Citi Buys Into Vietnam Brokerage

By ALISON TUDOR

July 1, 2011
Source: online.wsj.com

HONG KONG—Citigroup Inc. took a stake in a Vietnamese brokerage firm, betting that once the economy's rampant inflation slows, foreign investors will flock back to the communist country.

The New York bank signed a deal Thursday to buy a 9.9% stake in Horizon Securities Corp. for an undisclosed amount, becoming one of a few foreign firms to own a stake in a local broker. Others include Japan's Daiwa Securities Group Inc. and Morgan Stanley.

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Citi

Brett Krause

Citi's purchase comes at a time when Vietnam's economy is floundering. Inflation is running around 20%, a level the World Bank has labeled "intolerable," and the stock market is trading well below its 2007 peak. Labor strikes are spreading.

The government has aggressively moved to reel in inflation by raising interest rates and restricting bank lending. Many small businesses, which make up about 40% of the country's economy, are struggling. When state-run shipbuilder Vinashin defaulted on loan repayments late last year, much foreign capital fled on worries that other firms would follow suit.

Citigroup said it wasn't deterred.

"Fundamentally we're very bullish on Vietnam, despite the short-term pressures on the economy," said Brett Krause, head of Citigroup in Vietnam. He believes the government's policies are starting to have an impact.

Investing is also becoming easier. Vietnam has been gradually opening up its financial-services sector to outsiders since it joined the World Trade Organization in 2007. Foreigners can buy only 49% of a local brokerage, but Vietnam has committed to allowing full ownership by 2012.

The sector also looks ripe for consolidation. The government granted scores of brokerage licenses in recent years, when foreign capital was flooding into the country. But the hundred or so operational securities houses have been struggling because of the stock market's slide.

Ho Chi Minh-based Horizon, founded in 2006, is a privately held firm that provides brokerage and corporate-finance services.

"Arguably now is a good time to come into the market as it starts to consolidate," said Citi's Mr. Krause. If Citi decides to take a larger stake, it will then bring the local broker's technology, service and compliance standards into line with Citi's practices globally, he added.

"This is a platform that we can work together with moving forward," said Mr. Krause.

Investment banks are keen to build their franchises across the Asian-Pacific region to offer investors a one-stop shop in the region and to secure a role in helping Vietnam privatize broad swathes of its economy. The privatization process should give a fillip to the tiny Ho Chi Minh stock exchange, which currently has about 280 companies listed.

Citigroup already has offices in Hanoi and Ho Chi Minh City and offers banking services across the country, including corporate and investment banking. It also offers trading in 10 Asian stock markets, signed a securities joint venture in mainland China this month and opened a research office in the Philippines last year.

Write to Alison Tudor at alison.tudor@wsj.com