State companies found with massive losses

EVN is amongst the state-owned enterprises with steep debts and lossesAudit results and reports from ministries have revealed that many state-owned enterprises (SOEs) have been, or still are, in alarming financial states.

These SOEs have repeatedly incurred steep losses and debts because of poor investments, the Saigon Times Online reported.

Besides the already infamous debt-stricken Vinashin, the Electricity Group of Vietnam (EVN) is another typical example.

By the end of 2010, the debt to equity ratio of this company was 4.22, according to the State Audit of Vietnam (SAV).

As stipulated by the government, an enterprise is considered to be in a dangerous state if the ratio exceeds 3.

“EVN’s financial state is in difficulty, and unsafe,” said SAV’s report.

Meanwhile, the ratios of other SOEs even far exceeded the maximum rate.

According to a report issued last December by the Ministry of Finance, there are currently 30 state-run groups and corporations whose debt-to-equity ratio surpasses the 3 threshold. Of these, 7 enterprises have ratios of over 10.

By the end of 2010, the total debts of these SOEs amounted to VND1,088.2 trillion, or US$52.2 billion, 1.67 times higher than their total equities, which were VND653.16 trillion.

The ministry also said that these SOEs incurred a total loss of VND26 trillion, but didn’t name the firms that had alarming debt-to-equity ratios.

However, the ministry’s report mentioned certain loss-stricken enterprises, including EVN, Vinalines, CIENCO 1, IDICO, Vinatea, Housing and Urban Development Holdings, and Military Petroleum Co.

“In general, the competitiveness and business effectiveness of SOEs are not adequate to the resources invested in them,” Pham Viet Muon, deputy head of the Steering Board for Enterprise Reform and Development under the Government Office, told the Saigon Times Online.

Doctor Vo Tri Thanh from the Central Institute for Economic Management urged the government to update SOEs’ debt-to-equity ratios, since they have changed dramatically in just a short time.

“For example, as recently as 2009, EVN still posted a safe ratio of 2.69, but soon drowned in the alarming state just a year later,” Thanh said.

According to SAV, EVN’s debts topped $11.5 billion by the end of 2010, with long-term liabilities accounting for 73 percent of the total debts. This means EVN’s operation has relied mainly on bank loans and appreciated capital.

According to a report conducted by the Ministry of Planning and Investment, the public economic sector accounts for as much as 60 percent of total bank credits.

However, in a meeting last December, the State Bank of Vietnam’s Governor Nguyen Van Binh said the ratio was only 16 percent.

With such inconsistent statistics from the two institutions, many have called for more transparency about the financial states of the SOEs.

The call has been repeatedly raised at many National Assembly meetings, but has not been heard.

Ministry urges customs clearance for private jets

The 12-seat EC 155 B1 aircraftThe Ministry of Defence has recently called on the General Customs Department to approve customs clearance for four private jets being held in Hai Phong port, claiming the aircraft are intended for training purposes.

On October 26, two batches of small aircraft, including two double-seated low-wing ATEC 321 FAETA aircraft, produced by the Czech Republic’s ATEC v.o.s.; and two double-seated A600 TALON helicopters built by the US’s Rotoway International, imported by Hanh Tinh Xanh Co Ltd, arrived at Hai Phong port.

The aircraft, the first of their kind to be imported to Vietnam, have been held in port since the Hai Phong Customs Agency refused to approve customs clearance, saying it had to wait for instruction from relevant authorities, according to newswire VnExpress.

The Ministry of Defence said Hanh Tinh Xanh Co had joined the Northern Aviation Club and promised to donate all four jets to the club for defence education training and vocational orientation for the youths.

The ministry also said it had allowed the aviation club to manage and operate the aircraft, and thus urged the General Customs Department to quickly complete customs clearance procedures for Hanh Tinh Xanh Co.

For its part, the aircraft importer said it had to pay US$220 for every day the jets are held at the port, plus the $30,000-fee for leasing containers, and other overrun expenses.

Prior to their arrival in Vietnam, each of the aircraft cost $150,000, equal to a luxury car, and even cheaper than the Rolls-Royce and Maybach cars that have been recently imported into the country.

However, the importer is still required to pay the 30-percent special consumption tariff, and the 10-percent value added tax, on the aircraft.

Hanh Tinh Xanh Cohas called for an exemption from both of the tariffs, reiterating that they are to be used for educational training purposes.

At present, all aircraft imported for commercial purposes by airliners such as Vietnam Airlines and Air Mekong are subject to preferential import taxes of zero percent.

Earlier, two local millionaires, Doan Nguyen Duc, chairman of Hoang Anh Gia Lai Corporation, and Tran Dinh Long, chairman of Hoa Phat Corporation, made their private aircraft purchases public.

Both had to pay the special consumption tariff and VAT for the $7.5-million Beechcraft King Air 350 and the $5-million EC 135P2i helicopter they bought last year.

VN to further open market

Vietnam will further open its domestic services market to ASEAN companies under its commitments to the ASEAN Framework Agreement on Services (AFAS), an official said.

According to Le Trieu Dung, head of the ASEAN Office of the Multilateral Trade Policy Department under the Ministry of Industry and Trade, so far, the commitments to AFAS on services market openness are similar to those made to the World Trade Organization (WTO).

However, Vietnam will let more ASEAN firms join the services market, and by 2015, the commitments on service liberalization under AFAS will be greater than those to the WTO.

Vietnam has participated in 5 rounds of negotiations and offered 7 commitment packages on market liberalization to AFAS.

The 8th package is expected to be completed in February 2012, with commitments on par with those to the WTO.

Thailand, Malaysia and Singapore have completed this package, while the remaining ASEAN countries including Vietnam are still in progress.

By 2015, the services prioritized for liberalization will be healthcare, tourism, air transport and e-commerce in ASEAN or e-ASEAN, with foreign ownership in local businesses in these sectors rising from 51 percent in 2008 to 70 percent last year.

For the logistics sector, the foreign ownership ratio in Vietnamese firms will rise to 70 percent by 2013 from 49 percent in 2008, and for non-priority services areas, foreign holdings in local companies will rise to 70 percent by 2015 from 51 percent in 2010.

Dung said local enterprises showed little care about the commitments on services and investment in Vietnam under the bilateral and multilateral agreements. Therefore, he advised local firms to pay attention to such commitments when doing business with ASEAN partners.

Moreover, in the coming time when Vietnam signs a free trade agreement with the European Union and a Trans-Pacific Partnership (TPP) agreement, the services market will be further opened up.

According to figures provided by the Multilateral Trade Policy Department at a seminar in HCMC, the deficit in Vietnam’s services trade surged in 2000-2008. In 2009 alone, Vietnam’s services export and import dipped due to the global economic recession.

According to the General Statistics Office, Vietnam’s services export amounted to US$7.4 billion last year, with tourism services accounting for a hefty 60 and transport services for 30 percent.

In the meantime, the services import turnover reached over $8.3 billion, some 60 percent of it coming from transport services and 17 percent from tourism.

Price of plastic bags up following environmental tax

Maximark Cong Hoa now uses self-dissolving plastic bags for goods wrappingConsumers have recently been shocked by the soaring prices of plastic bags, which are now subject to a steep tariff under the Environmental Protection Tax Law, which took effect earlier this year.

As of January 1, 2012, a tax rate of up to VND50,000 (US$2.4) is imposed on every kilogram of plastic bags, with the government aiming to reduce the use of this product at supermarkets and shopping centers nationwide by 40 percent by 2015.

This has driven prices of the commodity up dramatically, shocking small traders, who consume the majority of plastic bags, which they use for wrapping their goods for buyers.

Khai, a plastic bag wholesaler for small traders at Pham Van Hai, Tan Binh, and An Dong markets in Ho Chi Minh City, said [plastic bag] prices have more than doubled over the last few days.

“Prices for one type of bag have more than doubled to VND70,000 a kilogram, up from VND31,000 a kilogram, which small traders are complaining is too expensive,” Khai said.

“But they have no choice, since they cannot sell goods without plastic bag wrapping.”

Long, who runs a fashion store in District 1, said he used to buy plastic bags in Cho Lon, but had to switch to Binh Tay wholesale market in District 6 when prices soared.

But even there, prices amounted to VND80,000 a kilogram, but traders still have to buy in large quantities.

Traders said that most plastic bag types have seen prices surge by 70 percent compared to the end of last year.

A small trader in Binh Tay market said he had to cut the use of plastic bags, otherwise “profits will not be enough to recoup for the bag costs.”

Nguyen Phuoc Dong, director of packaging manufacturer Vafaco Co, which specializes in supplying plastic bags for supermarkets and retail stores citywide, said that even the self-dissolving plastic bag, whose cost price is 10 percent higher than the ordinary ones, is taxed the same amount as its ordinary counterparts.

According to the law, such eco-friendly bag should be exempted from the environmental protection tariffs, Dong said.

“But since the Ministry of Natural Resources and Environment has yet to issue any specific standards regarding this kind of bag, taxes are still applied to it,” he said.

“We need guidance from the authorities on the standards of the environmentally friendly plastic bags for our production.”

Saigon Co.op, the country’s largest retail chain, said it has piloted the use of eco-friendly bags in some supermarkets under the chain, with average monthly consumption of nearly 60 tons.

“But we still had to pay taxes for these bags,” the company’s representative said.

A sales director of a packaging company said that no manufacturer has so far been exempted from the environmental protection tax thanks to the lack of specific standards required for the eco-friendly bags.

Meanwhile, some retailers are seeking ways to adapt to the change.

Co.op Mart, for instance, has been limiting the use of plastic bags in its supermarkets by encouraging customers to use non-plastic bags.

“When the standards on eco-friendly bags have been completely developed, we will no longer use the ordinary plastic bags,” said Quynh Trang, director of public relations of Big C.

Insiders said there are currently four to five manufacturers in HCMC capable of making self-dissolving plastic bags, which is enough to ensure supply once the entire public begins using this kind of bag.

“Manufacturers will join hands with each other on technological changes to meet demand,” said Dong of Vafaco.

HCM City asked to reduce loss-making businesses

Deputy minister of Finance Do Hoang Anh Tuan asked HCM City to reduce the number of foreign direct investment (FDI) enterprises which declared losses from 48 to 40 per cent this year.

Tuan made the statement at a conference reviewing last year's taxation held in HCM City yesterday.

Nguyen Trong Hanh, deputy head of the municipal tax department said the number of FDI businesses posting annual losses has decreased since the 2007 tax period, but still remains high.

In 2007, 1,300 FDI-backed businesses posted losses, accounting for 60 per cent of the all enterprises declaring tax.

In 2009, the number was reduced to 51 per cent while in 2010 the figure was further lowered to 48 per cent, totalling 1,200 enterprises.

Hanh said businesses reported profits accounted for only 1 per cent of all FDI businesses.

He added that some businesses with a large market share such as Metro Cash & Carry, had also reported losses.

Investment for sustainable rattan production project continued

A project on sustainable production of rattan products will be continued in the central province of Thua Thien-Hue with funding from IKEA company.

The second phase of the project with a total capital of 56,539 USD channeled through the World Wide Fund for Nature (WWF) will be carried out in Nam Dong and A Luoi districts from January 2012 to July 2014.

It aims to develop the rattan processing and production industry, help improve the environment, increase competitiveness and reduce poverty reduction.

The project will also help provide technical assistance for local people, establish a system of rattan supply and develop materials areas.
Additionally, projected beneficiaries will be educated about the law and policies, plans for sustainable forest management and harvesting methods.

The Ministry of Agriculture and Rural Development (MARD) has defined bamboo and rattan as the major trees in non-timber exports that help reduce poverty and boost rural economic development in Vietnam in the 2011-2015 period.

To ensure sustainable development, the ministry will plant an additional 165,000 ha of natural bamboo and rattan trees apart from the existing 1.6 million ha.

The ministry will also provide seedlings and investment capital to bamboo and rattan growers and apply measures to protect bamboo and rattan forests.

Bamboo and rattan are among Vietnam’s non-timber products with high-economic value. Their export value rose from 48 million USD in 1999 to 224.7 million USD in 2008 and is expected to reach 300 million USD in 2010. The products are exported to 120 markets worldwide.

Non-timber forestry is closely attached to almost 24 million mountainous ethnic people. The country now has more than 2,000 traditional craft villages, including 723 traditional bamboo and rattan weaving craft villages.

IKEA is a privately held, international home products company that designs and sells ready-to-assemble furniture such as beds and desks, appliances and home accessories. The company is the world's largest furniture retailer. It was founded in Sweden in 1943.

Footwear sector makes efforts to stabilise production

The leather and footwear sector is making efforts to stabilise production and ensure its export growth despite many difficulties, the industry association said.

According to the Vietnam Leather and Footwear Association (Lefaso), the industry’s export value in 2011 is estimated at $7.5 billion, including $6.2 billion from footwear, a year-on-year increase of 25 per cent, and 1.3 billion from bags.

Since 2007, footwear export has coped with difficulties, including the decline of import markets, the EU’s anti-dumping tax, high production cost and labour shortage. However, the sector has strived to keep its growth with export value reaching $3.99 billion in 2007, over $4.76 billion in 2008, nearly $4.1 billion in 2009 and more than $5.1 billion in 2010.

The year 2011 marked the return of footwear producers to the domestic market. Made-in-Vietnam footwear consumption in the domestic market in 2011 reached nearly 70 million pairs, accounting for nearly 50 per cent of the total demand, estimated at 130-140 million pairs per year.

The consumption of bags, handbags and backpacks in the domestic market is estimated at 25 million units in 2011, of which 15 million are produced by Vietnamese businesses.

In 2012, the leather and footwear sector expected to face some challenges, with the biggest being declining demand from importers, especially the EU, Vietnam ’s traditional market.

EU supervision over leather capped shoes imported from Vietnam will terminate in March 2012, but it is hard to witness a sudden change in the exports to the market.

Additionally, imported markets, such as Brazil , Mexico and Argentina have planned to investigate footwear imports from Vietnam . Particularly, Brazil has officially started its investigation into Vietnamese and Indonesian imported footwear.

The US market is considered to be a promising market thanks to tariff advantages from the Trans-Pacific Partnership. However, Vietnamese footwear and bag exports will have to compete with other rivals, including those from Taiwan , Australia and Mexico , which are forecast to post an average growth of 12-15 per cent in 2012.

Meanwhile in the domestic market, locally made footwear have to compete with those imported from China . As a result, only about 75 million pairs of shoes are expected to be purchased in 2012.

According to a preliminary survey at some big footwear producers, half the surveyed businesses have signed export contracts till the end of the first quarter of 2012 and 25 per cent have signed contracts until the end of the second quarter amidst the difficulties.

Lefaso forecasted that footwear export will post a growth rate of 12 per cent, earning $7 billion, and bags, 15 per cent and $1.5 billion, respectively, in 2012.

Hanoi to tighten control over resettlement projects

The Hanoi municipal government received a proposal to allow using housing of stagnant resettlement projects for urgent projects to speed up the implementation pace.

Nguyen Van Khoi, Vice Chairman of the municipal People’s Committee said at a recent meeting on the issue that the city is lacking homes for resettlement and the shortage is only becoming more serious.

“At both the city and national level, projects are in desperate need of a large number of homes for resettlement projects. Belt road projects need a total of 12,800 resettlement houses,” Khoi shared.

According to the municipal Department of Construction, the city’s available houses will increase to a total of 3,257 this year, while the demand may climb to 6,500.

The department attributed the stagnation of resettlement projects mainly to a shortfall in capital.

The department noted that, in Cau Giay District, three resettlement projects have been forced to increase investments from original estimates, while at least one more is seeking approval to do so.

Meanwhile, many construction project investors haven’t complied to the regulations that require 20% of the project’s land fund for the construction of resettlement areas. This only adds to the shortage, said Nguyen Quoc Tuan, the department’s Deputy Director Nguyen.

In addition, site clearance at numerous projects, such as Thanh Pho Giao Luu and Tu Hiep urban areas, have been behind schedule, Tuan said.

In order to improve the situation, the municipal Department of Construction insisted on maintaining the rate of 20% of land funds of construction projects to be dedicated to resettlement.

The department has sought approval from the the municipal government to use housing of projects, which are over one year behind schedule, for urgent projects to meet the demand for resettlement.

Another solution proposed is to give residents who live in areas where there are projects that force resettlement money, instead of actual land. Yet there are still other means on the table, such as buying housing in new urban areas and BT (Build-Transfer) projects for resettlement.

Nguyen Van Khoi requested investors to make detailed reports on the total accumulated investment by the end of 2011, capital demand for 2012, an appraisal of their housing funds as well as the challenges they will face for implementing their plans.

Local authorities should work with investors to use advanced capital for the construction of resettlement housing, Khoi suggested.

He added that the municipal Department of Construction, in coordination with the city’s Department of Planning and Investment and the Department of Finance will need to work on clearer policies on the acquisition of resettlement homes for investors.

Berjaya says to stick to project commitments

Malaysia’s Berjaya Land Berhard has said that it is completing all necessary procedures to begin construction of the Vietnam Financial Center in HCMC after having the project site readied in May.

The HCMC government might consider withdrawing the investment certificate of this project as Berjaya Land has made little headway on the project and has not completed investment procedures as pledged.

Nguyen Hoai Nam, chief executive officer of Berjaya Land Berhard in Vietnam, said his firm had been striving to follow its commitments and had asked for approval to commence work on the project last week.

The Vietnam Financial Center complex worth around US$930 million will be built in an area covering nearly seven hectares at the corner of Ba Thang Hai and Le Hong Phong streets in District 10. Consisting of five towers of 39 to 48 floors, the complex will have office space, a five-star hotel, serviced apartments and retail section.

Though it got an investment certificate in February 2008, Berjaya Land has not been able to start work on the project as multiple adjustments have been made and a kindergarten in the project site has not relocated.

The firm has built another school as a replacement and will take over the ready site in May when the school year ends.

Another reason the slow implementation is the lackluster office market. Office buildings in the city’s downtown have seen a severe drop in office tenancies.

Nam said the firm would consider some components to execute first after receiving a construction license.

HAGL issues VND500-billion bonds for investment

Hoang Anh Gia Lai (HAGL) Group has issued bonds valued at VND500 billion (some US$23.7 million) to raise funds for its rubber plantation and hydropower generation projects underway in Laos, the group’s leader said.  

HAGL chairman Doan Nguyen Duc confirmed the latest bond issuance with the Daily on the phone on Tuesday, saying that this issue was assisted by the Bank for Investment and Development of Vietnam and BIDV Securities Company.

The three-year bond carries an annual coupon of 18% for the first year. The coupon is paid every 12 months and is adjusted in accordance with the deposit interest rate applied by branches of BIDV and other major banks in Gia Lai Province for individuals plus 4% a year.

The VND500 billion would be used as additional capital for the projects that HAGL was carrying out in the neighboring country, Duc said. The group needs hundreds of millions of U.S. dollars for its projects in Vietnam, Laos and elsewhere in Indochina, Duc said.

The Gia Lai-headquartered group is planting around 25,000 hectares of rubber trees in Laos as part of a plan to have 51,000 hectares of rubber trees by 2012 in Vietnam’s Central Highlands region as well as in Laos and Cambodia. The group expects to finish growing the 51,000 hectares this year, with more than US$225 million of investment capital planned for this area.

HAGL said more than 35,700 hectares of the total planned acreage had been covered with rubber trees, and the group planned to exploit latex from rubber trees it had planted in Laos in the middle of this year.

HAGL has to count on issuing bonds and selling shares as among the channels to find funds to finance its projects at home and abroad when the access to bank loans in Vietnam is difficult coupled high interest rates.

Over the past two years, the group has been able to raise over US$260 million from share and bond issues, including US$55 million worth of convertible bonds issued to Temasek Holdings of Singapore, US$90 million worth of five-year bonds on the Singapore Stock Exchange and US$60 million through secondary listing on the London Stock Exchange.

HAGL is operating and developing hydropower projects with combined generation capacity of 420 megawatts and investment capital of over US$330 million in Vietnam and Laos.

Currently, Dak Srong 2 and Dak Srong 2A hydropower plants are operational. The group plans to commission the 80-megawatt Ba Thuoc 2 and the 19.5-megawatt Dak Srong 3B in the first quarter of this year.

In another development, HAGL opened a general hospital in Pleiku City in the Central Highlands province of Gia Lai after more than three years of construction to provide health checks and medical treatment for locals and patients from other parts of the region.

The University Medical-Hoang Anh Gia Lai Hospital covering five hectares has 10 health examination departments in the initial stage out of the 24 departments planned for the entire project with investment capital of more than VND200 billion (less than US$10 million).

The first private hospital in Gia Lai Province will be expanded to accommodate 300 in-patient beds in 2013 and more departments in the future. A center will be set up to promote medical technology transfer for the Central Highlands region and support medical development there in line with a cooperation agreement that HAGL signed with the University Medical Center under the HCMC University of Medicine and Pharmacy in March 2011.