State turns inward for PPP plans
According to Deputy Minister of Transport Nguyen Nhat, Vietnam lacks the type of guarantee mechanism requested by international groups and in line with global norms. The country currently cannot offer a guarantee for investors’ revenue and exchange rate risks. “Thus the project will be built with a plan to mobilise over VND63 trillion ($2.86 billion) worth of private investment, of which VND13 trillion ($590.9 million) will be from investors and VND50 trillion ($2.27 billion) from bank loans, aimed at targeting domestic investors,” Nhat told VIR. Amid state budget constraints, the country is seeking internationally capable groups to join the project via international bidding. Many supporting policies have been considered. Nguyen Danh Huy, head of the Ministry of Transport’s (MoT) Public-Private Partnership (PPP) Department, said, “For the first time, Vietnam agrees to provide a support of VND55 trillion ($2.5 billion), which includes site clearance, making it the highest state capital contribution in such a project so far. We have proposed the government increase the profit-to-equity ratio to 14 per cent to attract investors.” At present, the ratio is curbed at 11-12 per cent a year for build-operate-transfer (BOT) projects, a PPP format. In spite of that, at some meetings held in South Korea, Singapore, and India to consult international groups about this project, more than 28 leading international transport infrastructure developers and 17 international credit institutions all proposed the guarantee mechanism, while suggesting the profit-to-investment ratio be set at 17 per cent based on Vietnam’s economic scale. “The proposals make foreign investment attraction for such a project more difficult. The Dau Giay-Phan Thiet Expressway project, which was built to attract foreign investors under the PPP format since 1997, is a typical unsuccessful example because of the lack of this mechanism,” Nhat said. In the prefeasibility study for developing some routes of the project from 2017-2020 submitted to the National Assembly (NA) last week, MoT Minister Nguyen Van The said that priority will be given to the development of 11 routes in the first stage totalling 654 kilometres, including three public-invested ones and eight PPP projects. These priority segments include Cao Bo-Bai Vot, Cam Lo-Son La, Mai Son-Bai Vot, Nha Trang-Dau Giay, and My Thuan 2 Bridge. The total investment for the 2017-2020 period is estimated at VND118.72 trillion ($5.39 billion), with over VND63 trillion ($2.86 billion) to be mobilised by investors and VND55 trillion ($2.5 billion) to be sourced from the state. Over 700km of the expressway will be developed in each of the second and third stages. From 2021-2025, the Bai Vot-Cam Lo and Quang Ngai-Nha Trang routes will be built, and the La Son-Tuy Loan segment will be upgraded from two lanes to four. In the post-2025 period, the Can Tho-Ca Mau route will be built. The minister admitted that mobilising funds from domestic credit institutions has proven difficult, while getting loans from international lenders requires a government guarantee, a mechanism that Vietnam still lacks. “If approved by the NA, some routes of the project will be able to kick off in 2019,” he added. Vu Hong Thanh, head of the NA Economic Committee, agreed in principle with the investment plan. He, however, noted that the PPP model – especially the BOT format – has proven problematic, and asked the government to take measures to deal with the problems. The eastern spur of the North-South Expressway project, which is estimated to cost VND230 trillion ($10.5 billion) – with over 2,100 kilometres to be built by 2025– is considered an economically- and politically-important project. It will run through 32 cities and provinces, affecting 45 per cent of the country’s population, 65 per cent of ports, and 67 per cent of economic zones. The project has been attracting the attention of many foreign investors. South Korea-based Posco E&C has expressed its interest in the project after joining many transport infrastructure projects in Vietnam, including Hanoi-Lao Cai and Long Thanh-Dau Giay expressways. Another leading South Korean infrastructure developer, Lotte E&C, and many other international groups from Japan and the US are also studying investment opportunities in the project.
Multibillion-dollar M&A wave targeting Vietnamese SMEs
Source: Vietnam Investment Review
Instead of focusing on conducting M&A deals to acquire large-scale Vietnamese enterprises, the Republic of Korea’s enterprises are now eyeing small- and medium-sized enterprises (SMEs) in different sectors to conduct M&A activities in Vietnam.
Focusing on SMEs: Kiwoom Securities Co., Ltd., arrived in Vietnam for the first time to participate in the Vietnam-Korea M&A seminar organised by the Korea Trade and Investment Promotion Agency (Kotra) to find M&A opportunities with Vietnamese SMEs in numerous fields. With a total capitalisation of $1.5 billion, Kiwoom is currently the Republic of Korea (ROK)’s leading online securities company with the largest brokerage market share during the past 12 years. Jum came to Vietnam on this working visit as he saw numerous investment opportunities. According to Jum, Vietnam is currently undergoing a large-scale shift in the structure of its industries. Accordingly, instead of focusing on developing labour-intensive industries, namely the previously popular garment and textile and leather shoes segments, Vietnam currently invests to develop services, retail, electronics, and the fintech sector. “Kiwoom focuses on pouring capital into manufacturing enterprises to catch the ROK investment trend in Vietnam. Notably, ROK enterprises will import materials from Vietnam to manufacture products and then export the finished products to Vietnam. Additionally, ROK enterprises will directly manufacture products in Vietnam and then sell them domestically and across the ASEAN,” Kim said. If Kiwoom finds suitable partners, the company will spend at least $25 million on buying a controlling stake in each company. Along with Kiwoom, 13 other investment funds joined the seminar to find investment opportunities. Michael Dc Choi, deputy director of the Korea M&A Centre under Kotra, the investment capital volume arriving to Vietnam via M&A deals will increase in parallel with the rise in foreign direct investment (FDI) capital from ROK. ROK is currently the largest foreign investor in Vietnam. Choi revealed that ROK enterprises have negotiated with 12 Vietnamese enterprises in the sectors of food processing, pharmaceuticals, and fintech. According to the schedule, within the next six months, a number of these deals will be completed. However, the ROK enterprises are aiming to seize a controlling stake (50 per cent and more) or at least to become strategic investors in these 12 enterprises.
Strong financial potential for M&A deals: According to Jacob Won, managing director of Locus Capital, ROK M&A transactions have increased across Asia. Along with becoming the largest foreign investor of Vietnam, ROK has spent massive capital on conducting M&A deals. At present, ROK has 14 investment organisations and funds holding a capital funding of at least $1 billion each, almost all of which are operating in the insurance and banking sectors with the capitalization of US$1 trillion. Besides, ROK’s growth fund plans to spend US$1 billion of investment fund worth US$3 billion on M&A activities. Furthermore, the Global M&A Fund will pour US$2 billion into 10 other funds to conduct M&A deals. Almost all ROK enterprises are concerned about the consumer, retail, and real estate sectors. However, Vietnam still has barriers in attracting capital in M&As due to the lack of transparency in financial reporting. If this problem is surmounted, there will be more massive FDI inflows from ROK to Vietnam.
Single window in aviation to be implemented nationwide
Source: Vietnam News
The General Department of Customs said aviation procedures for entries and exits of aircrafts at all international airports nationwide would be connected to the National Single Window system from November 15. The national single window would allow procedures to be submitted electronically to the State management agencies and vice versa, the management agencies would issue entry/exit permissions through the system. Dossiers would be submitted through the website: https://www.vnsw.gov.vn. Currently, different management agencies require the submission of different dossiers, such as the manifest of imported/exported air cargoes, and the lists of crew, passengers, and checked luggage. Most of these are still on paper, which causes difficulties in sharing information. The General Department of Customs said that the national single window system would enable all State management agencies at airports to access all electronic dossiers that were submitted. For the first time, the information about passenger reservations was required to be submitted 24 hours before departure and updated eight hours before departure in an effort to ensure aviation security. The national single window system would save time and costs while enhancing the efficiency of State management in this sector. State management agencies at airports include: border customs, airport authorities, border police, animal quarantine check, plant quarantine check and border health check. The national single window was piloted at Noi Bai International Airport from January 1 this year. The General Department of Customs said that to date, all carriers have committed to join the national single window for aviation procedures.
Domestic commercial banks accelerate foreign talks
Aiming to reach the target to complete the selection the strategic investors before listing shares on the stock exchange, domestic banks are accelerating negotiations with foreign investors as well as propose the authorities to increase the foreign ownership limit to lure in foreign investors. The pre-listing share sale is expected to raise $300 million for the bank, which counts Vietnam’s first female billionaire Nguyen Thi Phuong Thao as its major shareholder. HDBank said that it would list on the Ho Chi Minh City Stock Exchange in early 2018, after completing the auction. Unlike other lenders in Vietnam, the bank does not seek a single strategic investor who would normally hold 15 per cent of the shares. Instead, it will court four overseas investors, offering less than 5 per cent of ownership to each. At present, numerous foreign investors from Hong Kong, Japan, and South Korea expressed their interest in becoming HDBank’s foreign investors. HDBank reported bright business results. For the first nine months of 2017, HDBank reaped VND1.91 trillion ($84 million) in pre-tax profit, of which the parent bank earned VND1.7 trillion ($74.8 milion). This result, which is 1.5 times higher than the entire year of 2016, marked the bank’s highest achievement so far. Assets under management reached VND174.5 trillion ($7.6 billion), a 26-per-cent increase from the same period last year. Bad debt takes up less than 1.14 per cent of all outstanding loans. HDBank’s return-on-assets ratio is 1.18 per cent, while returns-on-equity stood at 18 per cent as of the third quarter of 2017. Along with HDBank, Saigon Commercial Bank (SCB) is also negotiating with banks, investment funds as well as insurance companies from Norway, Indonesia, and China to sell at least 50%. SCB expects to acquire at least US$700 million from the deal. SCB is the first domestic bank to be permitted to sell at least 50 per cent of its stakes to foreign investors. SCB wants to co-operate with investors who have the capacity to help SCB to increase its financial capacity, accelerate the restructuring process and simultaneously accompany SCB on a journey of long-term development. Along with accelerating negotiations with foreign investors, these banks also proposed authorities to increase the FOL to lure in more foreign investors. According to the government’s Decree No.69/2007/ND-CP dated April 20, 2007 on foreign investors’ purchasing of shares in Vietnamese commercial banks, the strategic partner is permitted to hold a maximum of 20% of the chartered capital and a maximum of 30% stake in a domestic commercial bank. In case commercial banks have weak financial capacity—and are on the list of banks having to restructure—the holding ratios will be higher than the regulated ratios, however, the specific figure for individual banks will be decided by the prime minister. Le Minh Hung, Governor of the State Bank of Vietnam, stated that increasing the FOL is to stimulate strategic foreign investors’ interest in domestic commercial banks. In order to permit this increase, domestic commercial banks need to propose plans with a clear explanation for the prime minister’s approval.
Property market expected to maintain stability
Source: Vietnam News
Viet Nam’s strong economic growth since 2015 has pushed the domestic property market into a thriving and stable development period. The country’s real estate market is expected to maintain growth rate during 2018, said Pham Hong Ha, minister of Construction. Ha told the first annual Viet Nam Real Estate Forum held in Ha Noi on Wednesday, that the real estate market has seen developments that have significantly contributed to the country’s socio-economic development. “The segments of land and small-and-medium sized apartments would have changes, in term of prices in some areas. Meanwhile, resort properties will continue to develop,” he said. However, he said the market has not been synchronous and displays a lack of transparency, along with risks. Further, part of the real estate market has been dominated by group benefits. Currently, investments for property trading have not been diversified, and they mainly come from credit institutions, bank loans and mobilising from home buyers. The investors’ ownership capital has remained low, while some large estate developers use bank loans through their subsidiaries, thus causing difficulties for controlling credit in the real estate sector. “The structure of property products has not been suitable or closely managed. The supply of hi-end estate segments has been higher than demand, while lacking in commercial and social housing projects,” the minister added. In addition, he said, the State management agencies have not developed policies to respond to changes in the market. Also, the Government has not had adequate policies regarding taxes, credits and land, to regulate resources for the property market development, and has not encouraged social housing projects. Nguyen Tran Nam, chairman of the Viet Nam Real Estate Association (VNREA), agreed, saying that the estate market would be more stable next year. “The association has not provided warnings on speculation. The speculation would be seen when there was a lack of products, as well as some surplus, which raises prices. However, the country’s supply of property in the market has been abundant,” Nam said. Statistics indicate that Ha Noi has some 20,000 apartments for sale. In total, the capital and HCM City has 45,000 to 50,000 apartments that are being offered for sales in the market, while consumption results in only 30,000 sales per year. Therefore, the market has enough apartments to meet current demand. Nguyen Trong Ninh, director of the ministry’s Department of Housing Management and Real Estate Market, said resort properties have been an important issue in the market in recent years. The property includes some seaside localities, such as Da Nang, Nha Trang – Khanh Hoa and Phu Quoc – Kien Giang, which have been developed and are attracting investments from both local and foreign investors. The resort projects have been developed as villas for sale and rent, as well as condotels.
Credit in estate under control: Outstanding loans in the property sector have followed the Government’s orientation and the market’s real demand. By the end of July, outstanding loans in the sector rose 4 per cent from last year, and accounts for 9 per cent of the country’s total outstanding loans. “The portion has been stable since 2013. The loans in the estate sector have focused on apartment projects, which are suitable for people’s demand,” said Nguyen Quoc Hung , director of the Credit Department under the State Bank of Viet Nam (SBV). In addition, the central bank has asked credit institutions to actively resolve bad debts, especially in the property sector. The bad debt rate in the sector was sharply reduced from 7.05 per cent in 2013 to 4.06 per cent in 2017. Hung said the SBV would continue to stabilise the monetary market, while closely supervising credit in the estate sector to ensure effective and sustainable credit growth. He proposed to continue renewing and improving planning, while shortening the time for approving social and commercial housing projects. Meanwhile, the policies for these new types of properties, such as condotels and officetels, should be completed. He said the Government also warned about heated growth in the market. The asset mortgage would be tightened to ensure the rights of home buyers. Further, banks would lend less than 70 per cent to property developers, and would not be allowed to use those loans to invest in other sectors. Economist Le Xuan Nghia said he believed that financing for social housing projects has been a painful issue, as it mainly comes from bank loans. “Bank loans should not be a long-term solution, as they cause pressure on the banking sector. I think the Ministry of Construction should study experiences from other countries in mobilising resources. This could include the establishment of a fund for social and inexpensive housing projects,” he added. VNREA’s vice chairman, Nguyen Manh Ha, said social housing projects have been mostly located in big cities, such as Ha Noi and HCM City. The projects should be set in locations that are not too far from the centres, and receive support through taxes and prices. Ha said the establishment of the fund would be difficult due to income issues, as low and middle income residents would find it difficult to contribute to the fund. “The issue is that each locality should have their own solution to resolve the problem,” he said. The forum, organised by VNREA in co-operation with financial-economic channel VITV, is a large event that will assess the real estate market in a comprehensive manner, from commodities and segments to housing-related issues, such as land, finance, credit and tax.
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