Gaw Capital buys timed-out Vietnam fund

Investors in the $265m Indochina Land Holdings II fund have opted to sell their positions at a significant discount to a Gaw Capital-sponsored special purpose vehicle after the fund was timed out.

Hong Kong-based private equity real estate firm Gaw Capital Partners has made its biggest investment in Vietnam to date in a deal valued at $110 million.

The firm bought out the investors in Indochina Land Holdings II, the development fund of the real estate business of Hanoi-based investment management firm Indochina Capital. The vehicle attracted $265 million of equity in 2006 and deployed into residential and hospitality assets.

However, a prolonged lull in the Vietnamese property and tourism markets as well as the depreciation of the Vietnamese dong were among the reasons that prevented the fund from exiting from all of its assets before the fund’s term expired.

With four assets remaining, including two residential developments and two completed hospitality projects, rather than extend the vehicle’s life under the existing management, the investors in the fund opted to sell their positions to a special purpose investment vehicle raised by Gaw Capital at a discount believed to be of more than 50 percent.

As part of the arrangement, the fund’s management, including Indochina Land chief executive officer Peter Ryder, chief operating officer Michael Piro among others, are expected to transition to the new vehicle for a 12-month period before handing over the reins.

The deal was completed last week but has been some time in the making as it is understood that exclusive terms were signed as long ago as last summer.

Indochina has raised approximately $500 million over three funds since 2005. The first fund was thought to have been fully exited while the third fund was closed in 2010 and so still has time on the clock. Nonetheless, given the outcome for the second fund, it is thought unlikely that the platform will introduce further vehicles.

Meanwhile, Gaw Capital will work its way through the four assets alongside local operating partner NP Capital.

The vehicle which will hold the assets is called Gaw-NP Capital Fund I. It has been capitalised with $70 million of equity from a mix of existing Gaw Capital investors and high net worth families – not with capital from its current China fund, Gateway Real Estate Fund IV – and about $40 million of credit.

The fund is scheduled to run for between five and six years during which time, Gaw Capital is expecting to generate returns of more than 20 percent internal rate of return and an equity multiple of more than 2x.

Gaw Capital has been particularly bullish on Vietnam of late and is expected to follow this fund acquisition with an even larger outlay for a development in Ho Chi Minh City in conjunction with local developer Tien Phuoc Co, called Peninsula. That deal is understood to have been in the works for more than three years but is expected to close this year.

The firms involved in the Indochina fund deal declined to comment.