Warburg close to finalising Vietnam’s biggest private equity deal

Buyout specialist Warburg Pincus is investing $370m for a minority stake in Vietnam Technological and Commercial Joint Stock Bank (Techcombank) in the largest private equity deal in the country.

The two companies did not disclose either the size of the stake, which is believed to be less than 20 per cent, nor its valuation, in announcing the transaction.

In making the investment in one of Vietnam’s largest private banks, Warburg is betting the country’s strong growth will lift returns on a sector that has proved challenging to offshore institutions. ANZ exited its retail business in Vietnam in 2017, and HSBC sold an investment in Techcombank back to the Vietnamese institution, also in 2017.

Banks typically have a different investment rationale to private equity groups.

Vietnam has also been among the biggest beneficiaries of rising wages in China and has attracted manufacturers from Japan and South Korea. In addition, it has productive workers and young demographics that are the envy of ageing North Asia.

“Banks are a levered bet on the economy and one of the best ways to play strong growth and a rapidly expanding middle class and consumption in emerging markets,” said Jeff Perlman, head of south-east Asia at Warburg.

The investment is expected to help Techcombank list as soon as June.

Warburg is also betting that private banks in Vietnam will take market share from their more sluggish state-owned rivals as they have done in India and Indonesia. For example, HDFC in India and BCA in Indonesia each trade at four to five times book value while government controlled banks in the respective countries often trade at less than one times book.

“Techcombank will maintain its market position and superior profitability over the next 12 months as it pursues a retail-driven strategy,” analysts at S&P Global said in August in giving the bank the same rating as Vietnam itself.

The bank had a pre-tax profit of $373m in 2017. It generates a return on equity of about 28 per cent. By comparison Standard Chartered declared an ROE of 3.5 per cent on its recent results, and HSBC showed an ROE of 5.9 per cent.

As a private bank, Techcombank focuses on privately held companies and retail customers. Techcombank has been investing in technology, upgrading its branches and improving digital services. “If financial inclusion [opening consumers’ access to bank accounts] is to happen, the government has to empower the private banks,” said one analyst.

Warburg, which has invested about $1bn in Vietnam, got to know the bank after making an investment in Vincom Retail, a shopping mall developer that went public last year, what was the Ho Chi Minh stock exchange’s biggest listing ever. Vincom Retail is a client of Techcombank.

The investment comes as the big international private equity firms are scouring the world for opportunities in markets where unconventional monetary policies have not driven financial asset prices to gravity-defying levels. Recently many of the big international private equity firms, led by Warburg and KKR, have focused on south-east Asia as have sovereign wealth funds in the region such as Government Investment Corp of Singapore.

Warburg Pincus’s deal in Vietnam is subject to final regulatory approval.