Doan Nguyen Duc

enjoys the view from

Vietnam’s first
privately owned plane.
V ietnam’s
Growing
Pains
Foreign capitalists have fallen out of love
with the communist country, even as
homegrown entrepreneurs learn to
flaunt their wealth.
By Yoolim Lee and Beth Thomas
Photographs by Kevin German

71
may 2010 bloomberg markets
N
guyen thanh trung brings Vietnam’s
only privately owned plane level at
24,000 feet over the Central Highlands
towns of Pleiku and Dalat before swing-
ing right and bringing the eight-seat
Beechcraft King Air 350 in for a smooth
landing at Ho Chi Minh City airport.
Trung is familiar with the landscape:
Thirty-five years ago he was a Viet Cong agent and fighter pilot who
recalls dropping two bombs on the headquarters of the American-
aligned southern regime in the city then known as Saigon, one of the
last skirmishes before the end of his country’s civil war.
Today, Trung, 62, is on a mission that symbolizes his country’s
transformation: He’s the personal pilot for Doan Nguyen Duc,
Scooters jostle with
imported cars for
space on Ho Chi
Minh City’s crowded
streets.
an entrepreneur who is one of Vietnam’s
richest men. Duc, 46, estimates that his
empire, which includes Hoang Anh Gia
Lai Joint-Stock Co., Vietnam’s biggest
listed property company, gave him a per-
sonal wealth of 28.4 trillion dong
($1.48 billion) at the end of 2009.
“Duc owning a private jet is very good
photographs by Kevin German/Luceo Images
for Vietnam’s economy; it shows that
Vietnamese people can also be success-
ful like businessmen in other coun-
tries,” Trung says. “This is a time for
dynamic entrepreneurs.”
Foreign investors in Vietnam—a land
that beckoned outsiders with great fan-
fare in the 1990s—are having a bumpier
ride than Duc and his pilot. Indochina
Capital Advisors Ltd. last year decided to
liquidate a London-listed Vietnam equity
fund that had lost 50 percent of its value.
In November, San Francisco–based
hedge fund company Passport Capital
LLC demanded the return of uninvested
cash from a fund that bought Vietnamese
and Cambodian property. The Ho Chi
Minh City Stock Exchange’s benchmark
VN Index, Asia’s best performer in 2006,
plunged 66 percent in 2008 as inflation
followed by global recession destroyed
confidence in Vietnamese investments.
The index rose 57 percent in 2009. It’s up
5.3 percent this year to March 8.
Investors who still have the stomach
to stay in Vietnam are quietly bullish. It’s
still possible to make money in this land
of 86 million people provided you’re will-
ing to do homework, find the right op-
portunities and ignore the market froth,
says Mark Mobius, chairman of Temple-
ton Asset Management Ltd., which had
$24 million of investments in the coun-
try as of February. “Investors should see
the real value of specific investments
without being driven by pure sentiment,”
Mobius says. “The private sector contin-
ues to grow and has become more impor-
tant to the development of the economy.”
That new realism follows a decade of
unbridled enthusiasm for Vietnam. Fol-
lowing the shift to a market-oriented
economy in 1986, foreign direct invest-
ment commitments in Vietnam went
from zero to a peak of $60.3 billion in
2008, almost three times Vietnam’s
foreign exchange reserves at the end
of 2008. Gross domestic product
Wild Ride
Vietnamese stocks have been more
volatile than those of companies in
developing nations worldwide.
500
Vietnam
Stock Index
MSCI Emerging
Markets Index
300
100
4Q ’04
’05 ’06 ’07 ’08 ’09
Index: Dec. 31, 2004 = 100. Source: Bloomberg
FILE:viestk9
SIZE:12p8
expanded at an av- Former Viet Cong
erage annual rate fighter pilot Nguyen
Thanh Trung com-
of 7.2 percent mands Duc’s plane.
from 2000 to
2009, making Vietnam the fastest-grow-
ing economy in Asia after China and
Cambodia, according to figures from the
International Monetary Fund. The gov-
ernment forecasts GDP growth of 6.5
percent for 2010.
“Vietnam was viewed as the final fron-
tier of Asia,” says Son Nam Nguyen, man-
aging partner of Vietnam Capital Partners,
who advised global investors on more than
$30 billion in financing as the former head
of Citigroup Inc.’s investment bank in Viet-
nam. “No one wanted to miss out on the
next China.”
Instead, investors bought into a bub-
ble as higher prices for commodities
drove up the cost of living. Inflation
peaked at 28.3 percent in August 2008.
The central bank raised interest rates
three times in 2008 to 14 percent to
slow inflation.
Some investors grew tired of the roller
coaster. Shareholders of the Indochina
Capital Vietnam equity fund in Septem-
ber voted to shut it down after its net asset
value had plunged to $243 million by June
30, 2009, from an original value of $500
million in March 2007. Passport Capital,
which held a 13 percent stake in property
fund JSM Indochina Capital Ltd., won
shareholders’ backing to replace three of
3/8/10 the London-listed fund’s directors and
begin the return of uninvested cash. From
its inception in June 2007, JSM Indochina,
73
may 2010 bloomberg markets
 listed on London’s Alterna-
tive Investment Market,
had fallen 70 percent on
Nov. 18, 2008. It was down
29 percent at the end of
October 2009, when Pass-
port called for shareholder
action. Bill Nolan, manag-
ing director of sales and
marketing at Passport Cap-
ital, declined to comment
VinaCapital CEO Don Lam
through a spokeswoman. helps manage $1.7 billion in
“Historically, because of Vietnamese investments.
bad experiences with infla-
tion and currency depreciation, people
are very quick to lose confidence,” says
Manu Bhaskaran, a ­Singapore-based part-
ner and head of economic research at
Centennial Group Holdings, which pro-
vides advice on emerging markets. “The
global financial system still has a risk of
new shocks, and in that kind of context,
countries like Vietnam are vulnerable.”
The volatility may slow Vietnam’s de-
velopment as an equity market. Since
Prime Minister Nguyen Tan Dung came
to power in July 2006, the total number
of companies
Farm work still listed on Viet-
accounts for about
half of all jobs nam’s two stock
in Vietnam. exchanges has
74
bloomberg markets may 2010
increased 11-fold to 476 as
of March 8 from 43. While
Dung, 60, has said he wel-
comes more investment,
he has yet to deliver on
promises to privatize
major state-owned com-
panies, including Vietnam
Airlines Corp. Foreign in-
vestors, which are limited
to 30 percent holdings in
local banks, have won
some gains when setting
up new businesses: In Sep-
tember 2008, HSBC Holdings Plc and
Standard Chartered Plc won approval to
operate wholly owned units in Vietnam,
the first of five such licenses.
Foreign investors can find themselves
at sea in the local culture, says Don Lam,
chief executive officer and a founding
partner of VinaCapital Group. Lam, who
was born in southern Vietnam but grew
up in Canada, says his Vietnamese manag-
ers typically spend 18 months to build re-
lationships with owners before striking
any partnership. “About 80 percent of my
deals, when they close, it’s over dinner,”
he says. “That’s why it’s so important to
have a senior Vietnamese team to negoti-
ate without interpreters.” Lam—who
purposely doesn’t use dye on his gray hair
and sometimes wears rimless eyeglasses
to a­ ppear older than his 42 years—says he
shuns business lunches, since many Viet-
namese nap in the afternoons.
VinaCapital’s $774 million Vietnam
Opportunity Fund has invested in com-
panies that focus on consumers, includ-
ing Vietnam Dairy Products Joint-Stock
Co., the country’s third-biggest stock by
market value; Kinh Do Corp., the na-
tion’s No. 1 candy maker; and Vietnam
Export-Import Commercial Joint-Stock
Bank. The firm had $1.7 billion invested
in Vietnam as of March compared with
$10 million in 2003.
G
erard lee, ceo of Fullerton
Fund Management Co., the
Asian fund management unit
of Singapore’s Temasek
Holdings Pte, is one of several investors
who say Vietnam, with its political stabil-
ity, ready pool of cheap labor and years of
economic growth, reminds them of the
superpower to the north.
“Vietnam has a lot of the characteris-
tics of China,” Lee says. “So it’s good to
do all the heavy lifting and homework in
Vietnam, because we believe we will be
richly rewarded in years to come.” Ful-
lerton’s $30 million Vietnam Fund,
which primarily invests in local equities,
lost 30.4 percent from its inception in
April 2007. In the 12 months to March 8,
Buying Vietnam
FDI has risen from $1 billion in 1993, the
year before the U.S. lifted its trade
embargo.
$11.5
Foreign direct investment,
in billions $10.0
$8.0
$4.1
$3.3
’05 ’06 ’07 ’08 ’09
Figures are for disbursed FDI, or the amount foreign
companies actually spent. Source: Vietnam’s General
Statistics Office
FILE:viebar6
SIZE:
 Trung Dung, left,
discovered that
few of Vietnam’s
consumers were able
to use electronic
payment methods.
the fund is up 68 percent, according to
data compiled by Bloomberg.
Since opening its first representative
office in Vietnam in 2005, Temasek—
which doesn’t disclose the value of its
Vietnam portfolio—has invested in the
country through its holdings in Minh
Phu Seafood Joint-Stock Co., transporta-
tion company Vietnam Sun Corp. and
Kinh Do, according to stock exchange fil-
ings. “Vietnam fits well with our overall
themes of investing in transforming
economies and the growing middle in-
come group,” Derek Lau, Temasek’s chief
representative in Vietnam, says.
That bullishness is partially in recog-
nition of how far the country has moved
away from its founding collectivist
ideals. On April 30, 1975, a North Viet-
namese tank rammed through the gates
of the presidential palace in Saigon, an
act symbolizing the control of the coun-
try by communist forces. In the chaotic
years that followed, about one million
Vietnamese abandoned the country by
foot or took to the South China Sea for a
precarious journey to freedom. During
the next decade, the brain drain contrib-
uted to Vietnam’s economic isolation.
In 1986, Pham Van Dong, the first
prime minister of the Socialist Republic
of Vietnam, introduced limited private
ownership of companies. The Doi Moi
(Vietnamese for renovation) program cut ers and motorcycles jostle for space
state subsidies, lifted price controls and
eventually opened
the door to foreign ‘Investors should see the real value of
investment. Eight specific investments without being driven
years later, U.S.
President Bill Clin-
ton lifted the U.S.
trade embargo
against Vietnam and in 2000 became the
first American leader to visit Vietnam
since the war ended.
As Western investment came to Viet-
nam, per capita income almost tripled
to $1,042 in 2008 from $375 in 1999, al-
lowing millions of Vietnamese to afford
some of the motorcycles, home appli-
ances and clothing produced in local
factories for global consumers.
Normal relations with the West and
Vietnam’s entry into the World Trade
Organization lured many Viet Kieu, or
overseas Vietnamese, back to their
homeland. Trung Dung, an Internet en-
trepreneur, returned to Ho Chi Minh
City in 2006, 22 years after he abandoned
the country in a boat.
Dung, 43, says he was impressed by a
bustling city in which countless scoot-
alongside bicycles and rickshaws as
by sentiment,’ Templeton’s
Mark Mobius says. ‘The private
sector continues to grow.’
eager young people work hard to realize
their dreams. “It was chaotic,” Dung
says. “It felt like the Silicon Valley of
1995.” Using some of the money he
made from selling his San Ramon, Cali-
fornia–based electronic commerce firm
OnDisplay Inc. in 2000, Dung founded
MobiVi Co., a similar venture.
Today, MobiVi is helping transportation
companies, merchants and banks settle
75
may 2010 bloomberg markets
 payments electronically. Dung
says there’s plenty of growth
ahead in a country where
fewer than 1 percent of the
people hold credit cards and
only 1 person in 10 has a bank
account. “What I learned is
that it doesn’t matter how
smart you are,” Dung says. “It
takes time to understand the
local market.”
On the ground floor of
­MobiVi’s office block, there’s
a Highlands Coffee outlet.
The cafe chain, often referred
to as Vietnam’s Starbucks, was estab-
lished in 2002 by David Thai, a former
refugee who was raised in Seattle.
Thai’s cafes cater to a high-end clientele while General Electric Co. has a
that can afford Western prices: A small
latte costs 44,000 dong, or about $2.25, the plant under construction. Samsung Elec-
equivalent of a beef noodle soup dinner
for two. The 80 Highlands outlets are
equipped with air conditioners, flat-screen
TVs and Wi-Fi connections.
‘Vietnam is the most dynamic consumer
growth story within the Asia region,’ says
David Thai, the entrepreneur behind
Highlands Coffee, a Western-style chain
often referred to as Vietnam’s Starbucks.
In January, Thai spent more than $2 mil- ital animation and modeling for its com-
lion to open Vietnam’s first Hard Rock
Cafe in Ho Chi Minh City. “Vietnam is the
most dynamic consumer growth story
within the Asia region,” says Thai, who pre- tungsten mining project owned by Dragon referred to as “Uncle Ho” by the Viet-
dicts that the country’s retail market will
grow as much as 30 percent annually in the
five years to 2015. “It doesn’t have the
same population as China and India, but
it’s not crowded in terms of competition.”
Foreign companies also
encounter institutional
corruption in Vietnam, ac-
cording to Berlin-based
Transparency International,
an advocacy group that mon-
itors business conditions. Its
Corruption Perceptions
Index, which rates execu-
tives’ views on the integrity
of global business environ-
ments, ranked Vietnam
120th out of 180 nations in
2009, behind China, Thai-
land and Indonesia.
workforce. Intel Corp. is sched- Samsung Electronics “Bribery is illegal but com-
uled to open a $1 billion factory employees build tele- monplace,” wrote Transpar-
visions at a Ho Chi
in Ho Chi Minh City this year, Minh City factory. ency International in its study
of Vietnam in 2006, its most
$61 million power generation component recent full report on the country. “Despite
nearly two decades of reform, bureaucracy
tronics Co., the world’s second-largest mo- and red tape characterize large parts of so-
bile-phone maker, opened a $670 million cial and business life, and having the right
handset factory near Hanoi in October, 14 connections—and money—are crucial to
years after it started a television manufac- getting things done.”
turing plant in Ho Henry Nguyen, managing partner of
Chi Minh City that IDG Ventures Vietnam in Ho Chi Minh
helped establish the City, is one of the entrepreneurs hoping
company as Viet- to profit from Vietnam’s emerging mid-
nam’s No. 1 TV pro- dle class. His company’s $100 million
ducer. Microsoft fund is nurturing some 40 technology,
Corp. outsources dig- media, telecommunications and gaming
companies with a typical investment
puter games to Vietnam. horizon of 10 years for each holding. A
In September, the government said it black-and-white photograph of Ho Chi
might revoke the license for a high-profile Minh—the communist guerrilla leader
Capital Group in Ho Chi Minh City be- namese—playing pool overlooks IDG
cause the facility failed to start production Ventures’ conference room, while an-
on schedule. A Dragon Capital fund ac- other wall features the logos of the 39
quired a controlling stake in the mine companies that the fund supports. The
owned by Toronto-based names include those of

O
Tiberon Minerals Ltd. for Vina­Game, Vietnam’s
utside the country’s two C$251 million ($247 mil- biggest online game com-
main cities, though, Viet- lion) in 2006, with two pany, and Vietnamese-
nam’s economy is slowly state-controlled partners language search engine
making a transition from ru- holding the remainder. “We company Socbay.com.
ral subsistence. Agricultural and forestry are currently working with “These companies will be-
work still accounts for about half of all jobs all stakeholders to ensure come the Googles of Viet-
in Vietnam, employing 22 million people as the project is swiftly put nam in the next five
of July 2008, according to figures from the back on track and toward years,” says Nguyen, 37,
General Statistics Office of Vietnam. From construction and opera- who is married to Nguyen
2000 to 2008, manufacturing jobs doubled tions,” says Dominic Scriven, Henry Nguyen’s IDG fund Thanh Phuong, a daughter
to 6.3 million, making up 14 percent of the CEO at Dragon Capital. backs local online startups. of Prime Minister Dung.
76
bloomberg markets may 2010
 one of the biggest sharehold-
ers of Duc’s property com-
pany, with a 2.6 percent stake
as of mid-March.
Duc himself has become a
symbol of Vietnam’s emerg-
ing class of Western-style
entrepreneurs. When he
bought the plane, there was
no luxury-goods tax on such
purchases. He has since or-
dered an $18 million Embraer
Legacy 500 jet from Brazil’s
Empresa Brasileira de Aero-
nautica SA that will be deliv-
ered in 2012. This time, Duc
will have to pay a $5.4 million
new levy on the deal. “They
had to set the tax level for pri-
Entrepreneur Duc’s She is currently Myanmar and Thailand. Duc also owns vate jets after I bought the jet,” he says
Plaza Hotel in Danang chairperson of the 23-story HAGL Plaza Hotel in Danang, with a smile.
offers a bird’s-eye
view of the city. Viet Capital Fund which offers a bird’s-eye view of the city. With that, Duc departs for the war-era

Management, a Ho
Chi Minh City–based asset manager.
Duc, the tycoon with a private plane,
started in business by making wooden
school desks and selling them door-to-
door in Ho Chi Minh City in 1993. Even-
tually, he began buying land in the capital
and nearby Danang in anticipation of a
construction boom. Since 2006, his flag-
ship Hoang Anh Gia Lai—named after
his daughter—has been diversifying into
rubber plantations, hydropower and
mining in neighboring Cambodia, Laos,
H
is property developments
have attracted foreign
investors such as Korea
Investment Trust Man-
agement Co. “We thought Duc’s strategy
to supply affordable high-end apartment
buildings for Vietnam’s burgeoning mid-
dle class was pretty smart,” says Bae
Seung Kwon, Ho Chi Minh City–based
head of Vietnam equity at Korea Invest-
ment, which manages $800 million in
Vietnamese stocks. Korea Investment is
Rex Hotel in central Ho Chi Minh City,
where Vietnam’s highest-profile capitalist
keeps a suite in the building that was used
as a U.S. military press center during the
American fight against communism. ≤
Yoolim Lee is a senior writer at Bloomberg
Markets in Singapore. yoolim@bloomberg.net
Beth Thomas is chief of the Vietnam bureau
of Bloomberg News in Hanoi.
bthomas1@bloomberg.net With assistance
from Joyce Koh in Singapore.
To write a letter to the editor, send an e-mail
to bloombergmag@bloomberg.net or type
MAG <Go>.

bloomberg Tips
Finding Vietnam Funds
You can use the Fund Screening (FSRC) function to find funds that
invest in Vietnam. Type FSRC <Go>, tab in to the field, enter
VIETNAM and click on the Vietnam Geographic Focus item in the
list of matches that appears. The number of funds that match your
criteria will be displayed under Matches in the lower-right corner of
the screen. Click on the Results button to display the list of funds.
To add data columns such as 3-year returns and total assets to the
display, click on the Actions button on the red tool bar and select
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jon asmundsson Click on a column heading to rank the results by that criterion.

78
bloomberg markets may 2010