Dr. Pham Do Chi

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Investment Opportunities in Vietnam ENERGY
Dr. Pham Do Chi October 2008
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1. Overview of Vietnams economy
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1. Overview of the Vietnam economy
One of the fastest growing GDP growth rates in
the world

• Vietnam has been enjoying strong growth
• GDP growth exceeded 8 in 2007. Forecast to slow
  down to 6 in 2008 due to anti-inflation measures
  by the government.
• Exports growing at 20 yoy.
• Strong FDI USD 20.3 bn in 2007 and 57bn during
  the first 9 months of 2008.

Foreign Direct Investment (FDI) growth
accelerating
Export and import growing at over 20 yoy
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1. Rapid growth has naturally resulted in some
growing pains

• Inflation
• CPI up 12.6 for 2007 and 27.9 for September
  yoy.
• Mostly due to rising food and gasoline prices,
  which is an international problem.
• Cost of construction materials and labor have
  also risen.
• But inflation is slowing in second half of 2008.

• Trade Deficit
• Trade deficit rising to USD 15 bn in the first
  half of 2008 but expected to be well contained
  in the second half.
• Mostly due to high import requirements for raw
  materials, machinery and equipment for exports
  and manufacturing sector.
• Over time, high import bill will be paid off by
  new production capacity and rising exports of
  manufactured products.

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1. Some takes on the Vietnam economy for 1H 2008

• Since mid-June, economic data point to an
  improved macro-economic situation and both stock
  and bond markets show some signs of increased
  investor confidence
• GDP Growth slowed to 6.5 in the first nine
  months, indicating that tight demand management
  policies by the Government has shown effects in
  restraining the economy. The forecast figure is
  6 for 2008.
• CPI A significant slowdown in the monthly rate
  of inflation since July compared to H1 2008
• Trade A marked improvement in the trade deficit
  owing to both a sharp rise in exports and reduced
  imports 2008 YTD deficit for September is
  USD15b this deficit is expected to be limited to
  US20b in 2008
• Foreign direct investment YTD FDI commitments
  reached USD57.1b, or 181.3 higher than the whole
  of 2007, showing continued confidence by foreign
  investors
• The FX market has been stabilized since the short
  turmoil period in early June.
• The VN-Index has recovered since the low in
  mid-June.
• Both short-term interest rates for bank deposits
  and long-term bond yields are coming down.

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1. Vietnam economy VinaCapitals 2008 projection

Key indicators 2008 to June End year forecast
GDP 6.6 6
Trade deficit USD 15 bn USD 20 bn
FDI USD 32bn commitment, USD 5bn disbursed USD 60 bn commitment, USD 7-8 bn disbursed
Credit expansion 20 25
FX Reserves USD 21bn USD 22 bn
Exchange Rates VND/USD17,300 VND/USD16,500-17,000
Interest rates Short-term 17-19 Long-term 19-21 Short-term 14-16 Long-term 15-17
VN Index 370 480-550
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2. Vietnams Energy Prospects
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Energy consumption in Vietnam
Source EVN, BP, Wikipedia, MIT
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Electricity Demand vs supply imbalance

• Stressful system in 2008, required capacity of
  12,000 13,000 MW while maximum capacity is only
  12,000 MW.
• For years, Vietnam has had a power saving
  campaign and a rolling black-out calendar.
• EVN - import electricity from China. Near future
  power imports - include Laos Cambodia (2015 13
  TWh 35m tons of coal 2020 import about 38-53
  of power demand)
• Future is even worse annual capacity shortage of
  8001,000 MW
• Base case shortage of 46.3 TWh in 2015 and 159.8
  TWh in 2020
• High case shortage of 102.4 TWh in 2015 and
  270.8 TWh in 2020 (source Vietnamnet)

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Power generation development plan(by types of
generation)
Source EVN
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Why invest in energy assets in Vietnam?

• High energy demand for growing economy demand is
  stable and inelastic
• Sector growth potential
• Small fraction of energy assets are listed or
  privately owned.
• Drivers of future growth GDP, industrialization
  and income growth, demographic trends, increasing
  role of private capital and increasing turnover
  of privately held assets.
• Relatively stable and predictable cash yields
• Enable efficient project financing at the
  investee company
• Defensive investments, attractive risk-adjusted
  returns
• Financial performance is not as sensitive to the
  economic cycle
• Generally low risk given the stable and growing
  demand
• Low correlation with other investments
• Some business drivers are more related to GDP
  growth
• Others are more closely related to population
  growth

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Vietnam needs significant investment in energy
Energy investment is one of key factors in
maintaining the sustainability of Vietnams
economic growth
Over the past decade investments in energy sector
have not kept pace with GDP growth of 7-8
Vietnam needs to invest approximately USD85
billion in power generation between now and 2015.
Attractive opportunities for private sector to
strategically invest in this asset class
Government with limited access to funds and
shrinking access to Official Development
Assistance (ODA)
Source Power Master Plan VI Assuming average
investment cost 1,600 US/KW for Hydro 1,100
US/KW for thermo
Source World Bank
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Investment needs

• According to ADB, from 2006-2015 Vietnam needs to
  invest USD43.5 billion in which
• USD30 billion in new generation
• Remainder required to upgrade transmission
  distribution networks
• in 2010, Vietnam needs 8,000 MW generating
  capacity to meet demand
• According to Power Master Plan VI, from 2008-2015
  Vietnam needs to invest at least
• 119 power plants with total capacity of 45,787 MW
  in base case.
• 124 power plants with total capacity of 56,187 MW
  in high case
• Approximately 85 billion in power generation
• With capital limitations, EVN is struggling to
  cope with the surge in demand and the private
  sector is expected to make up balance of
  investment in power generation

• Huge capital is required for oil and gas
  projects. Some ongoing oil and gas projects in
  Vietnam
• Upstream
• Investing in Block B gas field with reserves of
  4.5 tcf and investment cost around 4 billion.
• Investing in Block 5.2 and 5.3 gas field with
  reserves of 0.8 tcf and investment cost of nearly
  USD1billion.
• Midstream
• New pipeline system connecting Block B in Thai
  Lan Basin to OMON - length of 400 km and
  investment cost of USD0.7 billion.
• A tank farm project in Cam Ranh, Khanh Hoa
  province with capacity of 1 million cu.m per year
  and total cost of USD65 million.
• Downstream
• Three refineries are under developed with total
  investment cost of nearly USD16 billion.

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Opportunities for investment in energy sector

• Energy investments are emerging as an alternative
  asset class that promises consistent yet
  attractive risk-adjusted returns
• Vietnamese energy assets are characterised by
  rapidly increasing demand with a shortfall in
  supply. This is creating attractive opportunities
  for the private sector to invest strategically in
  this asset class
• Government has limited access to capital and is
  encouraging and expecting the private sector to
  make the necessary investments in energy sector
• According to EIA Vietnam is increasingly an
  important supplier of oil to regional markets
  may emerge as a significant natural gas exporter
  in the future
• The Vietnamese energy market is emerging and is
  supported by several drivers such as
• Sustained growth in GDP, industrialization,
  household income and exports
• Fast economic growth supported by political and
  economic reforms, such as WTO accession
• Growing demand in consumption and investment in
  energy
• Many opportunities for new investments, e.g.
  developing or investing in independent power
  plants, equitised EVN assets, or buying into
  suppliers of raw materials for EVN and IPPs

Significant opportunity for investment in energy
and energy-related projects Vietnam Energy Fund
can capitalise on these opportunities
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3. A Brief Introduction to VinaCapital
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3. VinaCapital Group the leading asset
management and investment firm in Vietnam
VinaCapital Group

• Established in September 2003
• Headquarters in Ho Chi Minh City, Vietnam
• Offices in Hanoi, Danang and Hong Kong
• Employs over 150 investment professionals

VinaCapital Investment Management
VinaSecurities
VinaCapital Real Estate

• Research and brokerage
• IPO's, privatisations, MAs, market entry,
  private placements, financial advisory, strategic
  advisory.

• Real estate development, consultancy and
  management.

• Investment management
• One of the largest fund managers in Vietnam with
  over USD2bn under management

VinaLand Limited
DFJ VinaCapital Technology Fund
Vietnam Opportunity Fund Limited
Vietnam Infrastructure Limited

• Launched in Nov 2003
• USD800m fund
• Investing in public companies, private equity,
  real estate, and privatisations of SOEs.

• Launched in Mar 2006
• USD735m (NAV) real estate fund
• Advised by VinaCapital Real Estate which provides
  a full range of services from real estate
  development to management to exit.

• Launched in Oct 2006
• Unlisted venture capital L.P. fund which invests
  in technology, including Internet, digital media,
  wireless, and software
• Fund size USD35m

• Launched in Jul 2007
• USD360m fund dedicated to infrastructure and
  infrastructure-related projects

As of 31 March 2008