Vietnam - News and Regulations

FOREIGN INVESTMENT - Foreign indirect investment likely to flow strongly into Vietnam in 2011



Foreign indirect investment (FII) is forecast to flow strongly into Vietnam in 2011.

Louis Nguyen, Chair and CEO of Saigon Asset Management (SAM) said that foreign investors in 2010 were most worried about the dong devaluation. When investing in Vietnam, they must convert from US dollars or euro to dong, but dong lost its value by two percent, and then five percent every several months. Moreover, the stock market was so gloomy, thus, foreign investors moved hot money flows into other countries such as Indonesia, Taiwan and Singapore, etc.

When SAM mobilised capital in 2007, most capital flows were from the Europe, 60 percent from Switzerland and Germany.
However, over the last two years, when it raised capital in the US or the Europe, the investment flows have been moved to Asia, particularly China, Taiwan, and mainly Hong Kong. Nguyen said SAM is currently inviting powerful investors from Hong Kong.

Regarding the reasons that Chinese and Hong Kong investors seem willing to pour capital into Vietnam, Nguyen said the first reason is profit and market potential of Vietnam, and investors also plan to not put all eggs in one basket. In addition, China is having difficulty in some areas. For example, its wooden products are bearing high dumping tariffs in the US market, thus Chinese investors try to move to Vietnam, etc.

Where would the capital flow?

Johan Nyvene, general director of HCM City Securities Company noted that last year, the mobilised capital from indirect foreign investors was mostly poured into real estate market, not stock market.

In order to successfully raise capital, investment funds must handle the issue on NAV discount, but it does not mean all capital sources are closed to the funds. One of the measures is to change the structure of the fund, not establishing listed fund but private fund or non-listed fund, to avoid NAV discount.

Raising investment capital into listed stocks is no longer a convincible reason to investors. Some investment funds are planning to raise capital in the second quarter, focusing on real estate market and OTC companies going to be on the exchange floors.

>From December 2010, some investment funds continued investing in real estate companies, for example, Prudential invested in Imperia An Phu residential project of Inveskia company; property fund of VPH of SAM invested $5 million into Century 21 real estate company (C21), etc. Prudential said that as expected, in the second quarter, it would continue investing in four to five additional real estate projects.

According to Prudential, the gloominess of real estate market greatly affects the efficiency and profitability of Prudential and its investment projects, however, the fund always tries to create certain stability for the investment expectation and expectation of its customers, adding that it would mobilise more capital for a second property fund in Vietnam.

Nguyen said in the first or second quarter, SAM would launch a new investment fund, focusing on real estate companies and projects; consumer companies and companies going for listing.
He added that they have received commitments from two to three investors with sufficient amount of money to establish a fund.VNS


FINANCE - Proportion of foreign debts in US dollars rise rapidly in first half of 2010
The proportion of foreign debts in US dollars rose rapidly in the first half of 2010. The Ministry of Finance has officially published the Newsletter No.6 on foreign debts. Highlights of this newsletter include the insignificant increase of new debts, but government debts accounted for majority; the sharp increase of high interest rate debts; and the larger proportion of dollar loans. Specifically, Vietnam's foreign debts to June 30, 2010 were over $29.002 billion (exchange rate applicable at the end of the period), up by 3.84 percent compared to the end of 2009, equivalent to an increase of $1.073 billion. Of the over $29 billion, government's foreign debts were nearly $25.1 billion, up by 4.82 percent compared to the end of 2009, debts guaranteed by the government were over $3.9 billion, down by 2.05 percent. Thus, the foreign debt increase in the first half of 2010 primarily arose from government debts. Indicators for foreign debt control such as outstanding debt to GDP, debt obligations to exports of goods and services, to budget revenue, etc., were not updated, but it can be said that many of these indicators are not worse than the end of 2009, they are even better as Vietnam's GDP and export growth in this period had recovered. The most worried issue is the ratio of foreign exchange reserves to total short-term outstanding debts. Reports of the Ministry of Planning and Investment and of the State Bank of Vietnam (SBV) both showed deficit of $4 billion in the balance of payments in 2010. Previously, this figure in the end of 2009 was just equivalent to 290 percent, sharply decreased from the level of over 10 thousand times in late 2007.
If comparing to the recommended levels of the World Bank, all indicators for foreign debt control are still within safety margins. Declarations that Vietnam has always been in solvency and not been late to repay the due debts had often been raised last year, and been emphasized in the Consultative Group Meetings.
Another noteworthy point is the sharp increase of high interest rate debts in the first half of 2010, while loans at preferential interest rates showed little change.
Excluding the guaranteed debts, government's foreign debts just increased slightly in the proportion of loans at interest rate of below one percent; decrease slightly in the proportion of loans at interest rate from one to three percent; but rose by 11.65 percent in the proportion of loans at interest rate from three to six percent; and doubled in loans at interest rate from six to 10 percent.
Relating to this issue, the national credit rating of Vietnam also dropped seriously since late 2009 and is currently at rather low level. There were changes to the currency structure, towards increasing the proportion of dollar loans and decreasing proportions of loans in other strong currencies. Proportion of loans in dollars rose from nearly 17 percent in late 2009 to 23 percent in mid of 2010. At the same time, loans in Japanese Yen fell from 39.63 percent to 38.25 percent, Special Drawing Right (SDR) loans fell from 29.29 percent to 26.64 percent, and loans in euro fell from 10.78 percent to 9.21 percent, etc. The report also mentioned that Vietnam has paid total debts of over $741 million, of that the principal was $478 million. Vnexpress
SHIPBUILDING - VINASHIN - Shipbuilder targets 21tr dong revenue in 2011
Vietnam Shipbuilding Industry Group (Vinashin) expects to finalise the restructuring for 25 its offshoots in Q1, 30 others in Q2, 37 in Q3 and 25 remaining in Q4, 2011. On late January 27, at the head offices, the deputy prime minister, Nguyen Sinh Hung, Head of steering group foe the restructuring of Vinashin has chaired a meeting to review the performance in 2010 and devise the key tasks in 2011. According to the report, basically, Vinashin finalised the handover of its facilities and project to the Vietnam National Oil and Gas Group (PetroVietnam) and Vietnam Ocean Shipping Corp (Vinalines). 23 of 26 ships transferred to Vinalines have been put into operation. Vinashin is urgently building the process of transferring capital and offloading capital in its offshoots. As planned, the group will finish the restructuring for 25 subsidiaries in Q1, 30 others in Q2, 37 in Q3 and 25 remaining in Q4, 2011. After the restructuring, Vinashin's structure will include the holding company, 19 subsidiaries, one associated company, and 22 offshoots of Vinashin's subsidiaries. The group's total assets would be 68.243 trillion dong and total liabilities would be 53.054 trillion dong. In 2011, the shipbuilder targets to gain total output of 22.763 trillion dong, equaling to 198 percent against 2010's actualised figure and revenue at 21.143 trillion dong or 205 percent over 2010's. According to Hung, the group needs to build its development strategy right in Q1, 2011.VNS

RENEWABLE ENERGY - US solar firm to build $300m Vietnam plant



A US solar panel maker Wednesday said it will build a $300 million factory in Vietnam, boosting the country's efforts to reinvent itself as a hub for high-tech manufacturing.

Arizona-based First Solar said Vietnamese authorities had approved the investment in HCM City's Cu Chi district, in the south of the country.

The facility will employ around 600 people and production is expected to begin in the second half of next year, a company spokeswoman told AFP.

Vietnam is still a rural-based society that has relied on natural resources and unskilled labour to achieve growth. But the country's communist leaders now speak of moving to a more technologically advanced system of production. "You're seeing more and more high-tech firms come into Vietnam," outgoing United States ambassador Michael Michalak said at his farewell press conference this month. He cited First Solar's plans as an example. VNS
REAL ESTATE - Vietnam among top 20 most expensive realty markets worldwide
Vietnam, the 120th poorest nation worldwide, is among top 20 countries having the most expensive realty markets, state media reported, citing an official. The realty prices in the Southeast Asian country, particularly in Hanoi, have repeatedly risen amid the stable demand which is mostly for low-cost housing projects, said Nguyen Tran Nam, deputy minister of the Ministry of Construction. Nam explained the paradox for speculation as investors from different localities pouring money into realty projectd in Hanoi on expectations that it would rise due to higher demand. Many rich people in provinces from northern to central regions have invested in land and houses to serve later study, work and residence of their children, Nam said, adding that investors of each province bought about 50 apartments and houses in Hanoi per year. Meanwhile, Vu Thanh Tung, director of Vietnam Investment Consulting and Construction Designing JSC attributed the situation to fake demand caused by realty investors. Realty developers sometimes caused fake thin supply to attract consumers, Tung explained.
High cost and bank interests also cause higher output prices, Tung added, saying that the realty prices in Hanoi double that in the southern economic hub of HCM City and five to ten times higher than that in the southern province of Binh Duong, the leading locality for FDI attraction.VCCI
TRADE - Export turnover in January increases sharply General Statistic Office has lately released that the domestic enterprises reported gaining total export turnover in January of about $6 billion and import value of $7 billion, up 18 percent and 15 percent respectively year-on-year. Therefore, in the first month of year, Vietnam enjoyed trade deficit of $1 billion, equivalent to 17 percent of the total export turnover, a slight increase compared to the same period last year of $926 million. Among the export items, rubber was rank at the first place with about 2.5 times higher than that of last year, followed by seafood, cashew nut, coffee and steel products with impressive growth of 130-150 percent year-on-year.TBKT

HIGH TECH - Hanel invests $35m for constructing software park


Hanel one-member Co Ltd has officially been granted investment licence for constructing the Hanoi Software Technology Park.

The software park was sited in area of 312,355 square metres in Phuc Loi Ward, Long Bien Dist, Hanoi with total investment capital of $35 million.

The investor will concentrate on building such facilities as software production centre, electronic trade centre, software technological training college, green park, lake, five-star international hotel, housing complex for experts, high-class trade centre etc.

The construction was supposed to be started in Q1 and put into operation in Q1 of 2014.



BANKING - VietinBank sees assets jumping 50pct in 2011: report
VietinBank, Vietnam's top partly private lender, expects its total assets to rise by 50 percent this year after a surge of 51 percent in 2010, a state-run newspaper reported on Wednesday.
The Hanoi-based VietinBank would seek more loans over the next decade to boost its equity after borrowing $125 million from the International Finance Corporation (IFC), chair Pham Huy Hung was quoted by the central bank-run Banking Times newspaper as saying. Hung's projection on the total assets in 2011 was higher than the 20 percent rise that VietinBank, or the Vietnam Joint Stock Commercial Bank for Industry and Trade, forecast earlier this month. Shares in VietinBank were trading up 0.9 percent at 22,800 dong ($1.17) at 0209 GMT on Wednesday. The loan, extended by the IFC and the IFC Capitalisation Fund, lasts 10 years and two months and carries an interest rate on par with 6-month LIBOR plus 1.5 percent per year, Hung said. "At present this rate is very good for Vietnam," Hung was quoted as saying in an interview with the newspaper. "We expect (the total assets) continue to rise another 50 percent. That means we will need to increase equity to raise the CAR," Hung said, referring to the capital adequacy ratio.
Stake Sale He was speaking as VietinBank signed on Tuesday an agreement to sell 10 percent of stake to the IFC and its fund at a value of around $182 million, based on a joint statement. On Monday Fitch Ratings affirmed VietinBank's Individual rating at 'D/E' and also affirmed Vietinbank's Support rating at '4'. The ratings agency said "the affirmation reflected Fitch's concerns about Vietinbank's weak underlying loan quality and liquidity arising from excessively strong loan growth, and the bank's still weak capitalisation."
The IFC Capitalisation Fund is a global equity and subordinated debt fund founded by the World Bank's private sector lending arm IFC and the Japan Bank for International Cooperation.VNS

POWER - Second turbine of Song Tranh 2 hydropower plant starts operation Electricity of Vietnam (EVN) Group yesterday officially started construction on the second turbine of Song Tranh 2 hydropower plant with designed capacity of 95MW. The Song Tranh 2 hydropower plant project has been conducted by EVN Group as the main investor. It's the second hydropower plant to be built on Vu Gia-Thu Bon river system. It is expected that the hydropower plant will produce annual electricity output of 679.6 million KWh to join the national grid.VNS


Oliver Massmann
Rechtsanwalt

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