VinaCapital continues restructuring with $11 million Tasco private placement

VinaCapital acquires $11-million stake in infrastructure construction and real estate developer Tasco JSC, making another step in its investment restructuring initiative.

VinaCapital continues restructuring with $11 million Tasco private placement
VinaCapital's $11 million buy-in of Tasco is a continuation of the company's strategy (Source: tasco.com.vn)

According to newswire DealStreetAsia, Ho Chi Minh City-headquartered VinaCapital, through its vehicle Vietnam Opportunity Fund (VOF), has acquired almost half of the stakes put on private placement by Tasco JSC, becoming a major shareholder. The company put 21 per cent of its post-investment shares up for sale, with the value of roughly $23 million. Next to VinaCapital’s sizeable purchase, Tasco’s management team and other investors also participated in the private placement, taking up smaller shares.

Earlier, Tasco announced issuing 50 million new shares to investors. At the time, VinaCapital was to pick up 30 million of these shares, accounting for 12.5 per cent equity in the company. The offer price was VND10,500 ($0.46) per share, which VinaCapital called an “attractive price,” as reported by DealStreetAsia, especially in light of the VND11,700 ($0.51) the shares were traded at on August 7.

“This investment is consistent with our philosophy of investing in companies that are focused on the growth of the local economy, and infrastructure improvement is a critical element in Vietnam’s on-going development,” commented Andy Ho, CIO of VinaCapital and managing director of VOF to DealStreetAsia.

Tasco, a former SOE, was listed in 2008 on the Hanoi Stock Exchange. Currently, the company has four toll road projects in operations, which it expects to expand by one more this year. The company’s working projects are worth approximately $220 million, making it the largest build-operate-transfer (BOT) and build-transfer (BT) developers in northern Vietnam, according to VinaCapital.

In 2016, Tasco reported a revenue of $124 million, with a net profit of $18 million. VinaCapital expects the company’s revenue to grow 32 per cent on-year in 2017, making it an ideal investment.

Faults at Tasco's highway project

VIR has reported that the State Audit has found numerous violations at a 30-kilometre stretch on National Highway 1, developed by Tasco. This section received the worst appraisal from the State Audit along the whole highway.

Despite the stellar VND2 trillion ($92 million at the time) investment capital, the project showed signs of large-scale degradation and sinking road surface affecting 15,600 square metres of the section.

The supervisory body also found errors in the contract selection and signing stages of the project. Accordingly, it found that Tasco only completed an 8-kilometre section on its own, while the rest was done by outside contractors.

Additionally, there were issues around the equipment tender packages, as Tasco held a bid despite not having drawn up and submitted plans on procurement and contractor selection to the Ministry of Transport.

Also, Tasco failed to submit the final results on bidder selection since November 2013.

On the last count, the State Audit found that toll collection did not follow state regulations, affecting the accuracy of payments.

VinaCapital divestment bout

The Tasco investment falls largely in line with VinaCapital’s current initiative of restructuring investments. Last year, the corporation announced plans to sell off direct real estate asset holdings and funnel the proceeds into investing in property developers and construction material businesses, as well as private equity investments.

True to its words, VinaCapital, through closed-end funds VinaLand Ltd. (VNL) and VOF, has been selling off assets left and right, as chronicled by VIR. At the end of May, VNL transferred the right to develop the $50-million Times Square Hanoi to Elite Capital Resources Limited and made net cash proceeds of $41 million, signifying an internal rate of returns of 5.3 per cent.

Roughly a month before that, VinaCapital sold 29.4 million shares of Quoc Cuong Gia Lai JSC through three foreign investment funds. The transaction value for this share volume, equivalent to 10.69 per cent, was undisclosed, though QCG traded at the average price of VND 8,950 (39 US cents) at the time, meaning the value could be somewhere around VND250 million ($11 million then).

A month before that, VinaCapital divested Dai Phuoc Lotus to Chinese Fortune Land Development for $65.3 million.

This strategy is a fresher, more concentrated take on VinaCapital’s strategy since November 2012, when at an extraordinary general meeting (EGM) shareholders agreed to focus on realising the corporation’s assets.

Since then, at the November 2015 EGM, shareholders agreed on a 12-month extension of the strategy to re-channel capital into markets with high potential, meaning real estate developers instead of direct asset holdings, as well as privately negotiated deals and OTC investments.

“We continue to see robust deal flows in these asset classes, as reflected in our recent OTC investment into Airports Corporation of Vietnam and our privately negotiated investment into Thai Hoa Hospital. We are evaluating a number of very attractive opportunities in the pipeline. Our fully realised private equity investments have delivered an IRR in excess of 20 per cent to date, and we believe these types of investments continue to offer the most attractive returns in the market,” said Andy Ho.

VinaCapital continues restructuring with $11 million Tasco private placement
VinaCapital sold Dai Phuoc Lotus to Chinese Fortune Land Development

And indeed, VNL and VOF have been synchronously selling off assets during the course of 2016 as well. In May 25, 2016, VNL announced divesting its entire stake in HBT Court, a serviced apartment building in Ho Chi Minh City it acquired in 2007, for net proceeds of $534,000.

A few days before, on May 20, both VNL and VOF divested their entire stakes in Danang Golf Project (acquired in 2006), including an 18-hole golf course with related facilities and residential dwellings to An Phu Import Export Investment and Trading Company Limited. VNL made $37.4 million (8.9 per cent IRR), while VOF $12.2 million in net cash proceeds on the deal.

On May 11, 2016, VNL announced divesting its entire stake in 21st Century International Development JSC (Century 21 Project) in Ho Chi Minh City. VNL acquired this residential-mixed use development site in 2006. At the same time, VOF also sold its holdings in the project. The buyer in both cases was Khai Hung Real Estate Co., Ltd. VNL earned $75.4 million and VOF $28.7 million on the deal.

VinaCapital is taking serious steps to make good on its commitments to shareholders and proceed with its development strategy of letting go direct asset holdings and seizing high-potential investment vehicles.

By Tom Nguyen