As Asiamoney celebrates its 30th anniversary, the progress of Vietnam’s financial markets over the same period can be told through the experiences of one man, Dragon Capital’s Dominic Scriven. Eric Ellis report on Euromoney.
Although he was one of the pioneer foreign investors in reformist Vietnam nearly 30 years ago and has plenty of juicy tales and insights of his own, Dominic Scriven seems keener to talk about Madame Lan, the long-serving tea and coffee lady at his investment house Dragon Capital, than his own adventures navigating this frontier market.
Madame Lan, Scriven explains, is not only “the best coffee-maker north of the Mekong,” she’s also an entrepreneur.
“She’s just become an independent power producer,” beams the pony-tailed Scriven, 56, kicking back in his office in Ho Chi Minh City, the peppy hub of Vietnamese commerce. “She’s selling solar power generated off her roof into the city grid. She’s learned about that because she’s been around the coffee room and talking to people. She confirmed this morning that [state power utility] Electricity Vietnam is standing up to its monthly payment obligations to her. Rainy season ends November, so her smile will broaden.”
Madame Lan’s is an experience of the times, says Scriven. Vietnamese of her generation, particularly those from the country’s south, began their lives under French colonial rule before enduring years of dictatorship, corruption, war, isolation, Hanoi’s doctrinaire communism and the often brutal ideological re-education that was imposed with it.
Their assets were seized and nationalized, their businesses dissolved, their families torn apart; as many as five million fled, many making perilous escapes by sea, the so-called ‘boat people’.
But since 1990, about when Scriven first landed in Vietnam, they have also been the beneficiaries of Vietnam’s enthusiastic embrace of market economics.
“It’s very uplifting,” says Scriven, who baulks at the ‘communist’ label given to his home of the past 27 years, even though it is officially known as the Socialist Republic of Vietnam, and ruled in large part by the Communist Party of Vietnam since 1945.
“Of course it’s not communist. It’s a misnomer,” he says. “You might call it authoritarian, autocratic but it’s not communist, not in how it functions. Singapore is a model, they love the idea that it’s pro-market, and there’s very little resistance.”
Vietnam Enterprise Investments Limited (Veil), the fund Scriven launched in 1995, has mirrored Vietnam’s transformation.
Veil is listed on the main board of the London Stock Exchange and has become the way to play the Vietnam growth story. With assets of $1.5 billion, Veil is the oldest Vietnam-focused fund, and targets both listed and pre-IPO companies with an emphasis on strong corporate governance, something not always evident among Vietnam’s apprentice capitalists.
In a market where direct private investment remains the preferred investment mode, Veil has been the biggest investor in Vietnam’s stock market, and Scriven sits on various private and public boards.
Bill Gates’ charitable foundation is an investor in Veil, holding just over 11%. David Cameron, the former UK prime minister, was also a Veil investor for a while, his name surfacing in the infamous Panama Papers revelations in 2016.
We’re really all about capital markets, but because of the way things are, it’s still first-generation and end-of-first-generation capital. We have to be quite active. Everything, 100%, is self-originated. There is no alternative
– Dominic Scriven, Dragon Capital
Scriven’s approach to investing is old-fashioned foot-slogging.
“Well over half our investing is originated by ourselves,” he says. “Which means going out, talking to people, even in public companies. And it’s IPOs, it’s the primary market, it’s structured transactions, that sort of thing. We’re really all about capital markets, but because of the way things are, it’s still first-generation and end-of-first-generation capital. We have to be quite active. Everything, 100%, is self-originated. There is no alternative. It means your investment process is by default very comprehensive. It validates it all the way through.”
A law and sociology graduate from Exeter University, Scriven first pitched up in Hong Kong in 1986. In those days, waves of clubbable British 20-somethings descended on Hong Kong, summoned old school chums to help them walk into a job, spent a few years “out East” to make easy money in a privileged expatriate bubble of office, club and weekends of bacchanalia on corporate junks before heading back to the UK and a career of City respectability.
But Scriven was somewhat different. He was keen to learn local languages, an almost derisory notion among many of his gweilo peers. Hong Kong was ‘Asia lite’ and, as he explains, his zest for venturing outside comfort zones ran through his family; his mother had guided tours through Asia and the Soviet bloc since the 1970s, “so these places weren’t entirely unknown to me.”
Hong Kong and Asia were changing fast. The ink was still drying on the 1984 treaty that would send Hong Kong back to China in 1997, and as the establishment changed and businesses localized, cushy expatriate gigs dried up. The end of the Cold War also re-arranged old orthodoxies, and exciting new markets were emerging in places like Vietnam.
Mysterious places
Scriven first joined the British brokerage Vickers da Costa, whose Hong Kong office was run by Philip Tose; Tose had caught the changing mood by initiating market coverage of Li Ka-shing as a tycoon to watch. As Li moved to devour much of corporate Hong Kong on his way to becoming one of Asia’s richest men, Tose parlayed his Hong Kong Chinese business connections into Peregrine Investment Holdings, which he imagined as Asia’s home-grown answer to the British firm Jardine Fleming and the great American investment banks such as Goldman Sachs and JPMorgan.
Scriven then joined another local firm that had designs on breaking the Western stranglehold over access to Hong Kong’s capital markets, Fung King-hey’s Sun Hung Kai Securities. As Scriven recalls, in those days, the terms NICs and NIEs were common parlance among east Asia investors. The newly industrialized countries, or NICs, were South Korea, Taiwan, Hong Kong and Singapore, and the NIEs, or newly industrializing economies, were Malaysia, Thailand, the Philippines and Indonesia.
The thrusting NICs and NIEs were manna for the firm’s grown-up dealmakers, but Scriven’s bailiwick at Sun Hung Kai was the ‘still-too-hard’ economies, lacking an established foreign investment regime and functional capital markets.
These were places such as Burma (now Myanmar), Laos, Cambodia and Vietnam. From the latter, reports had emerged that the hard-line communist regime were experimenting with market reforms.
Scriven’s interest was piqued. He first visited Vietnam and Myanmar in 1990 while working at Sun Hung Kai, mostly out of adventure, to learn more about these mysterious places. Though Scriven’s employer Sun Hung Kai had a stake in a tourist hotel in Yangon, Myanmar didn’t impress.
In Vietnam, things were clearer, more matter-of-fact and, as he puts it, “Confucian.”
But they were also still very communist and doctrinaire. In Hanoi he stayed at a hotel, the Thang Loi, or Victory, that was built by Cuban comrades from the Soviet-led Comecon economies, the Council for Mutual Economic Assistance, or ‘Commiecon’ as Western cold warriors liked to call it. Romanian or Hungarian was more likely to be spoken by Hanoi’s comrades as a second language than English or the French of Vietnam’s former colonizers.
In Ho Chi Minh City, the former Saigon, Scriven felt the state-dampened energy, “but energy nevertheless.”
It was during a road trip along Vietnam’s rural spine that Scriven became smitten.
“The people were great, and I just thought to myself: ‘Why am I not here doing this myself?’”
Scriven wrote letters to leading universities in Hanoi inquiring about language courses, and was offered a place at Hanoi University. He gave his notice at Sun Hung Kai and returned to Hanoi to become a student again, aged 28.
“There were a few Cubans on campus, an East German and a Romanian, a couple of Westerners backed by churches who would come and proselytize and a couple of Japanese funded by their companies,” he remembers.
Scriven lived in a little flat in central Hanoi and studied Vietnamese for two years with a single teacher who had only one student – Scriven. He self-financed his studies with “a few shares in Sun Hung Kai.”
Around him, Vietnam was embracing the market.
“As time went on I thought: ‘OK, that’s enough (studying). I’ve got to get going’.”
Scriven had kept in touch with Tose, his old boss at Vickers who had set up Peregrine in Hong Kong; the firm was opening offices throughout the region and there was a Peregrine offshoot in Ho Chi Minh City, headed by a Vietnamese-Australian called Nguyen Trung Truc, a refugee returnee better known for his boisterous bar Rootz, which boasted a caricature of Truc on its wall with the tongue-in-cheek inscription ‘I believe in communism.’
We thought there’d be a market in the next year, but what happened is that Thailand blew up and everything else blew up
– Dominic Scriven, Dragon Capital
Truc’s style didn’t endear him to local officials and Peregrine Vietnam “got into all sorts of trouble” remembers Scriven – as did the parent in Hong Kong and Tose, among the most spectacular casualties of the 1990s Asian financial crisis.
Scriven worked at Peregrine for eight months, doing no deals. It only served to confirm to Scriven that he needed to go it alone.
“So eight of us, including the tea lady and my driver, we set up a hole in the wall, thinking there would be a market. It was in 1994,” remembers Scriven.
Dragon Capital was born. It was a huge leap of faith.
The wider perception of Vietnam at the time was atrocious, he remembers.
“It was under US economic embargo, there was no World Bank activity, no IMF activity, the UN was only able to do humanitarian work and Hollywood was in its Vietnam phase, which wasn’t flattering,” he recalls. And, coming from Hong Kong, there were still thousands of boat people arriving in the then-British colony.
“I remember watching yet another fishing boat coming in, and seeing these emaciated figures.”
But the establishment of Vietnam’s securities regulator in 1996 was a sign that his instincts were sound. Scriven had raised $16 million for what became his flagship fund, tapping family, friends, various Hong Kong investors and big international names such as Nomura, Fidelity and Barings. The first investment Dragon made was in an office building in Ho Chi Minh City: it catered to some of the new Vietnam’s earliest foreign investors, who paid in hard currency.
Dragon’s first few years were tough.
“We thought there’d be a market in the next year, but what happened is that Thailand blew up and everything else blew up.”
It was the Asian financial crisis of 1997 to 1998. Scriven remembers the famous photograph of Suharto, Indonesia’s president at the time, seemingly subservient to the then-IMF managing director Michel Camdessus as Indonesia’s IMF bailout was signed. That picture, recalls Scriven, got embedded “deep in the psyche” of Vietnamese policymakers in Hanoi toying with market liberalization.
“These guys in Hanoi went: ‘Whoa, we aren’t having any of that. This volatility? No way.’ So they iced the market proposal for a few years. They were spooked, mostly by currency markets, and that in turn was reflected in flows of capital,” he says. “There were no listed shares. Vietnam didn’t then have markets, but it had foreign direct investment, and that got overheated. And there was a banking problem. We had some tough years. We lost a bit of money, mostly on currency. It was learning.”
Were there moments when Scriven thought of packing it all up?
“1999 was a tough year,” he says. “Because you could see all the other places rebounding, Thailand and Korea. But in 2000 [Vietnam] started a stock market and we never really looked back.”
Pioneer
Dragon Capital has been a pioneer of modern Vietnamese investment.
Scriven says there was a period when Dragon was always using the word first in its prospectuses.
“We did the first convertible bond. We did the first straight equity in a corporate. We did the first investment in a financial institution. I mean everything we did was basically first,” he says. “The first genuinely Vietnamese investment was Asia Commercial Bank, which is an investment we still own 20 years later. We invested $3 million.”
Scriven is now a director at ACB, and Dragon has also invested in another Vietnamese private bank, Saigon Commercial Bank.
Domiciled in the Cayman Islands, the Veil fund that Scriven started with $16 million is still going. It is now one of two pure Vietnam plays in the FTSE250 list (alongside VinaCapital’s Vietnam Opportunity Fund) and is capitalized at about $1.5 billion.
“I think that it’s at about 11.5% compounded annual return in dollars,” says Scriven. “I always make reference to my mum, because she was a day-one investor. She put in at a dollar valuation in 1995. And now it’s sort of $11 to $11.5, compounded, and she’s still in. It’s now her biggest investment.”
We did the first convertible bond. We did the first straight equity in a corporate. We did the first investment in a financial institution. I mean everything we did was basically first
– Dominic Scriven, Dragon Capital
Scriven’s stand-out deal in 25 years was the 2003 privatization of the state dairy producer Vinamilk.
“We had identified Vinamilk and we spent a lot of time working with the management,” he says. “The management wanted to privatize Vinamilk, but they were being stalled by the old general secretary, who felt that it was a strategic industry. Then he retired and they managed to persuade the powers that be that they could privatize. We helped them build a model, which was to sell a little bit in an auction. It happened at the end of 2003, and I can remember the government valued the business at $100 million. We bid a value of $150 million. We got near enough to 10%.”
Singapore drinks group Fraser and Neave came in as a strategic investor, and by the time Vinamilk listed on the new stock exchange, the state’s stake was down to 51%.
Scriven remembers the float well.
“Market cap doubled and everybody at Dragon got a month’s bonus,” he says. “It went from $500 million to over a $1 billion. I suppose we paid $15 million. Vinamilk is now about $9 billion. They pay more in tax than the original valuation, and everybody who has worked there is a millionaire. And the government now owns an asset of $3 billion, having sold down to 30%. We are still in, but much lower. At one stage, Vinamilk counted for 42% of one of our funds. You can’t do that these days.”
The Vinamilk triumph was followed by a painful dud. As he describes it, a partner at Dragon “got very enthused by the mining sector”.
Dragon took a stake in a fund in 2007 that was focusing on the resources sector, and its biggest investment was a tungsten mine.
“It turned out it wasn’t a mine but a piece of land with tungsten under it. And we ended up taking it on and becoming a majority shareholder. It was a private investment, therefore it had no valuation. It was obviously illiquid. The global financial crisis came and it then became the biggest investment we had. But because it was a venture, we had to raise the funding for it, project finance it. The banks, of course, ran away and we were forced to sell it in an extremely painful exercise financially, and extremely painful reputationally.”
Scriven thinks that Vietnam’s privatizations of state assets will continue apace.
“I think they’ve made a really good fist of actually selling assets that they can sell, and they’ve sold a lot, they’ve cleared a lot of the detritus off their balance sheet which they had no business in owning,” he says. “There’s some more big ones, slightly tricky ones, to go, telecoms, the rest of the banks, some slightly sticky construction materials, shipping, transportation, which are going to be a bit (more) difficult.”
Still, during this silver anniversary year for Dragon in Vietnam, Scriven says it’s been a fascinating journey, with few regrets. His time in Vietnam has delivered him wealth and possibly the world’s most extensive collection of socialist-realist art outside the Hanoi government’s propaganda unit.
He divides his time between the office, a riverside villa in Ho Chi Minh City and his resort, Mango Bay, located on Phu Quoc, Vietnam’s rival island to Bali.
After almost three decades in the country, this fluent Vietnamese-speaker hopes to soon become a citizen. An avowed capitalist, he’s been awarded an OBE by his native UK for his “contribution to British financial services in Vietnam” while also being the recipient of a coveted Labor Order medal issued by the communist-controlled state for his role in Vietnam’s revolution, in which he didn’t actually participate.
“It’s a contribution to the ongoing revolution,” Scriven qualifies. “I’m not necessarily specified to be a labourer, but of course it is the labor medal. A proud moment.”
Scriven nurtures his links to power. After talking to Asiamoney, he is due to host an official party from the economic committee of the National Assembly at a dinner to talk about a new securities law. Dragon has provided technical assistance to the central State Bank of Vietnam on board governance and has advised the government on developing a country-wide pension programme. The links have led some of Scriven’s rivals to claim conflict of interest, which he denies.
“[The government has] got no issue at all engaging Dragon Capital. I think they’d probably think we’ve got some relevant things to say, because we’re deep in markets. That’s what makes being here a bit more interesting, because you feel you can engage.”
He’s emphatic that he could not have done this without speaking Vietnamese.
“There is no word for ‘no’,” he says. “The Vietnamese for ‘no’ is ‘not yes’. And ‘not yes’ doesn’t actually mean ‘no’. It’s the context. Having Vietnamese allows you to understand.”
Could he have progressed elsewhere as he has here with Dragon in 25 years to the same degree, the same penetration, the same access to power?
“Probably not,” he says. “Vietnam has very specific characteristics, it’s Confucianism and being open to a greater extent than Myanmar or places like that. I think I’ve been fortunate. Obviously I’m heavily exposed to Vietnam, which means I’m currently exposed to frontier markets, which is essentially a small, small, small part of the global equity universe, and it’s pretty illiquid. But, I’m happy with the risk and generally it’s done OK. And it’s done OK not just for me but my partners, my colleagues.”
After a generation in Vietnam, will Scriven stay on, to even die here?
“I’ve got a nice place in Britain, but you know, this feels a bit more like home.”
By Eric Ellis @ Euromoney