Net Asset Value(s) (2878F)

TIDMVPF

RNS Number : 2878F

Vietnam Property Fund

13 June 2012

Vietnam Property Fund Limited

"VPF" or "the Company"

NAV and May 2012 Update

Fund NAV Performance

The NAV per share closed at US$ 0.782 on 31 May 2012.

Investment Climate

According to Government estimates, the trade deficit came in at US$700m in May, resulting in a trade deficit of US$622m after five months of the financial year. However, this figure will likely be revised down as the Government is traditionally conservative with its estimates. May export was reported at US$9.1bn, bringing export year to date to US$42.9bn, or +24.1% year on year ("y/y"). While foreign direct investment enterprises remained key contributors with a growth of 36.9%, local enterprises started catching up, accelerating their growth from 4.3% last month to 8.4%. Vietnam's export fared very well compared to its main competitors China and India which grew export by only 3-5% while Indonesia and Thailand suffered negative growth. May import was estimated at US$9.8bn, resulting in import year to date of US$40.8bn, or +6.6% y/y. As a result, 12-month rolling core deficit continued to decline from US$4.5bn in April to US$3.8bn in May. As import growth is much lower than expected, we revised our 2012 trade deficit forecast from US$7.2bn to only US$4.2bn.

Inflation in May came in at only +0.18%, implying that the Consumer Price Index ("CPI") y/y continued to slow further from 10.4% in April to 8.3% in May. The Government's primary goal, namely single digit inflation, was reached much quicker and easier than many observers anticipated and the speed of CPI improvements has even started to rise concerns about deflation. Though it's true that inflation has collapsed very fast, we think it's too soon to worry about deflation. Our non-food CPI has not been negative since 2009 and increased 0.44% in May or 8.3% y/y. Further, the Government increased the petroleum import tax from 0% to 7%. On the other hand, petrol prices were cut three times by a total of about 8% which will help lowering inflation in coming months. Given falling commodity prices and sluggish domestic consumption, we have revised our 2012 CPI forecast from 9.2% to 6.8%.

According to State Bank of Vietnam ("SBV"), M2 (being money and close substitutes for money) growth reached 4.5%, deposit growth 3.4% while credit growth came in negative with -0.1% after 5 months. Although credit growth has turned positive since March, the current growth is too weak to achieve the full year target of 15%. Meanwhile SBV recently revealed that Non Performing Loans have increased from 6% at the end of 2011 to 10% recently. In view hereof and given the current sluggish GDP growth SBV made decisive moves, cutting the deposit rate cap to 9% from June 2011, which is 300bps lower from the first rate cut in April. Whilst this stokes fears that inflation may return, we think that these moves are the right one as we believe that inflation is more a function of money supply. Furthermore, despite these cuts the deposit rate cap at 9% is still 70bps higher than the current inflation, which is expected to reduce further to below 6.5% y/y in July.

Investment Update

As we move towards the end of another financial year at VPF there is definitely a light at the end of a very dark tunnel for the Vietnamese real estate market and for our investment pipeline in particular. The listed equity portion of the portfolio has seen some good performance year to date although the volatility in the world markets due to the continued problems in Europe and possible signs of a major slow down in China have provided their fair share of volatility for the Vietnam Index as well. Our projects are moving forward albeit slowly as the residential market continues to be tough in terms of sales.

On the positive side, we have some very good deals on the table and deployment of further funds should not be far away. We are negotiating another mezzanine loan deal with a local developer who requires funding to get their project complete. The rates are fairly high and there may be the opportunity to invest in the project as we have negotiated a right of first refusal should the local partner wish to sell their shares in the project. We have also agreed terms on a small investment into a mid cap development company in Vietnam who are looking to expand and develop their strong pipeline. This will give us access to further good projects in the future. We are also in the process of analyzing a very interesting deal in logistics and distribution which should be a strong growth sector given the geography of this long thin country. The continued development of infrastructure is clearly key to the success of logistics although supply chain and good secure storage are very important to international operators. We are also seriously considering several hospital development opportunities which is a hugely undersupplied sector.

Given the current investment climate we are seeing a lot of projects. Distress seems to be the buzz word in Vietnam at the moment but the majority of distressed projects we see are distressed for a good reason and would be unlikely to make much in the way of returns even if we were given the land for free. Whilst we are monitoring the distressed opportunities that come across our desks, the best deals with the most attractive risk profiles are tending not to be distressed and are good candidates for investment due to strong partners, well designed schemes that suit the current investment climate and, most importantly of all, have a strong cashflow that will take the project to completion even in the worst of market conditions. After all the pain of 2011, the first half of 2012 has been encouraging.

For further information including the full May Monthly Report please visit - www.vietnampropertyfund.com or contact:

Enquiries:

Rachel Hill

   Dragon Capital Markets (Europe) Limited |            Tel: [phone] 

Freddy Crossley

Seymour Pierce Limited (Nominated Adviser and Broker) | Tel: [phone]

This information is provided by RNS

The company news service from the London Stock Exchange

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