total incentive fees
payable to the Investment Manager split as to USD14.7
million (2018: USD15.1 million) payable as a current liability
with the balance of USD3.2 million (2018: USD20.8 million)
payable after one year.
In accordance with the terms of the new Investment
Management Agreement, which has applied from 1 July 2018,
the Investment Manager did not earn an incentive fee based
on the performance of the Company for the year ended 30
June 2019. In addition, the brought forward accrued and
unpaid incentive fee of USD23.7 million was also subject to
the new clawback provisions whereby USD5.2 million was
clawed back from the Investment Manager based on the
Company’s current year performance. This clawed back
amount has been reflected in the Company’s Statement of
Comprehensive Income for the year ended 30 June 2019.
The mechanics surrounding the calculation of incentive fees,
including the cap and the adjustments to inputs are more fully
explained in notes 3 and 15(b) to the financial statements.
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
2019 included:
• We obtained the analysis and calculation performed
by management to support the calculation of the
incentive fee for the year ended 30 June 2019 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 2019 was in accordance with that agreement,
noting that there was no performance fee allocated
to the Investment Manager based on the Company’s
performance for the year then ended;
• We tested the absolute amount of the incentive
fee payable to the Investment Manager as at 30
June 2019 based on the terms in the Investment
Management Agreement;
• We assessed the reasonableness of the Company’s
recognition of the incentive fee in excess of the cap
as at 30 June 2019 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 discount rate used
and (b) testing the mathematical accuracy of the model
and verifying the inputs into the model by agreeing
these to third party sources where applicable and;
• We discussed our work with the Board as an area where
critical estimates and judgements were exercised.
The incentive fee calculation, including the recognition and
measurement of the portion of the incentive fee payable after
one year, is based on a number of inputs and assumptions,
which increases the risk of error or manipulation.
No significant issues or concerns were noted with regard to
the calculation of incentive fees which required reporting
to those charged with corporate governance.
We focused on the accuracy and judgements made by
management in their determination and estimation of the
total accrual for the incentive fee calculation, the judgements
and estimates required for the portion of the incentive fee
recognised as due after one year and the related party nature
of the balance.
90
Other information
Auditor’s responsibilities for the audit of the
financial statements
The directors are responsible for the other information.
The other information comprises all the information
included in the Annual Report and Financial Statements
but does not include the financial statements and our
auditor’s report thereon.
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 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.
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.
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.
91
Annual Report 2019VinaCapital Vietnam Opportunity Fund Investment Manager’s ReportFinancial Report and StatementsAnnexGeneral Information
•
the part of the Corporate Governance Statement
relating to the Company’s compliance with the ten
further provisions of the UK Corporate Governance
Code 2016 specified for our review.
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.
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
John Roche
For and on behalf of PricewaterhouseCoopers CI LLP
Chartered Accountants and Recognised Auditor
Guernsey, Channel Islands
24 October 2019
FINANCIAL REPORT AND STATEMENTS | INDEPENDENT AUDITOR’S REPORT
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. For example, the terms
on which the United Kingdom may withdraw from
the European Union are not clear, and it is difficult
to evaluate all of the potential implications on the
Company and the wider economy.
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,
including 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 auditor’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 of doing so would
reasonably be expected to outweigh the public interest
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.
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 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 Group 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 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 2016; and
considering whether the statements are consistent
with the knowledge acquired by us in the course of
performing our audit; and
92
93
Annual Report 2019VinaCapital Vietnam Opportunity Fund Investment Manager’s ReportFinancial Report and StatementsAnnexGeneral Information FINANCIAL REPORT AND STATEMENTS | FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
STATEMENT OF FINANCIAL POSITION
Total assets
Financial assets at fair value through profit or loss
Receivables and prepayments
Cash and cash equivalents
Total assets
Total liabilities
Accrued expenses and other payables
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
30 June 2019
USD’000
30 June 2018
USD’000
8
10
6
12
15(b)
11
17
983,043
1,067,462
31
16,012
999,086
16,189
3,195
19,384
387,788
591,914
979,702
-
14,867
1,082,329
18,089
20,808
38,897
427,351
616,081
1,043,432
999,086
1,082,329
5.30
4.16
5.38
4.07
The Financial Statements were approved by the Board of Directors on 24 October 2019 and signed on its behalf by:
Steven Bates
Chairman
Huw Evans
Director
The accompanying notes are an integral part of these Financial Statements.
94
95
GENERAL INFORMATION | DUMMYAnnual Report 2019VinaCapital Vietnam Opportunity Fund Investment Manager’s ReportFinancial Report and StatementsAnnexGeneral Information
Balance at 1 July 2017
Profit for the year
Total comprehensive income
Transactions with Shareholders
Shares repurchased
Dividends paid
Balance at 30 June 2018
For the year ended 30 June 2019
Balance at 1 July 2018
Loss for the year
Total comprehensive deficit
Transactions with Shareholders
Shares repurchased
Dividends paid
Balance at 30 June 2019
FINANCIAL REPORT AND STATEMENTS | FINANCIAL STATEMENTS
STATEMENT OF CHANGES IN EQUITY
STATEMENT OF COMPREHENSIVE INCOME
For the year ended 30 June 2018
Note
Share
capital
USD’000
456,419
-
-
Retained
earnings
USD’000
493,256
152,740
152,740
Total
equity
USD’000
949,675
152,740
152,740
Dividend income
Net (losses)/gains on financial assets at fair value through profit or loss
General and administration expenses
11
9
(29,068)
-
-
(29,915)
(29,068)
(29,915)
427,351
616,081
1,043,432
427,351
616,081
1,043,432
-
-
(3,644)
(3,644)
(3,644)
(3,644)
Finance cost
Incentive income/(fee)
Other income
Operating (loss)/profit
(Loss)/profit before tax
Corporate income tax
(Loss)/profit for the year
Year ended
Notes
13
14
15(a)
15(b), 18
3, 18
30 June 2019
USD’000
30 June 2018
USD’000
33,654
(23,694)
(16,555)
(2,208)
5,157
2
79,796
115,569
(18,868)
(1,315)
(22,442)
-
(3,644)
152,740
(3,644)
152,740
16
-
-
(3,644)
152,740
Total comprehensive (deficit)/income for the year
(3,644)
152,740
11
9
(39,563)
-
387,788
-
(20,523)
591,914
(39,563)
(20,523)
979,702
Earnings per share
- basic and diluted (USD per share)
- basic and diluted (GBP per share)
17
(0.02)
(0.02)
0.77
0.57
The accompanying notes are an integral part of these Financial Statements.
All items were derived from continuing activities.
The accompanying notes are an integral part of these Financial Statements.
96
97
Annual Report 2019VinaCapital Vietnam Opportunity Fund Investment Manager’s ReportFinancial Report and StatementsAnnexGeneral Information
FINANCIAL REPORT AND STATEMENTS | FINANCIAL STATEMENTS
STATEMENT OF CASH FLOWS
NOTES TO THE FINANCIAL STATEMENTS
Year ended
Notes
30 June 2019
USD’000
30 June 2018
USD’000
Operating activities
(Loss)/profit before tax
Adjustments for:
Dividend income
Net losses/(gains) on financial assets at fair value through profit or loss
14
Finance cost
Change in receivables and prepayments
Change in accrued expenses and other payables
Dividend receipts
Net cash generated 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
Net cash generated from investing activities
Financing activities
Purchase of shares into treasury
Dividends paid
Net cash used in financing activities
Net change in cash and cash equivalents for the year
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
The accompanying notes are an integral part of these Financial Statements.
98
8
8
11
9
6
6
(3,644)
152,740
(33,654)
(79,796)
23,694
2,208
(115,569)
1,315
(11,396)
(41,310)
(31)
(20,863)
33,654
1,364
265
11,201
79,796
49,952
(76,588)
(277,930)
137,313
60,725
293,458
15,528
(40,421)
(20,523)
(60,944)
1,145
14,867
16,012
(28,210)
(29,915)
(58,125)
7,355
7,512
14,867
1. General information
2. Summary of significant accounting policies
VinaCapital Vietnam Opportunity Fund Limited (the
“Company”) was incorporated on 22 March 2016 as
a closed-ended investment company with limited
liability under the Companies (Guernsey) Law, 2018 (the
“Guernsey Law”). Prior to that date the Company was
incorporated in the Cayman Islands as an exempted
company with limited liability.
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 Guernsey Law.
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.
On 30 March 2016, the Company’s shares were admitted
to the Main Market of the London Stock Exchange (“LSE”)
with a Premium Listing under the ticker symbol VOF. Prior
to that date, the Company’s shares were traded on the AIM
market of the LSE.
The Company does not have a fixed life but the Board
considers it desirable that Shareholders should have
the opportunity to review the future of the Company at
appropriate intervals. Accordingly, the Board intends that
every fifth year a special resolution will be proposed that
the Company ceases to continue. If the resolution is not
passed, the Company will continue to operate as currently
constituted. If the resolution is passed, the Directors will be
required to formulate proposals to be put to Shareholders
to reorganise, unitise or reconstruct the Company or for
the Company to be wound up. The Board tabled such
resolutions in 2008, 2013 and 2018 and on each occasion
the resolution was not passed, allowing the Company to
continue as currently constituted.
The Financial Statements for the year ended 30 June 2019
were approved for issue by the Board on 24 October 2019.
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 the
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.
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 Going concern
The Directors believe that, the Company has adequate
financial resources and suitable management arrangements
in place to continue in operational existence for a period of
at least twelve months from the date of approval of these
Financial Statements and therefore the Financial Statements
have been prepared on a going concern basis.
2.3 Changes in accounting policy and disclosures
New and amended standards adopted at 1 July 2018
The Company has applied the following new accounting
pronouncements which have become effective for the
current period.
99
Annual Report 2019VinaCapital Vietnam Opportunity Fund Investment Manager’s ReportFinancial Report and StatementsAnnexGeneral Information FINANCIAL REPORT AND STATEMENTS | FINANCIAL STATEMENTS
•
•
IFRS 9 Financial Instruments (Effective 1 January 2018)
IFRS 15 Revenue from Contracts with Customers
(Effective 1 January 2018)
Financial liabilities valued at amortised cost are accrued
expenses and other payables and continue to be measured at
amortised cost.
Refer to note 3 for further disclosure on accounting for
subsidiaries and associates.
of financial assets are recognised on the trade date, being
the date on which the Company commits to purchase or
sell the asset.
IFRS 9 ‘Financial Instruments’ addresses the classification,
measurement and derecognition of financial assets
and liabilities. It replaces the multiple classification and
measurement models in IAS 39 and is effective for reporting
periods beginning on or after 1 January 2018.
Classification and measurement of debt assets will be driven
by the entity’s business model for managing the financial
assets and the contractual cash flow characteristics of the
financial assets. A debt instrument is measured at amortised
cost if the objective of the business model is to hold the
financial asset for the collection of the contractual cash
flows and the contractual cash flows under the instrument
solely represent payments of principal and interest (“SPPI”).
A debt instrument is measured at fair value through other
comprehensive income if the objective of the business model
is to hold the financial asset both to collect contractual cash
flows from SPPI and to sell. All other debt instruments must
be recognised at fair value through profit or loss. An entity
may however, at initial recognition, irrevocably designate
a financial asset as measured at fair value through profit
or loss if doing so eliminates or significantly reduces a
measurement or recognition inconsistency. Derivative and
equity instruments are measured at fair value through profit
or loss unless, for equity instruments not held for trading, an
irrevocable option is taken to measure at fair value through
other comprehensive income.
IFRS 9 has been applied retrospectively by the Company. The
Company’s investment portfolio continues to be classified
as at fair value through profit or loss. Other financial assets
which are held for collection continue to be measured at
amortised cost with no material impact from application
of the new impairment model. As a result, the adoption of
IFRS 9 did not have a material impact on and there were no
restatements to the Company’s Financial Statements.
Financial assets measured at amortised cost are: cash and
cash equivalents, management fee rebates receivable and
other receivables. These instruments are solely payments
of principal and interest and will continue to be held at
amortised cost under IFRS 9.
100
The standard also replaces the incurred loss model in IAS 39
with an expected credit loss impairment model.
Based on the Company’s initial assessment, changes to
the impairment model did not have a material impact on,
or result in any restatement of, the Company’s financial
statements as the financial assets are measured at fair value
through profit or loss and the impairment requirements do
not apply to such instruments and the effect on financial
assets held at amortised cost is immaterial.
IFRS 15 ‘Revenue from Contracts with Customers’ was
published in May 2016 and specifies how and when to
recognise revenue as well as requiring entities to provide
users of Financial Statements with more informative
and relevant disclosures. The standard provides a single,
principles based five-step model to be applied to all contracts
with customers. IFRS 15 has been adopted by the Company
with effect from 1 July 2018. Material revenue streams have
been reviewed and it was determined that there was no
material impact on the timing of, recognition or gross up for
principal/agent considerations and, consequently, there have
been no material impacts or restatements on the Company’s
Financial Statements.
New standards and interpretations not yet adopted
Certain new accounting standards and interpretations have
been published that are not mandatory for the 30 June
2019 reporting period and have not been early adopted by
the Company. There is no expected material impact on, or
any restatement of, the Company’s Financial Statements as
a result of new accounting standards and interpretations
published but not yet adopted.
2.4 Subsidiaries and associates
The Company meets the definition of an Investment Entity
within IFRS 10 and therefore does not consolidate its
subsidiaries but measures them instead at 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.
2.5 Segment reporting
In identifying its operating segments, management follows
the subsidiaries’ sectors of investment which are based on
internal management reporting information. The operating
segments by investment portfolio include: capital markets,
real estate projects and operating assets, private equity and
other net assets (including cash and cash equivalents, bonds,
and short-term deposits).
Each of the operating segments is managed and monitored
individually by the Investment Manager as each requires
different resources and approaches. The Investment Manager
assesses segment profit or loss using a measure of operating
profit or loss from the underlying investment assets of the
subsidiaries. Refer to note 4 for further disclosure regarding
allocation to segments.
2.6 Foreign currency translation
a) Functional and presentation currency
The functional currency of the Company is the 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.
2.7 Financial instruments
(a) Recognition and derecognition
Financial assets and financial liabilities are recognised
when the Company becomes a party to the contractual
provisions of the financial instrument. Purchases and sales
Financial assets are derecognised when the rights to
receive cash flows from the financial assets have expired
or have been transferred and the Company has transferred
substantially all of the risks and rewards of ownership. A
financial liability is derecognised when it is extinguished,
discharged, cancelled or expires.
(b) Classification of financial assets
The Company classifies its financial assets based on the
Company’s business model for managing those financial
assets and the contractual cashflow characteristics of the
financial assets.
The Company has classified all investments in equity
securities as financial assets at fair value through profit
or loss (“FVPL”) as they are managed and performance
is evaluated on a fair value basis. The Company is
primarily focused on fair value information and uses that
information to assess the assets’ performance and to
make decisions. The Company has not taken the option
to designate irrevocably any investment in equity as fair
value through other comprehensive income.
The Company’s receivables and cash and cash equivalents
are classified as subsequently measured at amortised cost
as these are held to collect contractual cash flows which
represent solely payments of principal and interest.
(c) Initial and subsequent measurement of financial assets
Except for those trade receivables that do not contain a
significant financing component and are measured at the
transaction price in accordance with IFRS 15, financial
assets are initially measured at fair value plus, in the case
of a financial asset not at FVPL, transaction costs that are
directly attributable to the acquisition of the financial
asset. Transaction costs of financial assets at FVPL are
expensed in profit or loss.
Subsequent to initial recognition, investments at FVPL are
measured at fair value with gains and losses arising from
changes in the fair value recognised in profit or loss.
101
Annual Report 2019VinaCapital Vietnam Opportunity Fund Investment Manager’s ReportFinancial Report and StatementsAnnexGeneral Information FINANCIAL REPORT AND STATEMENTS | FINANCIAL STATEMENTS
All other financial assets are subsequently measured at
amortised cost using the effective interest rate method,
less any impairment.
The Company’s financial liabilities only include trade and
other payables which are measured at amortised cost
using the effective interest method.
(d) Impairment of financial assets
At each reporting date, the Company measures the
loss allowance on debt assets carried at amortised
cost at an amount equal to the lifetime expected
credit losses if the credit risk has increased
significantly since initial recognition.
If, at the reporting date, the credit risk has not increased
significantly since initial recognition, the Company
measures the loss allowance at an amount equal to
12-month expected credit losses. The expected credit
losses are estimated using a provision matrix based on the
Company’s historical credit loss experience, adjusted for
factors that are specific to the debtors, general economic
conditions and an assessment of both the current as well
as the forecast direction of conditions at the reporting
date, including time value of money where appropriate.
The measurement of expected credit losses is a function
of the probability of default, loss given default (i.e.
the magnitude of the loss if there is a default) and the
exposure at default. The assessment of the probability of
default and loss given default is based on historical data
adjusted by forward-looking information.
(e) Classification and measurement of financial liabilities
As the accounting for financial liabilities remains largely
the same under IFRS 9 compared to IAS 39, the Company’s
financial liabilities were not impacted by the adoption of
IFRS 9. However, for completeness, the accounting policy
is disclosed below.
Financial liabilities are initially measured at fair value plus
transaction costs that are directly attributable to their
acquisition or issue, other than those classified as at fair
value through profit or loss in which case transaction costs
are recognised directly in profit or loss.
Subsequently, financial liabilities are measured at
amortised cost using the effective interest method except
for financial liabilities designated at fair value through
profit or loss and held for trading, which are carried
subsequently at fair value with gains or losses recognised
in profit or loss.
102
2.8 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.
2.9 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.
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 Offsetting financial instruments
Financial assets and liabilities are offset, and the net
amount is reported in the Statement of Financial
Position, when there is a legally enforceable right to
offset the recognised amounts and there is an intention
to settle on a net basis or realise the asset and settle the
liability simultaneously. The legally enforceable right
must not be contingent on future events, and it must
be enforceable in the normal course of business and in
the event of default, insolvency or bankruptcy of the
company or the counterparty.
2.14 Dividend distribution
Dividend distribution to the Company’s shareholders
is recognised as a liability in the Company’s Financial
Statements and disclosed in the Statement of Changes in
Equity in the period in which the dividends are approved by
the Board.
3. Critical accounting estimates and judgements
3.1 Critical accounting estimates and assumptions
(a) Fair value of subsidiaries and associates and their
underlying investments
The Company holds its investments through a number
of subsidiaries and associates which were established
for this purpose. At the end of each half of the financial
year, the fair values of investments in subsidiaries and
associates are reviewed and the fair values of all material
investments held by these subsidiaries and associates are
assessed. As at 30 June 2019, 100% (30 June 2018: 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 operating assets
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 ratios.
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 the principal operating
assets and private equity investments for recommendation
to the Board. Information about the significant judgements,
estimates and assumptions that are used in the valuation of
the 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 2019 and 30 June 2018, 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.
103
Annual Report 2019VinaCapital Vietnam Opportunity Fund Investment Manager’s ReportFinancial Report and StatementsAnnexGeneral Information FINANCIAL REPORT AND STATEMENTS | FINANCIAL STATEMENTS
The carrying amounts of the investments in subsidiaries
and associates are referred to in note 8. The sensitivity
analysis of these investments is shown in note 19(c).
In conjunction with making its judgement for the fair
value of the Company’s principal operating assets, the
Independent Valuer also considers information from a
variety of other sources including:
(i) Valuation of assets that are traded in an active market
The fair values of listed securities are based on quoted
market prices at the close of trading on the reporting
date. The fair values of unlisted securities which are
traded on UPCoM are based on published prices at
the close of business on the reporting date. For other
unlisted securities which are traded in an active market,
fair value is the average quoted price at the close
of trading obtained from a minimum sample of five
reputable securities companies at the reporting date.
Other relevant measurement bases are used if broker
quotes are not available or if better and more reliable
information is available.
(ii) Valuation of investments in private equities
The Company’s underlying investments in private equities
are fair valued using discounted cash flow models with
cross checks to a market comparison approach. 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. For the principal investments, the
Independent Valuer selects appropriate discount rates that
reflect the level of certainty of the quantum and timing
of the projected cash flows. Refer to note 19(c) which
sets out a sensitivity analysis of the significant observable
inputs used in the valuations of the private equity.
a. current prices in an active market for properties of
similar nature, condition or location;
b. current prices in an active market for properties of
c.
d.
different nature, condition or location (or subject
to different lease or other contracts), adjusted to
reflect those differences;
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;
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;
e. 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
recent compensation prices made public by the local
authority in the province where the property
is located.
f.
(iii) Valuation of operating assets
At each year-end the fair values of the principal underlying
operating assets 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 then used by the Independent
Valuer as the primary basis for estimating fair value of the
Company’s subsidiaries and associates that hold these
properties in accordance with accounting policies set out
in note 2.7. Refer to note 19(c) which sets out a sensitivity
analysis of the significant unobservable inputs used in the
valuations of the operating assets.
(b) Incentive Fee
Following the simplification of the fees effective from 30
June 2018, the incentive fee is now calculated as follows:
•
•
The assets previously allocated to the Direct Real
Estate Pool have been merged with the previous
Capital Markets Pool with effect from 1 July 2018, so
that all incentive fee calculations starting with the
accounting year ended 30 June 2019 are based on the
overall NAV of the Company;
To the extent that the NAV as at any year end
commencing 30 June 2019 is above the higher of
an 8% compound annual return and the high water
mark, having accounted for any share buy backs,
•
share issues and/or dividends, the incentive fee
payable on any increase in the NAV with effect
from 30 June 2019 above the higher of the high
water mark and the 8% annual return target will be
calculated at a rate of 12.5%;
The closing accrued unpaid incentive fees which were
accrued as at 30 June 2018 will be clawed back at the
rate of 15% of any decrease in the NAV after 30 June
2018 up to a maximum amount of USD23.7 million,
being the gross amount of unpaid accrued incentive
fees at 30 June 2018 before discounting. The high
water mark will be adjusted accordingly;
The maximum amount of incentive fees that can be
paid in any one year is capped at 1.5% of the weighted
average month-end NAV during that year; and
• Any incentive fees earned in excess of this 1.5% cap
will be accrued if they are expected to be paid out in
subsequent years.
•
As a result of the decline in the NAV since 30 June 2018,
USD5.2million of the USD23.7million accrued incentive fee
has been clawed back during the period.
Any incentive fees payable within 12 months are
classified as accrued expenses and other payables under
current liabilities. Incentive fees payable in subsequent
years are classified as deferred incentive fees under non-
current liabilities.
For further details of the incentive fees earned and
accrued at the period end please refer to note 15(b).
3.2 Critical judgements in applying the Company’s
accounting policies
(a) Eligibility to qualify as an investment entity
The Company has determined that it is an investment
entity under the definition of IFRS 10 as it meets the
following criteria:
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.
(b) Judgements about active and inactive markets
The Board considers that the Ho Chi Minh Stock Exchange,
the Hanoi Stock Exchange and UPCoM are active markets
for the purposes of IFRS 13. Consequently, the prices
quoted by those markets for individual shares as at the
balance sheet date can be used to estimate the fair value
of the Company’s underlying investments.
Notwithstanding the fact that these stock exchanges can
be regarded as active markets, the size of the Company’s
holdings in particular stocks in relation to daily market
turnover in those stocks would make it difficult to
conduct an orderly transaction in a large number of
shares on a single day. However, the Board considers
that, if the Company were to offer a block of shares for
sale, the price which could be achieved in an orderly
transaction is as likely to be at a premium to the quoted
market price as at a discount.
Consequently, when taken across the whole portfolio
of the Company’s underlying quoted investments, the
Board considers that using the quoted prices of the shares
on the various active markets is generally a reasonable
determination of the fair value of the securities.
104
105
Annual Report 2019VinaCapital Vietnam Opportunity Fund Investment Manager’s ReportFinancial Report and StatementsAnnexGeneral Information
FINANCIAL REPORT AND STATEMENTS | FINANCIAL STATEMENTS
4. Segment analysis
Statement of Financial Position
Dividend income is allocated based on the underlying investments of subsidiaries which declared dividends. Net gains/
losses on financial assets at fair value through profit or loss are allocated to each segment (excluding Other Assets) with
reference to the assets held by the subsidiary. General and administration expenses are allocated based on investment
sector. Finance cost and accrued incentive fees are allocated to each segment (excluding Other Assets) with reference to
the percentage allocation on the net gains/losses on financial assets at fair value through profit or loss.
The financial assets at fair value through profit or loss are measured based on investment sector. Other assets and
liabilities are classified as other net assets.
As at 30 June 2019
Financial assets at fair value through
profit or loss ***
Receivables
Cash and cash equivalents
Segment information can be analysed as follows:
Statement of Comprehensive Income
Year ended 30 June 2019
Dividend income
Net (losses)/gains on financial assets at fair value
through profit or loss
General and administration expenses (note 15(a))
Finance (income)/cost
Incentive income/(cost)
Other income
(Loss)/profit before tax
Year ended 30 June 2018
Dividend income
Net gains/(losses) on financial assets at fair value
through profit or loss
General and administration expenses (note 15(a))
Finance cost
Incentive fee
Other income
Capital
markets*
USD’000
Operating
Assets
USD’000
Private
Equity
USD’000
Other
Assets
USD’000
Total
USD’000
30,727
(61,050)
(13,022)
(5,689)
13,288
2
2,927
1,641
(216)
153
(357)
-
-
35,715
(2,525)
3,328
(7,774)
-
-
-
33,654
(23,694)
(792)
(16,555)
-
-
-
(2,208)
5,157
2
(35,744)
4,148
28,744
(792)
(3,644)
69,794
110,558
(15,778)
(1,315)
(22,442)
-
10,002
15,290
-
(10,279)
-
-
79,796
115,569
(591)
(1,983)
(516)
(18,868)
-
-
-
-
-
-
-
-
-
(1,315)
(22,442)
-
Profit/(loss) before tax
140,817
24,701
(12,262)
(516)
152,740
Capital
markets*
USD’000
Operating
Assets
USD’000
Private
Equity
USD’000
Other net
assets**
USD’000
Total
USD’000
785,895
13,030
152,399
31,719
983,043
-
-
-
-
-
-
Total assets
785,895
13,030
152,399
Total liabilities
Accrued expenses and
other payables
Deferred incentive fees
Total liabilities
Net asset value
-
-
-
-
-
-
-
-
-
785,895
13,030
152,399
31
16,012
47,762
16,189
3,195
19,384
28,378
31
16,012
999,086
16,189
3,195
19,384
979,702
Capital
markets*
USD’000
Operating
Assets
USD’000
Private
Equity
USD’000
Other net
assets**
USD’000
Total
USD’000
892,656
33,442
112,189
29,175
1,067,462
As at 30 June 2018
Financial assets at fair value through
profit or loss ***
Cash and cash equivalents
Total assets
-
892,656
-
-
33,442
112,189
14,867
44,042
14,867
1,082,329
Total liabilities
Accrued expenses and other payables
Other payables
Deferred incentive fees
Total liabilities
Net assets value
-
-
-
-
-
-
-
-
-
892,656
33,442
112,189
18,089
18,089
20,808
38,897
5,145
20,808
38,897
1,043,432
*
Capital markets include listed as well as unlisted securities and bonds, as well as unlisted securities that are valued at their prices on UPCoM or
using quotations from brokers and call and put options valued using the Black-Scholes model.
** Other net assets of USD31.7 million (30 June 2018: USD29.1 million) include cash and cash equivalents and other net assets of the subsidiaries
* Capital markets include listed securities and bonds, as well as unlisted securities that are valued at their prices on UPCoM or using quotations from
and associates at fair value.
brokers and call and put options valued using the Black-Scholes model.
*** USD19.6 million has been reclassified from other net assets to capital markets in relation to the call and put options.
106
107
Annual Report 2019VinaCapital Vietnam Opportunity Fund Investment Manager’s ReportFinancial Report and StatementsAnnexGeneral Information
FINANCIAL REPORT AND STATEMENTS | FINANCIAL STATEMENTS
5. Interests in subsidiaries and associates
5.1 Directly-owned subsidiaries (continue)
There is no legal restriction to the transfer of funds from the British Virgin Islands (“BVI”) or Singapore subsidiaries
to the Company. Cash held in directly-owned as well as indirectly-owned Vietnamese subsidiaries and associates is
subject to restrictions imposed by co-investors and the Vietnamese government and therefore it cannot be transferred
out of Vietnam unless such restrictions are satisfied. As at 30 June 2019, the restricted cash held in these Vietnamese
subsidiaries and associates amounted to USDnil (30 June 2018: USD0.8 million).
5.1 Directly-owned subsidiaries
The Company had the following directly-owned subsidiaries as at 30 June 2019 and 30 June 2018:
Subsidiary
Vietnam Investment Property
Holdings Limited
Vietnam Investment
Property Limited
Vietnam Ventures Limited
Vietnam Investment Limited
Country of
incorporation
British Virgin
Islands (“BVI”)
BVI
BVI
BVI
As at
30 June 2019
% of Company
interest
30 June 2018
% of Company
interest
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
Asia Value Investment Limited
BVI
100.00
100.00
Nature of the business
Holding company for listed and
unlisted securities
Holding company for listed and
unlisted securities
Holding company for listed securities
and unlisted securities
Holding company for listed securities
and unlisted securities
Holding company for listed and
unlisted securities
Vietnam Master Holding 2 Limited
VOF Investment Limited
VOF PE Holding 5 Limited
Portal Global Limited
Windstar Resources Limited
Allright Assets Limited
Vietnam Enterprise Limited
Sharda Holdings Limited
Hospira Holdings Limited
Navia Holdings Limited
Foremost Worldwide Limited
Rewas Holdings Limited
108
BVI
BVI
BVI
BVI
BVI
BVI
BVI
BVI
BVI
BVI
BVI
BVI
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 securities
100.00
Holding company for listed securities,
unlisted securities, private equity
and operating assets
100.00
Holding company for listed securities
100.00
Holding company for unlisted securities
100.00
Holding company for listed securities
100.00
Holding company for investments
100.00
Holding company for listed and
unlisted securities
100.00
Holding company for listed securities
100.00
Holding company for private equity
100.00
Holding company for private equity
100.00
Holding company for unlisted securities
100.00
Holding company for investments
Subsidiary
Allwealth Worldwide Limited
Longwoods Worldwide Limited
VinaSugar Holdings Limited
Belfort Worldwide Limited
Preston Pacific Limited
Vietnam Master Holding 1 Limited
BVI
BVI
BVI
BVI
BVI
BVI
Victory Holding Investment Limited
BVI
Fraser Investment Holdings
Pte. Limited
Singapore
As at
Country of
incorporation
30 June 2019
% of Company
interest
30 June 2018
% 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
Holding company for investments
100.00
Holding company for investments
100.00
Holding company for investments
100.00
Holding company for listed securities
and private equity
100.00
Holding company for listed securities
100.00
Holding company for investments
100.00
Holding company for listed securities
100.00
Holding company for listed securities
SE Asia Master Holding 7 Pte Limited
Singapore
100.00
100.00
Holding company for investments
Turnbull Holding Pte. Ltd.
Singapore
100.00
100.00
Holding company for investments
Vietnam Opportunity Fund II
Pte. Ltd. *
Singapore
-
100.00
Holding company for investments
The Company had the following directly-owned subsidiaries as at 30 June 2019 and 30 June 2018:
As at
Subsidiary
Country of
incorporation
30 June 2019
% of Company
interest
30 June 2018
% of Company
interest
Nature of the business
Clipper Ventures Limited **
Clipper One Limited **
BVI
BVI
VTC Espero Limited
Singapore
100.00
100.00
100.00
-
-
Holding company for investments
Holding company for investments
100.00
Holding company for investments
* Vietnam Opportunity Fund II Pte. Ltd. became a subsidiary of Belfort Worldwide Limited during the year ended 30 June 2019.
** Clipper Ventures Limited and Clipper One Limited were incorporated during the year ended 30 June 2019.
109
Annual Report 2019VinaCapital Vietnam Opportunity Fund Investment Manager’s ReportFinancial Report and StatementsAnnexGeneral Information
FINANCIAL REPORT AND STATEMENTS | FINANCIAL STATEMENTS
5.2 Indirect interests in subsidiaries
The Company had the following indirect interests in subsidiaries at 30 June 2019 and 30 June 2018:
5.3 Direct interests in associates
The Company had the following directly-owned associates as at 30 June 2019 and 30 June 2018:
Indirect subsidiary
Country of
incorporation
Nature of the
business
Immediate
Parent
As at
30 June 2019
% of Company
indirect
interest
30 June 2018
% of Company
indirect
interest
Vietnam Enterprise Limited
100.00
100.00
Associate
Allwealth Asia Ltd *
Sunbird Group Ltd *
PA Investment Opportunity
II Limited
Liva Holdings Pte. Ltd.
BVI
BVI
Abbott Holding Pte. Limited
Singapore
Hawke Investments Pte. Limited
Singapore
Indochina Ceramic Singapore
Pte. Ltd.
Singapore
Menzies Holding Pte. Ltd
Singapore
Holding company
for investments
Holding company
for investments
Holding company
for private equity
Holding company
for investments
Holding company
for private equity
Holding company
for investments
Belfort Worldwide Limited
100.00
100.00
Vietnam Property Holdings Limited *
Hospira Holdings Limited
100.00
100.00
Belfort Worldwide Limited
100.00
100.00
Belfort Worldwide Limited
100.00
100.00
Belfort Worldwide Limited
100.00
100.00
Avante Global Limited *
Pacific Alliance Land Limited *
VinaCapital Commercial Center
Private Limited
Mega Assets Pte. Limited
SIH Real Estate Pte. Limited *
VinaLand Eastern Limited *
As at
Country of
incorporation
30 June 2019
% of Company
interest
30 June 2018
% of Company
interest
Nature of the business
BVI
BVI
BVI
BVI
BVI
Singapore
Singapore
Singapore
Singapore
-
-
-
-
-
12.75
25.00
-
-
35.00
Holding company for investments
25.00
Holding company for real estate
25.00
Holding company for real estate
25.00
Holding company for real estate
25.00
Holding company for real estate
12.75
Holding company for investments
25.00
Holding company for investments
25.00
Holding company for real estate
25.00
Holding company for real estate
Thai Hoa International
Hospital JSC
Vietnam
Medical and
healthcare services
Abbott Holding Pte. Limited
81.07
81.07
Howard Holdings Pte. Limited
Singapore
International Dairy Products JSC
Vietnam
Holding company
for private equity
Allwealth Worldwide
Limited
Milk, yoghurt and
dairy productors
Howard Holdings Pte.
Limited
80.56
80.56
55.97
55.97
Whitlam Holding Pte. Limited
Singapore
Holding company
for private equity
Navia Holdings Limited
61.26
61.26
American Home Vietnam
Co. Ltd. *
Vietnam
Construction
materials
Indochina Ceramic
Singapore Pte. Ltd.
VOF Investment Limited
-
-
100.00
100.00
BIVI Investments Corporation *
Vietnam
Vietnam Opportunity Fund
II Pte. Ltd. **
Singapore
Aldrin One Pte. Ltd **
Singapore
Halley One Limited ***
BVI
Holding company
for investments
Holding company
for investments
Holding company
for investments
Holding company
for investments
Belfort Worldwide Limited
68.00
Belfort Worldwide Limited
100.00
Clipper Ventures Limited
67.00
-
-
-
American Home Vietnam Co. Ltd. and BIVI Investments Corporation were sold during the year ended 30 June 2019.
*
** Vietnam Opportunity Fund II Pte. Ltd. and Aldrin One Pte. Ltd became subsidiaries of Belfort Worldwide Limited during the year ended 30 June 2019.
*** Halley One Limited became a subsidiary of Clipper Ventures Limited during the year ended 30 June 2019.
* Allwealth Asia Ltd, Sunbird Group Ltd., Vietnam Property Holdings Limited, Avante Global Limited, Pacific Alliance Land Limited, SIH Real Estate Pte.
Limited and VinaLand Eastern Limited were liquidated during the year ended 30 June 2019.
5.4 Indirect interests in associates
The Company had the following indirect interests in associates at 30 June 2019 and 30 June 2018:
Indirect subsidiary
Country of
incorporation
Nature of the
business
Company’s subsidiary
or associate
Holding direct interest in
the associate
VinaCapital Commercial Center
Private Limited
BVI
Real estate
investment
VinaCapital Commercial
Center Private Limited
Ba Huan Joint Stock Company *
Vietnam
Private equity
investment
Hawke Investments
Pte Limited
Housing And Urban
Development Corporation *
Vietnam
Real estate
investment
VOF Investment Limited
As at
30 June 2019
% of
Company’s
indirect
interest
12.75
-
-
30 June 2018
% of
Company’s
indirect
interest
12.75
33.77
25.75
Hung Vuong Corporation
Vietnam
Operating assets
investment
VOF Investment Limited
33.24
33.24
Thang Loi Textile Garment Joint
Stock Company *
Vietnam
Real estate
investment
Vietnam Enterprise Limited
and VOF Investment Limited
-
34.17
* Ba Huan Joint Stock Company, Housing and Urban Development Corporation and Thang Loi Textile Garment Joint Stock Company were sold during
the year ended 30 June 2019.
110
111
Annual Report 2019VinaCapital Vietnam Opportunity Fund Investment Manager’s ReportFinancial Report and StatementsAnnexGeneral Information
7. Financial instruments by category
8. Financial assets at fair value through profit or loss
FINANCIAL REPORT AND STATEMENTS | FINANCIAL STATEMENTS
5.5 Financial risks
At 30 June 2019 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 operating assets. 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
Financial
assets at
amortised
cost
USD’000
Financial assets
at fair value
through profit
or loss
USD’000
Total
USD’000
-
983,043
983,043
16,012
-
16,012
As at
30 June 2019
Financial assets
at fair value
through profit
or loss
Cash and cash
equivalents
30 June 2019
USD’000
30 June 2018
USD’000
Total
16,012
983,043
999,055
Cash at banks
16,012
14,867
As at the Statement of Financial Position date, cash and
cash equivalents were denominated in USD and GBP.
The Company’s overall cash position including cash held in
directly held subsidiaries as at 30 June 2019 was USD32.9
million (30 June 2018: USD34.2 million). Please refer
to note 8 for details of the cash held by the Company’s
subsidiaries. As mentioned in note 5, the restricted
cash held in the Vietnamese subsidiaries and associates
amounted to USDnil (30 June 2018: USD0.8 million).
Financial assets
denominated in:
- GBP
- USD
As at
30 June 2018
Financial assets
at fair value
through profit
or loss
Cash and cash
equivalents
4
-
4
16,008
983,043
999,051
-
1,067,462
1,067,462
14,867
-
14,867
Total
14,867
1,067,462
1,082,329
Financial assets
denominated in:
- GBP
- USD
3
-
3
14,864
1,067,462
1,082,326
As at 30 June 2019 and 30 June 2018, the carrying amounts
of all financial liabilities approximate their fair values.
All financial liabilities are short term in nature and their
carrying values approximate their fair values, with the
exception of the deferred incentive fees. There are no
financial liabilities that must be accounted for at fair value
through profit or loss (30 June 2018: nil).
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
subsidiaries and associates at fair value are included with
those of the Company in the following table.
30 June 2019
USD’000
30 June 2018
USD’000
Cash and cash equivalents
16,907
19,317
Ordinary shares – listed
613,794
690,659
Ordinary shares – unlisted *
172,101
201,997
Private equity
152,399
112,188
Real estate projects and
operating assets
13,030
33,442
Other assets, net of liabilities
14,812
9,859
983,043
1,067,462
* Unlisted Securities include OTC (over-the-counter) traded securities, and
unlisted securities publicly traded on UPCoM of the Hanoi Stock Exchange.
The major underlying investments held by the direct
subsidiaries and indirect subsidiaries and associates of the
Company were in the following industry sectors.
As at 30 June 2019, an underlying holding, Hoa Phat Group,
within financial assets at fair value through profit or loss
amounted to 11.0% of the NAV of the Company (30 June
2018: 14.6%).
During the year, capital which has been returned to the
Company from underlying investments in the subsidiaries/
associates has 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 likelihood of an event
arising and the amount that may become payable.
There have been no changes in the classification of
financial assets at fair value through profit or loss shown as
Level 3 during the year ended 30 June 2019.
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 3.1. As observable prices are not
available for these investments, the Company classifies
them as Level 3 fair values.
Consumer goods
Real estate and
operating assets
Construction
30 June 2019
USD’000
30 June 2018
USD’000
210,729
257,924
181,938
172,674
For the year ended
30 June 2019
USD’000
30 June 2018
USD’000
Opening balance
1,067,462
974,581
Purchases
76,588
277,930
142,762
200,428
Return of capital
(137,313)
(300,618)
Financial services
119,858
117,244
Net (losses)/gains for
the period
Infrastructure
Industrials
Energy, minerals
and petroleum
Pharmaceuticals
and healthcare
Agriculture
Retailers
102,487
43,991
68,067
96,472
61,756
73,371
43,001
20,902
23,647
14,844
19,841
17,674
(23,694)
115,569
983,043
1,067,462
112
113
Annual Report 2019VinaCapital Vietnam Opportunity Fund Investment Manager’s ReportFinancial Report and StatementsAnnexGeneral Information
FINANCIAL REPORT AND STATEMENTS | FINANCIAL STATEMENTS
9. Dividends
The dividends paid in the reporting period were as follows;
Year ended 30 June 2019
Dividend rate
per share
(cents)
Net dividend
payable
(USD’000)
Record rate
Ex-dividend date
Pay date
Dividend
Dividend
5.5
5.5
10,351
2 November 2018
1 November 2018
30 November 2018
10,172
5 April 2019
4 April 2019
26 April 2019
11. Share capital
The Company may issue an unlimited number of shares, including shares of no par value or shares with a par value.
Shares may be issued as (a) shares in such currencies as the Directors may determine; and/or (b) such other classes of
shares in such currencies as the Directors may determine in accordance with the Articles and the Guernsey Law and the
price per Share at which shares of each class shall first be offered to subscribers shall be fixed by the Board. The minimum
price which may be paid for a share is USD0.01. The Directors will act in the best interest of the Company and the
Shareholders when authorising the issue of any shares.
20,523
Issued capital
Year ended 30 June 2018
Dividend rate
per share
(cents)
Net dividend
payable
(USD’000)
Record rate
Ex-dividend date
Pay date
First interim dividend
Second interim dividend
Third interim dividend
4.8
4.8
5.5
9,573
25 August 2017
24 August 2017
27 September 2017
9,527
3 November 2017
2 November 2017
1 December 2017
10,815
6 April 2018
5 April 2018
27 April 2018
29,915
30 June 2019
30 June 2018
Number of shares
USD’000
Number of shares
USD’000
Issued and fully paid at 1 July
211,346,258
491,301
211,346,258
491,301
Cancellation of treasury shares
(10,355,000)
-
-
-
Issued and fully paid at year end
200,991,258
491,301
211,346,258
491,301
Shares held in treasury
(16,182,716)
(103,513)
(17,288,000)
(63,950)
Outstanding shares at year end
184,808,542
387,788
194,058,258
427,351
A dividend of 5.5 US cents per share in respect of the year ended 30 June 2019 was declared on 24 October 2019. The
dividend is payable on or around 25 November 2019 to shareholders on record at 1 November 2019.
Treasury shares
Under the Guernsey Law, the Company can distribute dividends from capital and revenue reserves, subject to the net
asset and solvency test. The net asset and solvency test considers whether a company is able to pay its debts when they
fall due, and whether the value of a company’s assets is greater than its liabilities. The Board confirms that the Company
passed the net asset and solvency test for each dividend paid.
10. Receivables and prepayments
Prepayments
Loan receivable
30 June 2019
USD’000
30 June 2018
USD’000
31
-
31
-
-
-
The Company exited Indochina Food Industries Pte. Ltd (“ICF”) through the sale of 100% of VinaSugar Holding Limited in
2012 for a total consideration of USD28.45 million. As at 30 June 2019 and 30 June 2018, the Buyer has paid USD19.75
million with USD8.7 million remaining outstanding. In June 2014, the Company approved a loan of USD2.9 million to ICF
to provide immediate relief for the business. Together with the existing receivable of USD8.7 million, the total USD11.6
million was receivable and has been fully impaired.
Opening balance at 1 July
Shares repurchased during the year
Shares cancelled during the year
Closing balance at year end
30 June 2019
30 June 2018
Number of shares
Number of shares
17,288,000
9,249,716
(10,355,000)
16,182,716
10,725,000
6,563,000
-
17,288,000
In October 2011, the Board first sought and obtained shareholder approval to implement a share buyback programme.
The share buyback programme was approved again at subsequent general meetings of the Company.
During the year ended 30 June 2019, 9.2 million shares (2018: 6.6 million) were repurchased at a cost of USD39.6 million
(2018: USD29.1 million) of which USDnil (2018: USD0.9 million) was payable at year-end (see note 12) and 10.4 million
shares (2018: nil) were cancelled.
114
115
Annual Report 2019VinaCapital Vietnam Opportunity Fund Investment Manager’s ReportFinancial Report and StatementsAnnexGeneral Information FINANCIAL REPORT AND STATEMENTS | FINANCIAL STATEMENTS
12. Accrued expenses and other payables
14. Net gains on financial assets at fair value through
profit or loss
16. Income tax expense
Management fees payable to the
Investment Manager (note 18)
Expenses recharged payable to the
Investment Manager (note 18)
Incentive fees payable to the
Investment Manager (note 18)
Shares repurchased payable (note 11)
Other payables
30 June
2019
USD’000
30 June
2018
USD’000
1,111
907
139
414
Financial assets at fair value
through profit or loss:
- Unrealised (losses)/gains, net
14,663
15,086
Total
Year ended
30 June 2019
USD’000
30 June 2018
USD’000
(23,694)
(23,694)
115,569
115,569
-
276
858
824
16,189
18,089
15(a). General and administration expenses
Year ended
30 June 2019
USD’000
30 June 2018
USD’000
Management fees (note 18(a))
13,348
15,925
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 18.
13. Dividend income
Expenses recharged by the
Investment Manager
Directors’ fees (note 18(c))
Custodian, secretarial and
other professional fees
Others
336
414
419
1,460
378
1,048
992
1,103
16,555
18,868
Year ended
30 June 2019
USD’000
30 June 2018
USD’000
15(b). Accrued incentive fee
Dividend income
33,654
79,796
The above table sets out dividends received by the
Company from its subsidiaries. These represent
distributions of income received as well as the proceeds of
disposals of assets by subsidiaries, and do not reflect the
dividends earned by the underlying investee companies.
During the year, the subsidiaries received a total amount
of USD18.4 million in dividends from their investee
companies (30 June 2018: USD18.2 million).
For the purposes of calculating the amount of incentive
fee to be paid out, the Board and Investment Manager
have agreed that it is more appropriate to use an adjusted
calculation based on the average of the closing prices of
certain stocks on Thursday 27 June and Monday 1 July.
The deferred liability in respect of incentive fees carried
forward from 30 June 2018 was USD23.4million. For
the year ended 30 June 2019, USD5.2 million of this was
clawed back as a result of the decline in the Company’s
NAV over the year. This has resulted in a total incentive
fee accrued of USD18.2 million as at 30 June 2019. The
amount which will be paid out immediately on publication
of these accounts is USD14.7 million as at 30 June 2019
and USD3.5 million is carried forward, discounted to
USD3.2 million to reflect the time value of money.
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.
17. Earnings per share and net asset value per share
(a) Basic
Basic earnings or loss per share is calculated by dividing
the profit or loss 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 11).
Year ended
30 June 2019
30 June 2018
(3,644)
152,740
187,476,387
197,831,370
(0.02)
0.77
(Loss)/profit for the year
(USD’000)
Weighted average number
of ordinary shares in issue
Basic (loss)/earnings per
share (USD per share)
(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 11). NAV is determined as total assets less
total liabilities.
Net asset value (USD’000)
979,702
1,043,432
30 June 2019
30 June 2018
Number of outstanding
ordinary shares in issue
Net asset value per share
(USD per share)
18. Related parties
184,808,542
194,058,258
5.30
5.38
(a) Management fees
Starting 1 July 2018, the Investment Manager receives a
fee at the annual rates set out below, payable monthly
in arrear.
•
•
•
•
•
1.50% of net assets, levied on the first USD500 million
of net assets;
1.25% of net assets, levied on net assets between
USD500 million and USD1,000 million;
1.00% of net assets, levied on net assets between
USD1,000 million and USD1,500 million;
0.75% of net assets, levied on net assets between
USD1,500 million and USD2,000 million; and
0.50% of net assets, levied on net assets above
USD2,000 million.
For periods up to 30 June 2018, the Investment Manager
received a fee at an annual rate of 1.5% of NAV.
Total fees paid to the Investment Manager for the year
amounted to USD13.6 million (30 June 2018: USD15.9
million), of which USD0.3 million (30 June 2018: USD0.4
million) was in relation to recharge of expenses incurred.
In total USD1.2 million (30 June 2018: USD1.3 million) was
payable to the Investment Manager at the reporting date.
116
117
Annual Report 2019VinaCapital Vietnam Opportunity Fund Investment Manager’s ReportFinancial Report and StatementsAnnexGeneral Information FINANCIAL REPORT AND STATEMENTS | FINANCIAL STATEMENTS
(b) Incentive fees
For the purposes of calculating the amount of incentive
fee to be paid out, the Board and Investment Manager
have agreed that it is more appropriate to use an adjusted
calculation based on the average of the closing prices of
certain stocks on Thursday 27 June and Monday 1 July.
There were no directors’ fees outstanding at the year-end
(30 June 2018: Nil). During the year, directors’ expenses
totaling USD32,135 (30 June 2018: USD33,302) were paid.
The total amount paid to the directors during the year was
USD418,798 (30 June 2018: USD378,302).
d) Shares held by related parties
As described in note 15(b), as at 30 June 2019, a total
incentive fee of USD18.2 million (30 June 2018: USD38.7
million) was accrued on the basis of the current year
and prior year performance of the Company’s NAV. The
amount which will be paid out immediately on publication
of these accounts is USD14.7 million and this amount is
accounted for in accrued expenses and other payables in
the Statement of Financial Position (30 June 2018: USD15.0
million). The remaining USD3.5 million will be carried
forward and potentially paid out in the following financial
year and has been discounted to USD3.2 million to reflect
the time value of money.
(c) Directors’ Remuneration
The Directors who served during the past two years
received the following emoluments in the form of fees:
Year ended
Annual fee
USD
30 June 2019
USD
30 June 2018
USD
Steven Bates
95,000
95,000
95,000
Martin Adams
(retired 10
December 2018)
80,000
35,562
80,000
Thuy Bich Dam
80,000
80,000
80,000
Shares held
as at 30 June
2019
Shares held
as at 30 June
2018
Steven Bates
25,000
25,000
Martin Adams
(retired 10 December 2018)
Thuy Bich Dam
Huw Evans
Julian Healy
(appointed 23 July 2018)
Kathryn Matthews
(appointed 10 May 2019)
-
-
35,000
15,000
-
-
-
35,000
-
-
Andy Ho
Dom Lam
190,000
190,000
1,005,859
1,005,859
As at 30 June 2019, Stephen Westwood, a Consultant to
the Company owned 6,000 shares (30 June 2018: 6,000
shares) in the Company.
As at 30 June 2019, the Investment Manager owned
1,120,342 shares (30 June 2018: 235,342 shares)
in the Company.
80,000
75,342
-
(e) Other balances with related parties
Julian Healy
(appointed 23 July
2018)
Huw Evans
90,000
90,000
90,000
Kathryn Matthews
(appointed 10
May 2019)
80,000
11,397
-
Payable to the Investment
Manager on expenses paid
on behalf of the Company *
30 June 2019
USD’000
30 June 2018
USD’000
139
414
387,301
345,000
* Expenses reimbursed to the Investment Manager relating to
marketing expenses, logistic and travelling expenses for
board meetings.
(f) Controlling party
In the opinion of the Directors on the basis of
shareholdings advised to them, the Company has no
immediate nor ultimate controlling party.
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 and associates 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 2019.
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 traded on either
of Vietnam’s stock exchanges, the Ho Chi Minh Stock
Exchange or the Hanoi Stock Exchange, as well as UPCoM.
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.
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 USD61.4 million (30 June 2018: USD69.1 million).
The Company is subject to a variety of financial risks:
market risk, credit risk and liquidity risk.
See note 19(c) for a sensitivity analysis of the fair values of
private equity.
(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.
Depending on the development stage of a project and its
associated risks, the Independent Valuer uses discount
rates in the range from 11% to 16% and terminal growth
rates of 3% to 5% (30 June 2018: 15% to 16% and 3% to
5%, respectively).
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.
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
118
119
Annual Report 2019VinaCapital Vietnam Opportunity Fund Investment Manager’s ReportFinancial Report and StatementsAnnexGeneral Information
FINANCIAL REPORT AND STATEMENTS | FINANCIAL STATEMENTS
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 any directly held interest-bearing
loans, receivables or payables.
(ii) Credit risk
Credit risk is the risk that a counterparty to a financial
instrument will fail to discharge an obligation or
commitment that it has entered into with the Company.
of receivables of VOF 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 a probability of default or
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 receivables may be
secured and whether mechanisms exist to recover
value from the collateral. The Investment Manager
is examining the possibility of recovering the
receivables in question but nevertheless the Company
has resolved that it is prudent to account for the
receivables as fully impaired.
The Company’s maximum credit exposure without taking
into account any collateral held, is limited to the carrying
amount of cash and receivables at the year end.
c. Financial assets that are past due but not impaired
At 30 June 2019 and 30 June 2018, the Company
did not hold any other assets that were past due
but not impaired.
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 2019 and 30 June 2018 are neither past due nor
impaired. Cash and the 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 2019 and 30 June 2018, USD11.6 million
(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 the 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 12)
Deferred incentive fee
Shares repurchased payable (note 12)
Other payables (note 12)
30 June 2019
30 June 2018
Within 12 months
USD
Over 12 months
USD
Within 12 months
USD
Over 12 months
USD
15,913
-
-
276
16,189
-
3,195
-
-
16,407
-
858
824
-
20,808
-
-
3,195
18,089
20,808
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 and prepayments
Financial assets at fair value
through profit or loss
30 June 2019
30 June 2018
Within 12 months
USD
Over 12 months
USD
Within 12 months
USD
Over 12 months
USD
16,012
31
-
-
14,867
-
-
-
817,614
165,429
983,122
84,340
833,657
165,429
997,989
84,340
(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:
30 June 2019
USD’000
30 June 2018
USD’000
979,702
1,043,432
Net assets attributable to
equity shareholders
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 2019 and 30 June 2018.
The level into which financial assets are classified is
determined based on the lowest level of significant input
to the fair value measurement.
120
121
Annual Report 2019VinaCapital Vietnam Opportunity Fund Investment Manager’s ReportFinancial Report and StatementsAnnexGeneral Information FINANCIAL REPORT AND STATEMENTS | FINANCIAL STATEMENTS
Financial assets measured at fair value in the Statement of Financial Position are grouped into the following fair value hierarchy:
As at 30 June 2019
Financial assets at fair value through profit or loss
983,043
983,043
Level 3
USD’000
Total
USD’000
As at 30 June 2018
Financial assets at fair value through profit or loss
1,067,462
1,067,462
The Company classifies its investments in subsidiaries and associates as Level 3 because they are not publicly traded,
even when the underlying assets may be readily realisable. There were no transfers between the Levels during the year
ended 30 June 2019 and 30 June 2018.
If these investments were held at the Company level, they would be presented as follows:
As at 30 June 2019
Cash and cash equivalents
Ordinary shares – listed
– unlisted*
Private equity
Real estate projects and operating assets
Other assets, net of liabilities
As at 30 June 2019
As at 30 June 2018
Cash and cash equivalents
Ordinary shares – listed
– unlisted*
Private equity
Real estate projects and operating assets
Level 1
USD’000
Level 2
USD’000
Level 3
USD’000
Total
USD’000
16,907
613,794
138,802
-
-
-
-
-
33,299
-
-
-
-
-
-
16,907
613,794
172,101
152,399
152,399
13,030
14,812
13,030
14,812
769,503
33,299
180,241
983,043
Level 1
USD’000
Level 2
USD’000
Level 3
USD’000
Total
USD’000
19,317
690,659
153,110
-
-
-
-
-
48,887
-
-
-
-
-
-
19,317
690,659
201,997
112,188
112,188
33,442
9,859
33,442
9,859
Other assets, net of liabilities
863,086
48,887
155,489
1,067,462
* Unlisted securities are valued at their prices on UPCoM or using quotations from brokers.
Investments whose values are based on quoted market prices in active markets, and are therefore classified within Level
1, include actively traded equities on Ho Chi Minh City Stock Exchange, Hanoi Stock Exchange or UPCoM at the Statement
of Financial Position date.
Financial instruments which trade in markets that are not considered to be active but are valued based on prices
dealer quotations are classified within Level 2. These include investments in OTC equities. As Level 2 investments
include positions that are not traded in active markets, valuations may be adjusted to reflect illiquidity and/or non-
transferability, which are generally based on available market information.
Private equities, 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. There were no movements into or out of the Level 3 category during
the period.
Set out below is the sensitivity analysis on the significant unobservable inputs used in the valuation of Level 3
investments as at 30 June 2019.
Level 3 – Range of unobservable inputs
(probability-weighted average)
Segment
Valuation
technique
Valuation
(USD’000)
Discount
rate
Cap
rate
Terminal
growth
rate
Selling
price per
unit (USD)
Sensitivities in
selling price per unit
(USD’000)
Sensitivities in discount rates and cap rates/
terminal growth rate (USD’000)
Operating
assets
Discounted
cash flows
13,030
15%
14.50%
N/A
N/A
N/A
Private
equity
Discounted
Cash flows &
Others
146,399 *
11%-16%
N/A
3%-5%
N/A
N/A
Change in discount rate
Change in
cap rate
Change in
terminal
growth rate
-1%
0%
1%
-1%
13,701
13,175
12,690
0%
1%
13,543
13,030
12,557
13,398
12,897
12,435
Change in discount rate
-1%
0%
1%
-1% 149,981
141,540
134,376
0% 156,393
146,399
137,975
1% 163,341
152,188
142,992
* The difference between the balance of USD152.4 million reflected as Level 3 private equity earlier in note 19 to the above balance of private
equity of USD146.4 million, is due to the fact that different valuation methodologies are used in the Level 3 valuations which reflect other
unobservable inputs such as price to book methodologies used in desktop valuations.
122
123
Annual Report 2019VinaCapital Vietnam Opportunity Fund Investment Manager’s ReportFinancial Report and StatementsAnnexGeneral Information
FINANCIAL REPORT AND STATEMENTS | FINANCIAL STATEMENTS
Set out below is the sensitivity analysis on the significant unobservable inputs used in the valuation of Level 3
investments as at 30 June 2018
Level 3 – Range of unobservable inputs
(probability-weighted average)
Segment
Valuation
technique
Valuation
(USD’000)
Discount
rate
Cap
rate
Terminal
growth
rate
Selling
price per
unit (USD)
Sensitivities in
selling price per unit
(USD’000)
Sensitivities in discount rates and cap rates/
terminal growth rate (USD’000)
Operating
real estate
projects
Discounted
cash flows
13,328 *
15%
14.50%
N/A
N/A
N/A
Private
equity
Discounted
cash flows
68,290 *
15%-16%
N/A
3%-5%
N/A
N/A
Change in discount rate
Change in
cap rate
Change in
terminal
growth rate
-1%
0%
1%
-1%
14,014
13,477
12,982
0%
1%
13,851
13,328
12,845
13,703
13,192
12,720
Change in discount rate
-1%
0%
1%
-1%
70,786
65,444
60,898
0%
1%
74,332
68,290
63,214
84,527
73,484
64,342
* The difference between the balance of USD33.4 million reflected as Level 3 real estate projects and operating assets on the previous page to the
above balance of USD13.3 million, and the difference between the balance of USD112.2 million reflected as Level 3 private equity on the previous
page to the above balance of private equity of USD68.3 million, is due to the fact that different valuation methodologies are used in the Level 3
valuations which reflect other unobservable inputs such as price to book methodologies used in desktop valuations.
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.
20. Subsequent events
This Annual Report and Financial Statements were approved by the Board on 24 October 2019. Subsequent events have
been evaluated until this date.
On 24 October 2019, the Board declared a dividend of 5.5 US cents per share. The dividend is payable on or around 25
November 2019 to shareholders on record at 1 November 2019.
124
125
Annual Report 2019VinaCapital Vietnam Opportunity Fund Investment Manager’s ReportFinancial Report and StatementsAnnexGeneral Information
ANNEX | MANAGEMENT & ADMINISTRATION
GLOSSARY AND ALTERNATIVE PERFORMANCE MEASURES |ANNEX
MANAGEMENT
& ADMINISTRATION
GLOSSARY AND ALTERNATIVE
PERFORMANCE MEASURES
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
Room 1, 6th Floor, International Center
Building, 17 Ngo Quyen St., Hoan Kiem
District, 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
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
Independent Auditors
PricewaterhouseCoopers CI 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
UK Marketing and Distribution Partner
Frostrow Capital LLP
25 Southampton Buildings
London WC2A 1AL
United Kingdom
Directors
Steven Bates
Martin Adams
(retired 10 December 2018)
Thuy Bich Dam
Huw Evans
Julian Healy
(appointed 23 July 2018)
Kathryn Matthews
(appointed 10 May 2019)
Registered Office
PO Box 656
Trafalgar Court
Les Banques
St Peter Port
Guernsey GY1 3PP
Channel Islands
Investment Manager
VinaCapital Investment
Management Limited
PO Box 309
Ugland House
Grand Cayman KY1-1104
Cayman Islands
Administrator and Corporate Secretary
Aztec Financial Services
(Guernsey) Limited
(from 1 November 2018)
PO Box 656
Trafalgar Court, Les Banques
St Peter Port
Guernsey GY1 3PP
Channel Islands
Northern Trust (Guernsey) Limited
(to 31 October 2018)
Trafalgar Court, Les Banques
St Peter Port
Guernsey GY1 3DA
Channel Islands
Corporate Broker
Numis Securities Limited
The London Stock Exchange Building
10 Paternoster Square
London EC4M 7LT
United Kingdom
126
Term
1H 2H
Adjusted NAV
bp
CNY
CPI
EBITDA
EPS
Equitisation
FDI
FII
FOL
FX
FY
GBP
GDP
GSO
HOSE
IMF
IPO
Definition
The first and second half of the financial year respectively.
When valuing the Company’s portfolio at the end of the 2018/19 financial year, it became
clear that the closing market prices of several stocks on Friday 28 June 2019 were unusually
high and, in the Board’s view, were anomalous. In reporting the investment performance for
the year in the Chairman’s Statement and in the Investment Manager’s Report, the Board
believes that it is more appropriate to use a NAV based on the average of the closing prices
of the stocks in question on Thursday 27 June and Monday 1 July 2019.
Please see the end of the glossary for a reconciliation of the adjustment to the NAV *
Basis point. 1 basis point is 0.01%.
Chinese Yuan Renminbi.
Consumer price inflation.
Earnings before interest, tax, depreciation and amortisation. A measure of the gross profit
of a company.
Earnings per share.
The process of selling a company from public ownership to private investors. Known as
privatisation in other countries.
Foreign direct investments.
Foreign indirect investments.
Foreign ownership limits. Many Vietnamese companies have a limit on the amount of their
shares which may be owned by foreign investors.
Foreign Exchange.
Financial year. The Company’s financial year runs from 1 July to 30 June.
British Pound Sterling.
Gross Domestic Product. GDP is a monetary measure of the market value of all the final
goods and services produced in a specific time period in a country or wider region.
The General Statistics Office of Vietnam, a Vietnamese government agency.
The Ho Chi Minh Stock Exchange.
The International Monetary Fund.
Initial public offering – the means by which most listed companies achieve their stock
market listing.
127
Annual Report 2019VinaCapital Vietnam Opportunity Fund General InformationFinancial Report and StatementsAnnexInvestment Manager’s Report
ANNEX | GLOSSARY AND ALTERNATIVE PERFORMANCE MEASURES
NOTICE OF 2019 ANNUAL GENERAL MEETING |ANNEX
IRR
LSE
The internal rate of return. A measure of the total return on an investment taking account of
the amount and timing of all amounts invested and amounts realised. The IRR is expressed
as an annualised percentage. The use of IRR enables different investments with differing
cash flow profiles to be compared on a like for like financial basis.
The London Stock Exchange.
Net Asset Value Per Share (NAV)
The total value of the Company’s assets less its liabilities (the net assets) divided by the
number of shares in issue.
NAV Total Return
Ongoing Charges Ratio
P/B Ratio
SBV
Share Price Total Return
SOE
TTM P/E
USD
VGB
VN Index
A measure of the investment return earned by the Company, taking account of the change
in NAV over the period in question and assuming that any dividends paid in the period
are reinvested at the prevailing NAV per share at the time that the shares begin to trade
ex-dividend.
The Ongoing Charges Ratio represents the annualised ongoing charges (excluding finance
costs, transaction costs and taxation) divided by the average daily net asset values of the
Company for the period and has been prepared in accordance with the AIC’s recommended
methodology. Ongoing charges reflect expenses likely to recur in the foreseeable future.
The ratio of a company’s share price to the “book” value (being the current valuation as on
the company’s balance sheet) of its assets.
The State Bank of Vietnam.
A measure of the investment return to shareholders, taking account of the change in
share price over the period in question and assuming that any dividends paid in the
period are reinvested at the prevailing share price at the time that the shares begin to
trade ex-dividend.
State owned enterprise.
Trailing twelve month price to earnings ratio. The ratio compares the current share price
with earnings over the past twelve months, expressed as a ratio.
United States Dollar.
Vietnamese Government Bond.
The Ho Chi Minh Stock Exchange Index, a capitalisation-weighted index of all companies
listed on the Ho Chi Minh Stock Exchange.
* Reconciliation of the adjustment to the NAV:
Net Asset Value (USD)
Net Asset Value per share (USD)
Discount to Net Asset Value per share (%)
IFRS
Adjustment
USD’000
979,702
5.30
18.1
USD’000
(24,453)
(0.13)
(2.1)
Alternative
Performance
Measure
USD’000
955,249
5.17
16.0
The same adjustment to net asset value has been applied to total assets at 30 June 2019 and total income for the year
ended 30 June 2019.
NOTICE OF 2019 ANNUAL
GENERAL MEETING
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.
VINACAPITAL VIETNAM OPPORTUNITY FUND LIMITED (THE “COMPANY”)
Notice of Annual General Meeting
Notice is hereby given that the 2019 Annual General Meeting of the Company will be held at the offices of Aztec Group, East
Wing, Trafalgar Court, Les Banques, St Peter Port, Guernsey, GY1 3PP on 5 December 2019 at 10.00 a.m. (The “Meeting”).
The Board unanimously recommends that shareholders vote in favour of all resolutions.
Resolution on
Form of Proxy
Agenda
A. To elect the Chairman of the Meeting.
Ordinary Resolution 1
B. To receive and adopt the Annual Report and Financial Statements of the Company for
the year ended 30 June 2019.
Ordinary Resolution 2
C. To receive and adopt the Directors’ Remuneration Report.
The Board recommends that shareholders vote IN FAVOUR of this resolution
The Board recommends that shareholders vote IN FAVOUR of this resolution
Ordinary Resolution 3
D. To re-elect PricewaterhouseCoopers CI LLP as Auditor of the Company until the
conclusion of the next Annual General Meeting.
Ordinary Resolution 4
E.
To authorise the Board of Directors to determine the Auditor’s remuneration.
The Board recommends that shareholders vote IN FAVOUR of this resolution
The Board recommends that shareholders vote IN FAVOUR of this resolution
128
129
Annual Report 2019VinaCapital Vietnam Opportunity Fund General InformationFinancial Report and StatementsAnnexInvestment Manager’s Report
ANNEX | NOTICE OF 2019 ANNUAL GENERAL MEETING
Ordinary Resolution 5
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.
The Board recommends that shareholders vote IN FAVOUR of this resolution
Ordinary Resolution 6
G. 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.
The Board recommends that shareholders vote IN FAVOUR of this resolution
Ordinary Resolution 7
H. 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.
The Board recommends that shareholders vote IN FAVOUR of this resolution
Ordinary Resolution 13
Ordinary Resolution 8
I.
To re-elect Julian Healy following his retirement in accordance with Article 20.3 of the
Articles of Incorporation of the Company as a Director of the Company.
Ordinary Resolution 9
The Board recommends that shareholders vote IN FAVOUR of this resolution
J.
To elect Kathryn Matthews following her appointment as a Director of the Company
on 10 May 2019 in accordance with Article 20.2 of the Articles of Incorporation
of the Company.
The Board recommends that shareholders vote IN FAVOUR of this resolution
Ordinary Resolution 10
K.
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 2019.
The Board recommends that shareholders vote IN FAVOUR of this resolution
By Order of the Board
Extraordinary Resolution 12
M. 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 4
March 2021 (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).
The Board recommends that shareholders vote IN FAVOUR of this resolution
N. 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 4 March
2021 (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.
The Board recommends that shareholders vote IN FAVOUR of this resolution
O. Any Other Business.
Special Business
Ordinary Resolution 11
L.
That 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 5 December 2019;
ii. The minimum price which may be paid for an Ordinary Share is USD0.01;Any
Ordinary Shares purchased may be cancelled or held in treasury;
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 4 March 2021 (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 expiry and the Company may make an
acquisition of Ordinary Shares pursuant to such a contract.
The Board recommends that shareholders vote IN FAVOUR of this resolution
For and on behalf of
Aztec Financial Services (Guernsey) Limited
As Secretary
25 October 2019
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.
130
131
Annual Report 2019VinaCapital Vietnam Opportunity Fund General InformationFinancial Report and StatementsAnnexInvestment Manager’s Report RECOMMENDATION
The Board considers that a vote FOR the Resolutions 1 to 13 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 FOR the Resolutions 1 to 13 to be proposed at the forthcoming Annual General Meeting.
ANNEX | ANNUAL GENERAL MEETING
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 that 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 11 (Agenda Item L)
– (Authority to buy back ordinary shares)
The resolution seeks authority 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 this 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 4 March 2021.
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 12 (Agenda Item M)
– (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, in their opinion,
it is in the best interests of the Company to issue shares.
This authority will expire at the conclusion of next year’s
Annual General Meeting or, if earlier, on 4 March 2021.
Extraordinary Resolution 13 (Agenda Item N)
– (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 4 March 2021.
The Directors will only use this authority when, in their
opinion, it is in the best interests of the Company to
issue shares.
132
133
DUMMY |GENERAL INFORMATIONVinaCapital Vietnam Opportunity Fund Annual Report 2019General InformationFinancial Report and StatementsAnnexInvestment Manager’s Report 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
Room 1, 6th Floor, International
Center Building, 17 Ngo Quyen St.,
Hoan Kiem District, 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
https://vof.vinacapital.com