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April 12, 2011 9:03 pm
Kohlberg Kravis Roberts has sealed Vietnam’s largest private equity deal with an agreement to pay $159m for a 10 per cent stake in Masan Consumer, the country’s biggest producer of fish sauce.
The acquisition underlines how the biggest private equity groups are turning to emerging markets and seeking smaller deals as they count on rapid economic growth rather than high debt levels to generate big returns.
The Masan Consumer deal, expected to be announced on Wednesday, is KKR’s first in Vietnam, where the dominance of state-owned groups and economic instability has put off many private equity investors.
Masan Consumer is controlled by Masan Group, which is one of Vietnam’s biggest private sector companies and is listed on the Ho Chi Minh Stock Exchange with a market capitalisation of about $2bn.
Soaring inflation, regular currency devaluations and a de facto foreign debt default by Vinashin, a state-owned shipbuilder, have shaken investor confidence in Vietnam.
Voluminous red tape, a lack of financial transparency and endemic corruption are further deterrents.
In spite of the challenges, Vietnam has proved an attractive frontier market for hardy investors with a long-term focus.
The economy has grown at about 7 per cent a year over the past decade and Vietnam’s middle class is one of the fastest growing in Asia, according to the Asian Development Bank.
KKR was “very bullish” on Vietnam given its young population, the government’s record on economic reform and rising living standards, a spokesman for the US buy-out group said.
“We believe the macro-economic situation will normalise and improve over the long term,” the spokesman said.
Masan Consumer is Vietnam’s leading producer of fish sauce, a popular condiment in the country of 87m people.
It is the market leader in soy and chilli sauce and the second biggest producer of instant noodles, staples in the Vietnamese diet.
KKR said the company, which plans to expand from food into other domestic products, is well placed to benefit from long-term trends such as rising wealth and urbanisation.
For the year ended in December, Masan Consumer reported net profit of 1,253bn dong ($60m) on revenue of 5,690bn dong.
Upon completion of the deal with KKR, Masan Group’s stake in Masan Consumer will shrink to 78 per cent from 86.6 per cent.
Masan Group has a 64 per cent stake in the Nui Phao mine in northern Vietnam, one of the biggest tungsten deposits, and a 20 per cent stake in Techcombank, one of Vietnam’s most aggressive non-state-owned lenders.
Over the past two years Masan Group has raised about $500m from private equity investors.
Madhur Maini, chief executive of Masan Group and a former banker, said the next two years would be “transformational” for the company as it continued to “build a war chest for strategic M&A”.
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