Vietnam’s Dragon Capital and Singapore-based Frontier Investment & Development Partners (FIDP) have ceased a joint venture aimed at raising $250 million to invest in Cambodia, Laos, Myanmar and Vietnam.

The firms had partnered to co-launch the IndoChina Opportunities fund, but had seen delays in reaching their capital target, as reported by AsianInvestor.

Marvin Yeo, founder and managing partner of Singapore-based FIDP, declined to give details about his firm’s divestment from the private equity JV, which ceased operating at the end of last year. But he says FIDP maintains very close ties with Dragon.

Dominic Scriven, chief executive of Dragon Capital, says: “After a lot of hard work, discussions and shoe leather, we decided it wasn’t going to happen and put the fund on ice.

“The reality is that raising a blind pool of capital for [investing in] frontier markets is very tough,” he tells AsianInvestor, “not least when the world is suffering flu.”

The combination of poorly functioning capital markets and a lack of well established private equity precedents create concerns over exiting deals, adds Scriven.

Meanwhile, FIDP – which also has offices in Cambodia and Myanmar – is trying to raise $100 million for its own CLMV Opportunities Fund, with the first close expected by the second quarter.

Roughly half the fund will be allocated to Cambodia and Myanmar. Yeo tells AsianInvestor that the opportunities in those countries are "the most immediate".

CLMV Opportunities Fund is targeting eight to 10 investments with an average investment size of $5-20 million and aims to achieve an internal rate of return in excess of 30%.

In Myanmar, FIDP recently signed an agreement with a local investor to gain exposure to the country’s still-developing banking sector by providing mobile banking solutions to domestic banks. Several local banks in Myanmar have already signed up to roll out a platform.

In Cambodia, the fund manager is conducting due diligence on a 7,000-hectare acacia plantation project that could expand to 37,000 hectares by 2016 for the production of wood chips for other Asian markets.

Cambodia has been a big attraction for private equity sponsors in recent years, which see lucrative investment opportunities in the country’s agricultural sector. Moreover, foreign investors can own up to 100% of local companies, and it is a dollarised economy with no capital controls.

FIDP has obtained commitments from investors from Asian family offices and developmental institutions, as well as European and US investors. Eventually, the goal is to have a balanced portfolio that also includes Laos, but may or may not include Vietnam.

“We intend to be very opportunistic about Vietnam,” Yeo says. “We believe in the long-term fundamentals of the country, but with the non-performing loan [NPL] situation unresolved and the potential for further devaluation in the currency, we have to be cautious.”

Foreign investors had viewed Vietnam as the darling of Southeast Asia in 2006-07. But in recent years the government’s attempts to balance soaring inflation and credit growth have been much criticised for exacerbating the banking sector’s NPL problem. (Currently 10% of total loans are outstanding, as reportedly noted by central bank governor Nguyen Van Binh.)

Given the lack of certainty about the government’s macroeconomic policy as perceived by some foreign investors, some are adopting a wait-and-see attitude and refraining from making big commitments to Vietnam.

Scriven is more positive on the country, arguing that it is looking a lot more popular than it has for a while and pointing to potential for deals. “We just need to ascertain the format the market likes.”

There’s a solid resurgence of interest in the country, partly as a function of rotational interest from other, “overbought” Asean markets such as Indonesia and the Philippines, he argues. Moreover, some investors believe Vietnam has finally got serious about tackling its problems, adds Scriven.