Vietnam Infrastructure Fund: Focused For Growth

Vietnam Infrastructure Fund (VNI.L) invests in listed and unlisted infrastructure projects in Vietnam. Given the Vietnamese economic model and stage of development,historical opportunities have tended to be earlier stage and more economically sensitive than is the norm for infrastructure investing in developed markets. Thegovernment has been slow to open up more mainstream projects in utilities, energy and transport to the private sector. The softer economy created challenges, but overthe past two years the fund has been rebalancing and refocusing towards less economically sensitive growth sectors. Further disposals should allow continuedshare repurchases and support continued investment, particularly in mobile telecommunications and hydro-electric power.
Investment strategy: P/E supported by listed equity
The portfolio will continue to invest in both unlisted and listed investments. The focus for unlisted investments (private equity 48.4%) is on mobile telecommunication, consolidating smaller hydropower plants, and fully serviced industrial parks (rather than simply the basic infrastructure required for sale). The listed portfolio (25.5%) seeks opportunities among low P/E, high-yield and blue chip infrastructure-related stocks. The weighting may increase if the market continues to rally but over time we anticipate this being a source of funds for continued private equity investment.

Vietnamese opportunity: Inflation under control
Vietnamese GDP per capita is around a third of that of Thailand and China but recently Vietnam has struggled to fulfil its potential for catch up. It recovered quickly
after the credit crunch, boosted by loose fiscal and monetary policy but inflation rose above 20% in 2011 and corrective measures caused a sharp slowdown in GDP
growth. Inflation has now moderated to c 8% for 2012 but growth is still below trend. The government is aiming for GDP growth of 5.7% this year although the stresses
facing the US and European economies and a Chinese slowdown may hamper this.

Valuation: Buy-back narrowing the discount
VNI’s discount has been consistently wide (typically at least 40%) since launch. In part we believe this reflects the illiquidity and valuation uncertainties inherent in private equity, but also the slowdown in GDP growth since the financial crisis. Shareholders approved unlimited share repurchases in July of this year, and since this began the discount has declined from 54% to 42%. The board is reviewing the success of the repurchase programme quarterly.

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