CEO letter - market and funds update

14 January 2010

VinaCapital Group

Investment manager update

Dear Investors,

We are pleased to provide an update on the investment environment in Vietnam at the beginning of the 2010 calendar year. VinaCapital funds continue to perform well and as a firm we remain the largest and most diversified investment manager focused on Vietnam.

VinaCapital funds were buoyed by the strong performance of the Vietnamese economy and stock markets in 2009. The economy responded well to the global economic slowdown, posting 5.3 percent GDP growth, including 14 percent growth in industrial output. The benchmark Vietnam Index rose 56.7 percent as companies put to use the government’s USD6 billion stimulus package, which included a four percent interest rate subsidy on loans to SMEs. Domestic demand remained strong, with retail sales growth of 19 percent (11 percent adjusted for inflation). The residential real estate market was also strong, with CB Richard Ellis research noting increased sales volume and prices of housing units over the year in Hanoi and Ho Chi Minh City.

Vietnam in 2010
Vietnam in 2010 is expected to record another year of GDP growth at 6 percent or higher, with strong domestic demand continuing to help overcome the global economic slowdown. Nonetheless, there are significant challenges on the horizon. The chief concerns are controlling inflation and the trade deficit. Inflation for now remains at a moderate 7 percent year-on-year, while the 2009 trade deficit at USD12 billion represents approximately 12.9 percent of GDP (versus 18.6 percent in 2008). While the situation in 2009 was clear-cut for policy-makers (stimulate the economy), 2010 will require more of a balancing act to maintain stable growth. The greatest single risk is not unique to Vietnam – much depends on the continued economic recovery in the global economy at large.

Vietnam Opportunity Fund
In 2009 VOF benefited from the IPOs of 14 investee companies, including major holdings like DIC Corp (DIG) and Eximbank (EIB). For example, DIG listed on the Ho Chi Minh Stock Exchange in August 2009 with a market capitalisation of USD185 million. Subsequently, the market cap rose to USD413 million at the end of October 2009, resulting in a gain of over 300 percent on VOF’s original investment cost in 2008. VOF also benefited from real estate exits and sales in 2009, including the sale of the fund’s stake in the A&B office tower project. VOF continues to restructure its real estate portfolio to increase liquidity by exiting real estate projects and re-investing in real estate equities (including shares of VinaLand Limited).

VOF’s unaudited NAV at 31 December 2009 was USD785 million, or USD2.42 per share, an increase of 29.8 percent against the 31 December 2008 NAV of USD605 million, or USD1.86 per share. The fund is likely to pursue more private equity deals in 2010, after recording only one new private equity investment in 2009 (in Hoan My Medical Group). Private equity deal terms are improving as bank lending is tightening and potential investees are looking for strategic support prior to IPOs. Although the VN Index is not expected to perform as strongly in 2010 as it did in 2009, the market’s appetite for IPOs remains healthy as corporate earnings growth is likely to remain robust and company valuations should consequently remain attractive.

VinaLand Limited
VNL recorded progress in 2009 in developing its residential projects and holdings, with strong sales of residential units at Golden Westlake, Central Gardens, The Garland and The Ocean Villas. The fund saw unrealized losses after writing-down some assets to reflect weaker market conditions, but these losses were minimised by the quality of the assets held and the fund’s sound investment criteria. The property market has shown signs of recovery, hopefully mitigating the need for any further write-downs. Even during the downturn, VNL was able to record several exits at prices above asset carrying values, such as the sale of the Hilton Hanoi Opera Hotel.

VNL’s unaudited NAV at 31 December 2009 was USD694 million, or USD1.39 per share, a decrease of 9.2 percent against the 31 December 2008 NAV of USD766 million, or USD1.53 per share. In 2010, the fund will see the launch and sales of several new residential projects, as well as the continued development of resorts, townships and mixed-use facilities in Hanoi, Danang and HCM City.

Vietnam Infrastructure Limited
VNI benefited from the IPOs of six holdings during 2009, as well as the gradual recovery of the share price of several listed holdings, primarily in the power sector. During the year, investment activity was slowed by the difficult economic environment. Nonetheless, new investments were made in BTS tower companies, Phu My Bridge, and Vietstar JSC, a waste treatment facility.

VNI’s unaudited NAV at 31 December 2009 was USD267 million, or USD0.67 per share, an increase of 5.5 percent against the 31 December 2008 NAV of USD252 million, or USD0.63 per share. During 2010 key drivers for the fund will be the end of lock-up periods for several listed positions (allowing for more active management of the capital market holdings); a much-improved environment for private equity infrastructure investment; and the full investment of the fund’s remaining cash holdings.

Strategic highlights
Across all VinaCapital funds, there are several common strategic points worth highlighting. First, all the funds will continue to reinvest profits and investment proceeds in the Vietnam market (while also carefully examining select opportunities in neighbouring countries). Vietnam has strong fundamental growth trends and is, we believe, one of the world’s best long-term investment markets.

Furthermore, VinaCapital continues to strengthen what is already among the most experienced team of investment managers in Vietnam. In 2009, the Group added two new managing directors – Tony Hsun, responsible for infrastructure investment, and Phuc Than, responsible for technology sector investment (primarily the investment of the DFJ VinaCapital LP technology fund). Another initiative now underway is a project management joint venture to further strengthen the capability of VinaCapital Real Estate Ltd to deliver world-class projects.

Discount narrowing measures
A priority for 2010 will be to actively close the share price discounts of our funds. This process will be helped as market confidence improves and the funds continue to demonstrate investment results. We believe our funds have an exceptional track record of realized exits at or above carrying values, and we expect this trend to continue.

The past year has seen the liquidation of several Vietnam funds, and changing dynamics within the fund management industry. VinaCapital continues to follow international best practice in terms of risk management, as reflected in our fund investing policies and the strong role given to independent board directors, for example. We remain confident that our company’s strategic development is in line with, and will continue to promote, the interests of our funds’ shareholders. Our AIM-traded funds continue to be the most diversified investment vehicles for the Vietnam market, with performance at or near the top of their respective comparable funds. We look forward to 2010 and will continue to update our fund shareholders on progress and the year unfolds.

Upcoming events
An investor conference call will be held on Tuesday, 19 January 2010 to update our shareholders and answer questions on fund performance. Please find below and attached the call details:

Date: Tuesday, 19 January, 2010
Time: 19.00 Hong Kong Time

Andy Ho, VinaCapital Head of Investment, will be in Singapore on 28 and 29 January 2010. If you would like to arrange meeting with him for an update on our funds, please contact Ms. Chi Nguyen at or at +84 8 3821 9930.

Yours sincerely,

Don Lam
VinaCapital Group