Vietnam: Opportunity for Access

Discussion Materials Regarding Investments into Private Equity and Strategic Partnerships in Vietnam, December 7th, 2009
D2C Macro Research
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Opportunities from the Top-Down

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Trade deficit reflective of Vietnams emerging middle-class consumer and urbanization which represent attractive underlying growth from domestic consumption driving GDP growth (retail sales +18% YoY). Very little FDI in domestic consumption (i.e. education, healthcare, and retailing at less than 4% combined); down from last year (8% of FDI) but represents significant opportunity for growth capital. Whilst the subsidy may help alleviate stress in the corporate sector and banking system, loan growth (36% YTD) will likely pare back demanding greater need for offshore funding and opportunities for strategic entry. Softening of the VND is a concern but the crawling peg is manageable whilst foreign debt still low.

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Managing Growth
Policies to Sustain Growth.
The continuation of the interest rate subsidy into the end of 2010 providing added growth buffer to potential windfalls Recent base interest rate hike an indication of maintaining credit discipline Loan to GDP ratios near 1 suggest external dependence via foreign denominated debt limited hence minimized exposure to exogenous disruptions
150% 100% 50% 0% 48% 99% 59% 120 100 80 60 40 20 0 0% 26% 21% 15% 3%

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The credit cycle returns to supplement growth

48% 36% 52% 40% 31% 26% 24% 16%18% 36% 25% 60% 50% 40% 30% 20% 10% 0%

USD Loan Outstanding (USD Bln)

YOY Loan Growth rate

Domestic credit to GDP at manageable levels with loan to deposit ratios relatively stable
142% 99% 93% 71% 91% 95% 110% 97% 101%

93%

66%

Loan to GDP (%) SOURCE: IMF, State Bank of Vietnam, D2C Research Creation Deployment Structuring www.d2capitalpartners.com

Loan to Deposit (%)

Managing Growth (Continued)

FDI tipping the balance
Although inflation is still a concern, the recent blip in inflation is also a result of the demand from Tet holiday preparations and recent currency dip As such, the recent 100bps policy rate hike (to an 8% base rate) shows Vietnams proactive measures to ensure moderation from past excesses With a controlled flow of new FDI, excess demand pressure less pronounced Meanwhile, ODA commitments of $8bn for 2010 will help dampen bottlenecks to infrastructure development
Inflation still under control
30% 25% 20% 15% 10% 5% 0% -5%

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CPI YoY

FDI absorption improving as marginal investments (i.e. real estate) are being shoved aside for more productive sectors
100% 80% 60% 40% 20% 0% % FDI [Disbursed] / GDP % FDI [Disbursed] / FDI [Announced]

SOURCE: General Statistics Office of Vietnam, Global Financial Statistics, D2C Research Creation Deployment Structuring www.d2capitalpartners.com

Trade Deficit Indicative of Robust Domestic Consumption

Imports reflect strong consumption
Vietnams domestic consumption a powerful driver to Vietnams 5.5% GDP growth guidance for 2009 Recent pick-up in imports seasonal as firms prepare for Tet holidays Vietnams trade balance situation should be viewed as an opportunity to capitalize on the countrys nascent development as supply lags demand
2000 1000 USD millions 0 -1000 -2000 -3000 -4000

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Leakage concerns but below early 2008 near-crisis levels

Monthly Trd Bal (2006)

Monthly Trd Bal (2007)

Meanwhile, external trade declines have floored implying limited downside risk
200% 150% 100% 50% 0% -50% -100%

Exports (Monthly YoY) SOURCE: GSO, D2C Research Creation Deployment Structuring www.d2capitalpartners.com

Imports (Monthly YoY)

Credit spreads relatively tame despite slight firming in yields

Seasonal yield push
Global risk appetite has improved postLehman pushing up yields, including VN Rise in yields can also be attributed to firms demanding funds for Tet (i.e. bonuses, extra inventory etc.) as well as the money markets pricing in policy rate hikes to curb credit growth (36% YTD in November) Foreign debt remains manageable with estimates as low as 30.5% and 90% of foreign debt from ODA; Plenty of room for $1bn sovereign issuance in January 2010 whilst CDS spread is moderate.
SOURCE: HOSE, Bloomberg, Reuters, D2C Research Creation Deployment Structuring www.d2capitalpartners.com 11% 10% 9% 8% 7% 6% 5% Jan-09 Mar-09 May-09 Jul-09 2 Yr VGB

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Debt yields on the rise but reflective of recent policy rate increase and Tet seasonality pushing up money markets

Sep-09

Nov-09

5 Yr VGB

1 Yr VGB

7 Yr USD Sovereign Bonds

Despite the rise in yields, CDS spreads have fallen substantially

1400 1200 1000 800 600 400 200 0

VN 5yr CDS

Indo 5yr CDS

Tha 5yr CDS

Phil 5yr CDS

Can the VND hold?

FX Reserves down 33% a concern
IMF estimates import cover of only 2.5months does cause alarm but Asian currencies appreciating relative to USD putting less pressure on VND depreciation SBVs exchange rate adjustment indicate proactive policy to stabilize the VND The currency slide has been buffeted by international aid (i.e WB, ADB, Japan) with ODA disbursement of $2bn thus far. Backlog FDI dollars providing VN extra cushion whilst YTD disbursements only -12% YoY in Oct Anecdotal discussions with the banks also indicate speculation from corporates hoarding dollars which has been short-term in the past Meanwhile, USD / VND liquidity confidence will return due to Tet remittances whilst the Tet funding squeeze will push up VNIBOR and deposit rates.
SOURCE: Bloomberg, Reuters, D2C Research Creation Deployment Structuring www.d2capitalpartners.com 250 200 150 100 50 0 20-Jul-09 20-Aug-09 20-Sep-09

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VNIBOR curve flattening as pressure mounts on shorterterm rates as Tet approaches

14 12 10 8 6 4 2 0 20-Oct-09 20-Nov-09 1M VNIBOR (%)

O/N vs. 3M VNIBOR Spread (20DMA)

As rates move upward, more support for the VND as the NDF spot / weak-side ceiling spread closing
20,500 19,500 18,500 17,500 16,500 15,500

USD/VND NDF Spot

UPPER BAND

LOWER BAND

Equity Market Volatility Offers Attractive Exits

Second worst to second best performing in the world Indications of strong liquidity with average daily trading volumes in October reaching an astounding ~USD315m for HOSE & HASTC Retail volumes ~95% driving the improved liquidity 10 companies with market caps above USD1b with new additions: Vietcombank, Vietinbank, Eximbank and Masan Lagging equitization offering opportunity for private companies to capitalize on domestic investor demand Retail speculation driving volumes offering attractive exits for listings
60% 40% 20% 0% 250 USD millions USD millions 200 150 100 50 150 USD millions 100 50 (50)

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Net FII flows positive on dips as confidence driving opportunities for arbitrage
700 600 500 400 300 200

(100) (150)

MTD Net FII (LHS)

VNINDEX (RHS)

Cumulative Net FII ripe for a new wave of capital whilst portfolio excess has tapered off
3,000 2,500 2,000 1,500 1,000 500 120% 100% 80% 60% 40% 20% 0% -20% -40% -60%

FII Buying as % Total Volumes(20DMA)

Daily Turnover (20DMA)

Cumulative Net FII (Feb. 6th, 2006)

SOURCE: HOSE, Bloomberg, Reuters, D2C Research Creation Deployment Structuring www.d2capitalpartners.com

Real Estate: Overview

Residential
Government stimulus providing indirect support to prices Capital gains taxes may ultimately benefit development as land speculation falls Pick-up in supply of new developments indicating confidence Signs of recovery as average asking prices in residential flooring Mid-end and affordable residential segment leading growth Occupancy high at 96% in HCMC with shortage of supply expected until 2011 Fashion and F&B key demand drivers with 30% of inquiries coming from F&B alone CBD rents relatively stable Retail sales grew 18.7% YoY WTO opening of retail to foreign investors offers new leg of growth
SOURCE: CBRE, Savills, D2C Research Creation Deployment Structuring www.d2capitalpartners.com

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Office
Average asking rents showing signs of flooring in HCMC Average occupancies up overall with overall vacancy at 17.5%, down from 18.1% in Q2 09 Major leasing agents experiencing increasing office space inquiries Landlords offering more flexible rental contracts and incentivized packages

Retail

Hospitality
RevPAR in HCMC bottoming posting increases in Q3 09 Access to finance difficulties delaying developments offering opportunities Vinacapital able to sell 70% stake in Hilton Opera Hanoi Hotel with 23% IRR 2010 expectations are brighter with pick-up in tourism and business trips

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Office Space Snapshot

HCMC
Type Grade A Grade B Grade C Total No. Bldgs 12 30 32 74 Supply (m2) 105,275 119,305 267,995 492,575 Occup. Rate 97% 84% 78% 84%

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Avg. Rent $43 $27 $17 $25

Hanoi
Type Grade A Grade B Grade C Total No. Bldgs 6 31 85 122
SOURCE: CBRE, Savills, D2C Research Creation Deployment Structuring www.d2capitalpartners.com

Supply (m2) 100,071 374,356 277,914 752,341

Occup. Rate 81% 86% 84% 85%

Avg. Rent $63 $30 $22 $32

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Poor Access + Uncertain Legal Framework =

Vietnam M&A Slowdown
Units in USD bn
World USA China SE Asia Vietnam

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Declining Capital Flows

% Change
-41.9% -49.2% 38.6% -62.8% -50.7%
USD millions 2000 1500 1000 500 0 2003 2004 2005 Total Value (USD mn) 2006 2007 2008 Average Deal Value 20 15 10 5 0

1H 2009 M&A
914.04 289.36 38.29 18.56 0.23

1H 2008 M&A
1,573.33 569.07 62.33 49.94 0.471

Vietnam Has Seen V Little

70,000 60,000 50,000 USD millions 40,000 30,000 20,000 10,000 0 China Transaction Value (1H 2009) SE Asia Vietnam Transaction Value (1H 2008) -38.6% YoY -62.8% YoY

Shrinking Size
60.0 50.0 USD millions 40.0 30.0 20.0 10.0 China Average M&A Deal Size 1H 2009 SE Asia Vietnam Average M&A Deal Size 1H 2008 -22.5% YoY -61.5% YoY

-50.7%% YoY

-76.3% YoY

SOURCE: Reuters, Price Water House Coopers, D2C Research Creation Deployment Structuring www.d2capitalpartners.com

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Growing through M&A

Domestics Seeking New Growth
Domestic credit growth (36% YTD) helping to fuel M&A financing Domestic conglomerates taking advantage of cheaper target valuations Cheap funding costs globally offering growth capital channels for larger players with access to international capital markets

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Growing the M&A war-chest

FPT raises USD100m convertible FPT raises USD100m convertible bond bond Masan Group raises USD50m from Masan Group raises USD50m from TPB and BankInvest and another TPB and BankInvest and another USD20m from Japanese strategic USD20m from Japanese strategic Vincom raises USD100m convertible Vincom raises USD100m convertible bond bond Hoang Anh Gia Lai raises ~USD75m Hoang Anh Gia Lai raises ~USD75m from convertible bonds from convertible bonds Hoa Phat Group raises ~USD60m Hoa Phat Group raises ~USD60m from convertible bonds from convertible bonds

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CAP MKT UPDATE : What Has Changed

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The Bad News VN remains on periphery of regional investment universe Risk appetite of overseas funds for high risk, emerging assets is still depressed The quality of onshore capital market advisors lags far behind that of lawyers and accountants The Good News Strategic investor interest is rising Specialist financial investors get more access opportunity Funding costs are low Less noise = more deals can be done but Preparation and structuring is critical
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Rational Behavior, Finally

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Investors into VN are more cautious, and getting much better prepared, than at anytime in the past . Competitive and industry analysis Substantially more comprehensive terms, reps and warranties Detailed due diligence Post Deal monitoring

This requires that sellers/founders/shareholders step up to the challenge and meet these needs if they want the capital.

Creation Deployment Structuring www.d2capitalpartners.com

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Most Common Deal Tripwires

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Deals tend to flounder on a regular series of factors, many of which may be international practice - but in VN it is all innovation Emotional Seller Premium Contingent Risks especially from earlier raise Validity of Documents are licenses even real ? Failure to Launch understand the need Veto Rights some things require permission Options to put or call

Avoid/fix these and your chances just improved sharply

Creation Deployment Structuring www.d2capitalpartners.com

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We Like Domestic Consumption Plays

Healthcare
Industry Overview
$6.3b 2009 healthcare expenditure (9% YoY growth) with 69% from private HCMC Wght Avg Spend = $1,300 Vinacap & DB invest $20m in Hoan My Pharmaceuticals Healthcare Services Clinics Aesthetics

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Education
Industry Overview
Annual spend per capita growing 29% CAGR since 1995 45% YoY growth for university students studying abroad during 2008-2009 Primary / Secondary University Vocational

Sector Opportunities

Sector Opportunities

Telecommunications
Industry Overview
Mobile subscription penetration rates approaching 100% by FYE 2009 Increasing Minutes of Use (MOU) with GPRS and 3G (launched by Vinaphone)

Online Technology
Industry Overview Sector Opportunities
22m internet users (25% penetration) ~20K internet cafes Cheaper and better quality web access Ripe for user community monetization E-commerce Online Social Networking Online Games

Telecommunications Infrastructure 3G Services Sector Opportunities Mobile Value Added Services (MVAS)

SOURCE: BMI, Euromonitor, VNExpress, D2C Research Creation Deployment Structuring www.d2capitalpartners.com

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Vietnam Epitomizes the Asian Domestic Consumption Theme

Despite the global slowdown, Vietnam continues to consume ravenously at 18.5% YoY retail sales growth in Nov. Rising incomes, young demographic and high propensity to consume offers attractive investment opportunities With $58b in retail sales in the first 11 months of 2009, we are convinced
Young demographic with 63% of the population under the age of 35 promises vast potential
75 - Age (Years) 60 - 45 - 30 - 15 - 0-4 0 2 4 Male 6 Female 8 10 Million Persons 800 600 400 200 0 2004 362.8 388.7 432.7

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The rise of the middle class consumer

573

513.5

2005 2006 2007 Consumption Per Capita (USD)

2008

Robust retail sales growth highlights the opportunities

60 50 40 30 20 10 2004 2005 2006 Retail Sales (USDbn) 2007 2008 25.32 30.30 45.52 37.29 55.32

SOURCE: US Census Bureau, General Statistics Office, IHS Global Insight Creation Deployment Structuring www.d2capitalpartners.com

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How to Buy What You Like?

Industry / Sector Mapping Identify targets Industry / sector insight Matrix business models Comp sector valuation

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Structuring Away Risks Stress test assumptions Refine deal structure Scour for landmines

Maintaining Protection Post-deal monitoring Onshore execution Have local visibility

Negotiating the Spread Get minority protection Justify your case Mutual understanding Use 3rd party buffer

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Appendices

D2 Capital Partners

With more than forty years of combined, international, capital market experience, D2C is defined by Capital : Creation Deployment Structuring

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The Scope of Our Partnership

VC and PE Investment Business Plan Preparation Capital Structuring Deal Negotiation Due Diligence Industry Mapping & Competitive Analysis Post Deal Monitoring Strategic Advisory

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Case Study 1: Proactive Preparation

Easing Investor Pain Background
CONTEXT:
Strategic Investors in Education, Media, Alternative Energy and Construction Materials, sought / seeking potential JV and / or M&A targets in Vietnam. 4.30% 30.40%

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Strategic sales still attractive

4.30% 13.10% 26.20% 21.70% IPO Trade Sale Secondary Sal MBO Refinancing Other
Most Attractive / Achievable Exit Strategy

PREPARATION:

Macro Overview Industry Analysis Sub-sector analysis Competitive Analysis Target DD

Key Takeaways
Lack of information hindering deals requiring strategic investors to pay for professional insight and intelligence. Companies providing better cooperation calm investor concerns Strategic Investors are actively preparing for potential partnerships and so should interested companies: improve your ranking on investors list of priorities!

STRUCTURE:
Potential JVs M&A

EXECUTION:

Industry / Sector mapping, interviews Potential JV Partner / Target Negotiations

SOURCE: Grant Thornton Private Equity Survey 2009, D2C Research Creation Deployment Structuring www.d2capitalpartners.com

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Case Study 2: Professional Help

Appear Serious Background
CONTEXT:
FMCG distributor & retailer sought equity capital raise to expand into mass distribution. Regulatory hindrances in sensitive sector to foreign participation required extensive professional advice. Transaction closed in <3 months

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Addressing Investor Concerns

2.00% 4.10% 4.10% 4.10% 22.40% 8.20% 10.20% 12.20% 14.30% 18.40% Transparency in business activities Operational / Cultural Fit Growth story / Forecasts Target's management support Strategic fit Cash flow Speed which value can be created Tax shields and investment savings Brands / Products Track record

PREPARATION:

Investment Teaser Business Plan Formulation Detailed Forecasts & Valuation Model

Investor Concerns When Investing in Vietnam

Key Takeaways
International caliber work and document packs enhanced management credibility Professional sell-side advisory services ensured necessary provision of information to investors for faster decision turnaround Structuring advice provided multiple solutions to potential deal killers Coaching of management enhanced negotiation techniques with investors
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STRUCTURE:

Straight Equity Convertible Bond (Loan) Bridge Financing Call Option for Ownership Rights to FMCG Co.

EXECUTION:

Investor Road Show Term Sheet Discussions

SOURCE: Grant Thornton Private Equity Survey 2009, D2C Research Creation Deployment Structuring www.d2capitalpartners.com

Case Study 3: Flexible Pricing

Structuring Investor Returns Background
CONTEXT:
Professional Services Company sought capital raise with structured equity bonus conversion feature.
4% 8% 8% 13% 67%

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Returns Attract Investors

IRR obtained on exit Dividends received Successful integration Improved revenue Cost savings Measuring Investment Success in Vietnam

PREPARATION:

Investment Teaser Business Plan / Investment Memorandum Drafting Investor Presentation & Coaching Detailed Forecasts & Valuation Model

STRUCTURE:

Key Takeaways
Detailed strategy & model frame-worked and expedited discussions Management flexibility and rationality instilled greater trust in management Return windfall protection alleviated investor concerns KPI benchmark linked performance ensured alignment of interests with investor

Standard Terms & Conditions Convertible Bond KPI Benchmark Bonus Equity Kicker

EXECUTION:

Investor Road Show Term Sheet Structuring Negotiations

SOURCE: Grant Thornton Private Equity Survey 2009, D2C Research Creation Deployment Structuring www.d2capitalpartners.com

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Case Study 4: Corporate Governance

The Truth Reveals Itself Background
CONTEXT:
15.70% 11.40% 11.40% 18.70% 21.40% 21.40%

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Being fair and open matters

Corporate Governance Skills / Experience of existing management Lack of transparency Finance / debt issues

Well established and rapidly growing services company sought equity capital for new venture; however, clause in shareholders agreement from previous investor presented considerable risk and liability to new investors.

PREPARATION:

Important Investment Considerations / Factors

Investment Due Diligence Report Model Assumptions Sensitivity Testing Legal Due Diligence Report

Key Takeaways
Unwillingness to provide full transparency on legal documents can endanger deal Eventual cooperation by management lead to a partnership with the new investor for MBO / LBO of existing shareholders in Holdings subsidiary Offshore investors now requiring extensive professional due diligence support and buy-side advisory services. Third party post-deal monitoring also becoming of greater importance to offshore investors with limited man power, experience and resources in VN
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STRUCTURE:

Standard Terms & Conditions Straight Equity at Holdings Group Level MBO / LBO carve out at Subsidiary Level

EXECUTION:

Location Inspections D2C Supported Negotiations

SOURCE: Grant Thornton Private Equity Survey 2009, D2C Research Creation Deployment Structuring www.d2capitalpartners.com

Background Information
Spencer White, CFA (sdw@d2capitalpartners.com; +84 907 009 112)

D2 Capital Partners

Spencer is a co-founder and Managing Partner of D2 Capital Partners. Prior to D2C, Spencer was an Executive member of the Board of TVS, a start up Investment Bank in Vietnam, leading its nationwide growth for two years. Prior to TVS Spencer was a Managing Director of Merrill Lynch. Having joined the Asia Pacific Group in 1999 he became the Chief Regional Equity Strategist in 2001. Previously, Spencer was the Country Head for Taiwan. Prior to joining Merrill Lynch, Spencer was an Associate Director with AIB Govett Asset Management in London and before that he served as an investment manager with Hambros Bank, investing in both large- and small-cap Japanese companies. Spencer received a First Class Honors degree in Management Science from the University of Warwick and he has been a CFA Charter Holder since 1997.

Christian Leitzinger, MBA (cwl@d2capitalpartners.com; +84 902 250 393)

Christian co-founded D2 Capital Partners in 2009 and is Managing Partner. Prior to D2C, Christian joined TVS in 2007 heading the Institutional Client Group as Managing Director; servicing domestic and foreign institutional investors in the Vietnamese equity and bond markets. Prior to TVS, Christian was a Director at CIBC Oppenheimer World Markets (Canada). Having joined the US Equity Sales team in 1999, he rose to manage the team by 2004. His role was to aid Canadian institutional investors in allocating capital within the US and China. Prior to joining CIBC Oppenheimer World Markets, Christian worked on the investment side at Mackenzie Financial (USD40bn AUM) and ODonnell Investment Management (USD2Bn AUM) investing in mid/small-cap Canadian companies. Christian received a Bachelors degree from McMaster University in Canada, and an Executive MBA from the Kellogg School of Management (Northwestern University, Chicago).

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Contact Information
Vietnam Office: 5th Floor, Nam Minh Long Building 61A Vo Van Tan, District 3 HCMC, Vietnam www.d2capitalpartners.com
Spencer White, Managing Partner Email: sdw@d2capitalpartners.com Mobile: +84-907-009-112 Ian Nguyen, Vice President Email: ian@d2capitalpartners.com Mobile: +84-934-164-716

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Christian Leitzinger, Managing Partner Email: cwl@d2capitalpartners.com Mobile: +84-902-250-393 Tat Sun Ho, Vice President Email: tat@d2capitalpartners.com Mobile: +84-121-728-8080

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