Hybrid Capital – A Flexible Financing Solution for Vietnamese Enterprises Amid Capital Constraints and Persistently High Lending Rates

Since the COVID-19 pandemic, global capital markets have witnessed the strong emergence of a form of financing that sits at the intersection of debt and equity: hybrid capital. Far from being a financing instrument reserved exclusively for multinational corporations, hybrid capital is increasingly becoming a strategic option for many listed companies in emerging markets, including Vietnam, amid persistently high domestic lending rates, constrained bank credit quotas for various sectors, increasingly stringent regulations governing corporate bond issuance, and the risk that traditional equity offerings may excessively dilute the interests of existing shareholders.

What Is Hybrid Capital?

In its simplest form, hybrid capital can be understood as “flexible capital”, a structure that combines private debt and private equity. It provides investors with a fixed return, either contractually agreed or asset-backed, while also allowing them to benefit from the company’s value appreciation. These two components do not offset each other; rather, they work together, creating a return profile that offers downside protection during market downturns while preserving upside potential when the business succeeds.

The fundamental appeal of hybrid capital lies in the enduring nature of the opportunity. Demand for capital is not merely cyclical. There will always be companies that require financing solutions more flexible than conventional bank loans but are unwilling to issue ordinary shares at steep discounts. At the same time, relatively few fund managers are sufficiently well organised and equipped to provide this type of capital at scale. This is precisely the market gap that hybrid capital seeks to fill.

Why Should Vietnamese Listed Companies Consider Hybrid Capital?

Vietnam’s current macroeconomic environment presents several distinct challenges for listed companies:

Persistently high domestic lending rates: Although the State Bank of Vietnam has taken steps to reduce policy rates, actual lending rates remain relatively high compared with those in other countries in the region. As a result, the cost of capital continues to weigh heavily on companies’ production expansion and long-term investment plans.

Limited credit quotas for various sectors: Commercial banks face restrictions on credit growth quotas, particularly when lending to higher-risk sectors such as real estate, resort tourism, securities, and emission-intensive heavy industries subject to higher environmental risk weights, as well as to highly leveraged companies.

Difficulties in raising capital through equity issuance: Stock market conditions are not always favourable for additional share offerings. Companies may have to issue shares at substantial discounts, resulting in excessive dilution for existing shareholders.

Capital raising through margin-financing structures at securities companies lacks stability and exposes businesses to considerable legal and liquidity risks.

Capital restructuring and M&A requirements: Many companies need to restructure their balance sheets after accumulating substantial debt or require capital to undertake mergers and acquisitions.

Against this backdrop, hybrid capital offers an attractive middle-ground solution:

• Less dilution than an equity offering: Companies can raise capital without surrendering excessive control or economic interests.

• Greater flexibility than bank lending: Hybrid capital can offer fewer restrictions and less oversight regarding the use of proceeds, while repayment structures can be tailored to the company’s cash flows. These structures may include grace periods, interest payments combined with conversion rights, or warrants to acquire shares.

• Investor protection: Hybrid investors may receive asset-protection provisions or minimum-return commitments, helping to mitigate risks during periods of market volatility.

Leading global investment firms such as KKR, Blackstone, and Apollo Global Management have established dedicated hybrid investment funds with billions of US dollars in assets under management, including strategies such as Hybrid Value, Special Situations, and Tactical Opportunities. These funds combine contractual, debt-like returns with equity-like capital appreciation potential—the defining characteristics of hybrid capital.

Virtus Prosperity – Bridging International Hybrid Capital and Vietnam

Recognising the significant gap in the domestic market, Virtus Prosperity has been at the forefront of connecting Vietnamese companies with international hybrid investors. We understand that every company has its own growth story and capital structure. Therefore, rather than applying a rigid, one-size-fits-all model, we work alongside each business to design a structure that best aligns with its financing needs, industry characteristics, and risk profile.

Virtus Prosperity provides Vietnamese companies with more than capital. We also bring structuring expertise, governance experience, and a global network of partners, values that conventional bank financing is rarely able to provide.

For Vietnamese companies: If your business is seeking between USD 10 million and USD 200 million to expand production, undertake M&A transactions, restructure debt, or capture market opportunities without excessively diluting existing shareholders’ equity, please contact us. With our established partner network and access to leading hybrid funds across Asia, Virtus Prosperity can help you develop an optimal capital structure that protects the interests of existing shareholders and supports sustainable cash flows.

For Asia-based investment funds: If you are already familiar with hybrid structures and are seeking investment opportunities in Vietnam, Virtus Prosperity is ready to serve as your trusted local partner and share the hybrid structures that we have successfully executed in the Vietnamese market. We understand the local market, maintain a network of promising companies, and can support due diligence, transaction structuring, and risk management. Although Virtus Prosperity already has strategic partners, we remain keen to expand our partnership network and diversify our funding channels, thereby providing Vietnamese companies with a broader range of financing options.

Conclusion

In an environment characterised by high interest rates, constrained credit availability, and an underdeveloped domestic capital market, hybrid capital can open the door to flexible international financing for Vietnamese companies. By combining downside protection with growth potential, hybrid structures can not only help companies navigate challenging periods but also establish a solid foundation for their next stages of development.

Virtus Prosperity firmly believes that close cooperation between Vietnamese enterprises and international investors will enable us to unlock the market’s full potential and contribute to Vietnam’s continued development and strong advancement.

Contact us for advice on the capital structures best suited to your business!