Percent Ownership of any company

The Fund usually intends to hold 20%-30% of the shares of the companies in which it invests. However, in some cases the fund will consider buyouts in which it holds more than 50% of the shares of investee companies.

Minimum and Maximum Investment Size

The Fund typically expects to make investments ranging from about $3 million to $5 million. However, in some cases the Fund may make investments which are smaller or larger than this, especially if it is an initial investment in a company in which the Fund expects to make subsequent investments.

Stage of Development

The Fund aims to invest in expansions or restructurings of unlisted companies approximately 3-4 years before the company plans to be listed on a stock exchange. This allows for 1-2 years for us to work closely with the company to improve financial reporting and 1-2 years of excellent financial reporting prior to listing.

Typically a company would need to have expected net profit after tax of at least $500,000 in the current year in order for us to consider the company to be sufficiently large for us to consider an investment for Mekong Enterprise Fund II.

The Fund may not invest in start-ups, which we consider to be companies with an operating history of less than one year.

Regional focus

The Fund will invest in the securities of companies domiciled in, or having significant operations in, Vietnam.

The Fund will also have the ability to invest in the securities of companies domiciled in, or having significant operations in, Cambodia and Laos. However, there will be no obligation on the Fund to invest in Cambodia or Laos.

Significant operations includes companies that generate at least 75% of their revenues or have at least 75% of their employees or purchase at least 75% of their raw materials in the relevant country at the time of investment.

Due to the high level of regular interaction that is expected between the Investment Manager and the Investee Companies, the Fund is most likely to invest only in companies which are within a 3 hour drive of an office of the Investment Manager. Mekong Capital has plans to open an office in Hanoi after the Initial Closing. The Investment Manager will also consider opening offices in other locations such as Phnom Penh, Danang or Can Tho, but there are no current plans to do so.

Corporate Governance and Transparency

The Fund requires that companies in which it invests meet high standards in terms of financial reporting, including having their accounts audited by a reputable auditing company at least on an annual basis. The Fund also requires that companies in which it invests meet high standards of corporate governance, especially so that the rights of minority shareholders, such as the Fund, will not be violated. In particular, the Fund will not invest in companies that have conflicts of interest between the shareholders and the company itself, such as through related party transactions.

Key Issues Considered in an Appraisal

When considering a potential investment for the Fund, the most significant factors considered by Mekong Capital relates to the quality of management team, including the senior management team's commitment to continuously strengthening the management team. This is because we believe that the most significant factor that determines the growth rate of any company in Vietnam is the capability and characteristics of the management team.

Likewise we can only consider investments in companies with a serious commitment to listing their shares on a stock exchange, and therefore willing to make all of the changes required for a successful listing. These companies should have a strong focus on creating shareholder value as their overall objective.

Of course we also consider other factors when performing an investment appraisal.

Fund's Policies and Restrictions

The Fund has investment policies and restrictions which will prevent the Fund from investing in companies which have negative social, labor, environmental or regulatory-compliance impacts.

Dividend Policy

The Fund does not require investee companies to pay dividends to the shareholders if the company can reinvest the profits in a way that is expected to create value. This is because the Fund's main focus is to make its profit through capital gains when it eventually sells its shares in the company.

Exit strategy

The fund does require an exit strategy. This means that there should be a plan in place for allowing the Fund to eventually sell its investment in the company after an average holding period of approximately 5 years. Usually this plan involves a listing of the company's shares on a stock exchange in Vietnam. However, the Fund is also open to other forms of exit opportunities.

Fund's Representation on Board of Directors

When the Fund makes an investment, it requires to appoint a representative to the company’s Board of Directors. This person’s role is not to be involved in the day to day management of the company. Instead, this person’s role is to monitor the investment and provide advice and assistance to the company, in order to help create shareholder value for the company.