The Vietnamese funds industry is going through a restructuring, as various fund companies try to placate shareholders that are in the red and facing their own liquidity problems.

Most Vietnam funds are listed closed-end products, and therefore donÆt have to face redemptions. But the fundsÆ share prices are uniformly trading at deep discounts to NAV, in the range of 58-70%. Their shareholders may include retail investors (particularly from Korea and Japan) but many are also Western hedge funds, which are under severe redemption strains. The Vietnam fundsÆ managers are therefore coming under pressure to do something to assuage them.

The most radical step is being taken by Indochina Capital Vietnam Holdings, which plans a tender offer in early 2009, subject to approval at an extraordinary general meeting, which would give shareholders a chance to realise a proportion of their investment. The firmÆs board of directors is recommending the company repurchases up to 20% of its issued share capital, with the tender set at a discount to the companyÆs NAV via an auction.

The board is also proposing to allow management to buy back up to 14.99% of its issued share capital.

These moves are meant to allow some shareholders to get out of their investment, and to boost the NAV for the rest.

They are accompanied by changes to the board of directors, most notably the decision by Terry Mahony to step down and cease acting as a full-time officer of Indochina Capital Advisors, the companyÆs investment manager.

Mahony had only joined the board in June. He had served as co-CIO along with Tung Kim Nguyen, with a mission to build a new generation of equity managers, which the firm says has been accomplished. IndochinaÆs founders are real-estate investors, and the firm also runs strategies in local fixed income and private equity.

Meanwhile, Gordon Lawson, founder and CEO of event-driven hedge fund Pendragon Capital and a former Salomon Brothers trader, has joined the board as an independent non-executive director.

Other Vietnam fund companies face similar issues but have opted for other solutions, as they donÆt see how a tender offer is going to help investors by crystallising their paper losses.

A lack of liquidity is hurting these fund companies, which have relied on market makers in London; they tend to be listed in Dublin or on LondonÆs Alternative Investment Market. CLSA and JPMorgan were previously active market makers for these companies, but have largely ceased activity, according to Vietnam fund executives, although Rothschild continues to find liquidity for them.

One possibility floated by some executives: consolidate the funds. These companies tend to manage three or four such products, which is proving expensive.

ôOur concern is how to replace that liquidity without having to buy back shares,ö says Kevin Snowball, director at PXP Asset Management in Ho Chi Minh City, who declined to outline the companyÆs intended strategy.

Managers are sceptical that buybacks would succeed in stabilising NAVs, because their shares are being hit by a global wave of deleveraging and panic, and any attempt to support the share price this way would prove futile and costly.

PXP is among the hardest hit, along with Dragon Capital, because their funds are the most heavily exposed to listed equities. Players such as Indochina and VinaCapital, which also invest in private equity or bonds, have not seen their NAVs as badly hit, although they are still suffering. Bonds in particular have helped those players with a mandate that allows them to invest in fixed income, as yields on Vietnamese government instruments have fallen from 23% in summer to around 14% today.

As of 28 November, the Ho Chi Minh City stockmarket index had fallen 9.3% for the month. Some fundsÆ stock has fared better, losing only 2% or so, such as those managed by Prudential Asset Management and Indochina, because of their broader portfolio mix. Performance of AIM-listed Vietnam Holdings and Dragon Capital, on the other hand, have been worse than the index because of their listed equities exposure.

Another challenge for these companies is that they tend to be fully invested, as per their mandates, and therefore canÆt return cash to investors. If shareholders demanded cash back, these funds would have to sell assets in the portfolio to do so. There are a few exceptions, however.

VinaCapital, the largest of the Vietnam fund companies, has an infrastructure fund that was only launched last year and still has cash yet to be deployed. The holding company is debt-free as well. It is therefore paying a dividend to its shareholders, scheduled for 19 December. The 10 cents/share represents an approximate 30% discount to todayÆs share price, says Andy Ho, managing director and head of investments in Ho Chi Minh City.

Dragon Capital has also recently raised money for a real-estate fund and may have cash to spare for a similar move, but executives were travelling and could not be contacted by press time.