Background of the Mekong Enterprise Fund II

Where is the Mekong Enterprise Fund II located?
The Fund is domiciled in Mauritius. Therefore, when it invests in Vietnam, it is treated as a foreign investor in Vietnam. However Mekong Capital, the Fund's investment manager, has a Representative Office in Ho Chi Minh City and Hanoi.

What is the relationship between Mekong Capital and the Mekong Enterprise Fund II?
Mekong Capital and Mekong Enterprise Fund II are two separate companies. The Mekong Enterprise Fund II has no employees but is managed by Mekong Capital under a long term Investment Management Agreement. The Fund has a Board of Directors but otherwise has no employees.

In which companies has the Fund so far invested and how much?
Please see the Fund's Portfolio page of this website.

Is the Fund a development Fund or is it for profit?
The Fund operates on a for-profit basis only. We aim for the highest possible Internal Rate of Return (IRR).

Investment Manager

How long will Mekong Capital operate in Vietnam? What will happen after the Fund is fully invested?
Mekong Capital intends to continue investing in Vietnam indefinitely. When the Mekong Enterprise Fund II is fully invested, Mekong Capital will launch Mekong Enterprise Fund III which will be similar to Mekong Enterprise Fund II, but larger. Mekong Capital expects to continue to make around 5 private equity investments per year.

Does Mekong Capital provide consulting services to other companies?
No. Mekong Capital's only source of revenue is the management fees it receives from the investment funds which it manages. Mekong Capital does not provide consulting services to companies besides for the ones in which its funds have invested because Mekong Capital wants to avoid any possibility of a conflict of interest.

Why is Mekong Capital growing more slowly than other investment fund managers in Vietnam?
Mekong Capital's objective is to have the highest possible return for investors (net IRR) on the funds that it manages. For that reason, Mekong Capital is very selective about only investing in excellent companies and only makes a limited number investments per year. Likewise a higher percent of Mekong Capital's team is focused on working closely with existing investee companies to make improvements so that they can grow more quickly, which means that we allocate a smaller percent of our total resources towards finding and appraising new investments or marketing to potential new shareholders for our funds. Finally, in order to ensure that each member of our team meets a very high standard of professional excellence, we believe that Mekong Capital should grow at a reasonable rate but not too quickly.

Whom should I contact if my company would like an investment from the Fund?
Please visit the contact page.

Investment Criteria

In what kind of business does the Mekong Enterprise Fund II consider investing?
The Fund’s primary focus is private companies involved mainly in manufacturing, branding and distribution. Although the Fund prefers to invest in private companies, the Fund will also consider investments in equitized companies or foreign owned companies in Vietnam.

Does the Fund invest in companies listed on the stock exchange?
No. The Fund is a private equity Fund and makes investments in Vietnamese companies before they are listed on the stock exchange. However, many of the Fund’s investee companies are likely to list on the stock exchange while the Fund is a shareholder.

What are the size requirements of companies that want to receive an investment from the Fund?
The Fund typically invests in Vietnamese companies with annual revenues between $10 million and $25 million and annual net profit between $500,000 and $2 million in the year that the Fund makes the investment.

Does the Fund lend money to companies?
No. The Fund is not a credit institution. The Fund can only make loans if those loans are convertible into equity (shares).

Does the Fund invest in competing companies in the same industry?
The Fund may invest in multiple companies involved in the same industry but the Fund is very unlikely to invest in two companies that are direct competitors at the time of the Fund’s investment.

What is “transparency” and why is this important?
Transparency usually refers to the level of availability, accuracy and detail in the company financial statements as they are presented to investors such as the Mekong Enterprise Fund II. Investors prefer to invest in companies with a high level of transparency because those investors can have a more comprehensive knowledge about what is happening within the company, which helps to reduce the risks faced by investors. Meanwhile, companies with high levels of transparency are usually considered more well managed because it means that the management team is well organized and is making well informed decisions. For these reasons and others, investors will usually value companies with excellent transparency at a premium to other companies and companies with poor transparency at a discount to other companies.

What is “corporate governance”?
Corporate governance is a set of mechanisms by which a company is directed and controlled. The corporate governance structure specifies the distribution of rights and responsibilities among different participants in the company, including Shareholders, the Board of Directors (called “Board of Management” in Vietnam), managers and other stakeholders. The corporate governance structure also establishes the rules and procedures for making decisions on a company’s affairs. A key objective of corporate governance is to adequately protect the best interests and fair treatment of the shareholders in a company, as a company’s objective should be to maximize shareholder value for all its shareholders, both local and foreign. Corporate governance does not relate to the day to day management of the company, other than defining the rights and responsibilities of the management team.

Similar to transparency, a company with strong corporate governance is more attractive and lower-risk to investors and therefore will have higher valuations compared to companies with poor corporate governance.

Investment Process

What are the procedures of investing in a company? How long does it usually take?
The process usually takes around 6 months from the time that an appraisal is commenced. Please visit the Investment Process page for more information.

What is the method used in calculating the value of the business?
When doing an appraisal on a potential investment, Mekong Capital cooperates closely with the company to develop a detailed financial model with realistic financial projections. Mekong Capital uses this financial model as a basis to propose a valuation to the company’s shareholders at the end of the appraisal process.

After an investment is made

What are the areas in which Mekong Capital has accomplished the most achievement in assisting investee companies?
Although we work closely with companies to make improvements in a variety of areas, in a survey of our existing investee companies in early 2005, they indicated that we had added the most value in helping to recruit capable managers, having a positive impact on the company’s public image, improving data collection systems, improving accounting systems and improvements in production management systems.

Will the Fund get involved in managing the business?
Not unless there is a crisis. The Fund does not get involved in the day to day management of a company and does not make management decisions. However, the Fund does try to help its investee companies to improve their management systems, strengthen their management team and solve problems that arise.

Does the Fund require to receive dividends?
The Fund welcomes dividends but is very flexible on the dividend policy of its investee companies. Generally the dividends should be low if the company’s return on investment is very high, because the company has good opportunities to reinvest the money, whereas dividends should be high if the company’s return on investment is low.

How long will the Fund hold its investment?
The Fund aims to hold its investments for 5-7 years. However, it may gradually start reducing its shares in a company after 3-5 years, or whenever the company lists on a stock exchange. When an investee company does list on the stock exchange, it doesn’t mean that the Fund will suddenly sell its shares. Its most likely that the Fund will gradually sell its shares in a listed company over a period of several years.

What is the exit strategy?
The Fund prefers that the companies in which it invests list on a stock exchange within 2-4 years of the Fund’s initial investment and the Fund works closely with its companies to develop listing plans. However, if a company decides not to list or isn’t likely to list within a reasonable time frame, then the Fund is most likely to eventually sell its investment to a strategic investor or another financial institution. However, the Fund aims to hold its investment for 5-7 years so it is unlikely to sell its shares to any new investor within the first few years of making an investment.

Can the Fund invest more money after the initial investment?
Yes, the Fund can invest more money after the initial investment. We can also help to find additional investors who may also invest in the company after the Fund’s initial investment.

When the Fund invests in a company, must the company pay any fees?
No. Neither the Mekong Enterprise Fund II nor Mekong Capital accepts any fees from a company when the Fund makes an investment in that company. Our objective is for the value of the Fund's investment to increase as much as possible over the  period that the Fund holds the investment in the company. Therefore, any assistance or time spent by Mekong Capital on that company is done so that the value of the Fund's investment can increase as much as possible.