New York-based WL Ross & Co and its majority owned unit, International Textile Group, have entered into agreements with Phong Phu Corporation, a major cotton textile and clothing manufacturer based in Ho Chi Minh City, Vietnam. The agreements commit the signing parties to explore various real estate joint ventures, as well as a potential WL Ross strategic investment in the currently state-owned Phong Phu.
ITG’s Burlington WorldWide division and Phong Phu have been partners since June 2006 in a previously announced $80 million cotton fabric and clothing manufacturing complex under construction in Da Nang, Vietnam. In the agreements signed today, ITG and Phong Phu will discuss up to a further $100 million of operating support and joint venture strategic investments, including possible expansion of the Da Nang complex.
Phong Phu also indicated in the agreement that the firm plans to leave state control through an initial public offering.
These agreements are not the first demonstration of WL Ross’s interest in Asian textiles. In October of last year the firm acquired Indian textile manufacturing business OCM for $37 million. The investment was made through another partnership, this one with India’s Housing Development Finance Corporation. The HDFC invests in Indian companies facing special or distressed situations, and currently has $9.5 billion of assets.
ITG has done business in Vietnam in the past. Last August the firm announced an agreement with Vietnam National Textile and Apparel Group to explore mutual business interests.
Vietnam is an increasingly trendy destination for private equity. In late 2006, International Monetary Fund chief economist Raghuram Rajan called Vietnam “the emerging China” at a press conference.
“Vietnam is doing a number of things that China did and is progressing faster at relatively strong rates of growth,” Rajan said.
Private equity investors have cited Vietnam’s anticipated WTO membership, high growth rate, capital market reforms, low costs, educated workforce and shortage of capital as the market’s attractions.
Firms have flocked to the country in recent months, particularly to take advantage of investment opportunities in state owned companies. In September of last year Danish investment bank BankInvest celebrated the planned opening of a representative office in Ho Chi Minh City for managing its new investment facility, Private Equity New Markets. In June 2006 Swiss-based fund VietNam Holding listed on the Alternative Investment Market of the London Stock Exchange. The fund raised $112 million from the listing, which will target state-owned enterprises in the telecom, mining, petrol and financial services sectors.
Also in June, locally-based Mekong Capital raised $50 million for its Mekong Enterprise Fund II. Early this year it invested this money in a mobile phone retailer and a magnet wire manufacturer. It is currently fundraising for a fund that will focus on investments in state-owned enterprises.
China-focused merchant bank London Asia announced early last year that it was planning to expand its operations into Vietnam, having entered into a memorandum of understanding with Vietcombank Fund Management in June to launch a fund for investing in Vietnam.