VietNamNet Bridge - Several major foreign investment funds are set to grapple with the question of whether they should reinvest in the Vietnamese market or bid goodbye.

The issue is expected to come up next year at the biennial investor meeting of the Vietnam Enterprise Investments Ltd managed by UK-listed Dragon Capital. The question was raised at the 2010 meeting but a decision to continue was made at the last minute.

Two others, the Vietnam Opportunity Fund managed by VinaCapital and the Prudential Balanced Fund, will be subject to a vote in 2013.

Local fund management company Saigon Investment Capital says 2012 will see a number of funds — with around VND3.4 trillion (US$166 million) worth investments at current prices — reach the end of their tenure.

The rush will intensify a year later while the figure could top VND63 trillion ($3 billion) by 2015.

Louis Nguyen, chairman of Saigon Asset Management, fears foreign investors are likely to take their money out if Viet Nam's stock market continues to remain depressed.

Controlling inflation and lowering lending interest rates to facilitate businesses' operations are urgent tasks for the country if it wants to revive the stock market, he says.

Dominic Scriven, Dragon Capital CEO, concurs, saying the market will come under further pressure if the funds leave the market without new capital flowing in.

To attract portfolio investment, various measures are required — like speeding up equitisation of State-owned enterprises, listing them, and improving disclosures.

Industry insiders say foreign investors capable of holding major stakes in SOE-turned-joint-stock companies will help persuade foreign funds since they look to have a say in the management.

Four large SOEs, the Viet Nam Steel Corporation, Petrolimex, Mien Trung Coporation, and the Mekong Housing Bank were equitised this year, offering a small portion of their shares. In its IPO, Petrolimex offered investors only 2.56 per cent of its total charter capital, and none to foreign investors because national energy security was involved.

Its chairman also said his company was financially and technologically capable of growing without foreign investors.

Ryu Sang Ho, general director of the Korea Investment and Securities Company (KIS) which owns 49 per cent of KIS Vietnam, says Korean investors see long-term potential in the Vietnamese stock market.

But the Government should adopt policies to create a better investment environment to re-attract capital, he says, noting that Vietnamese investors have themselves turned to other asset classes like gold and bank deposits.

"Our investors are also worried about the high interest and inflation rates and they need transparent information and business growth plans." He adds that if the problems are addressed, the market will become attractive to investors.

VinaCapital CEO Don Lam sees good opportunities in the depressed context.

"We will continue to invest in domestic enterprises in areas like food and beverage, healthcare, consumer goods, property, and building materials," he says, adding that once the economy becomes stable, VinaCapital will raise more foreign capital.

Masafumi Tsunoda, deputy general director of the Japan Asia Group's fund management firm United Investment, reveals that Japanese investors are waiting for signs of market recovery to invest in Vietnamese stocks.

Bank profits raise hackles

Several banks have announced significant profits in the second quarter. Eximbank Vietnam netted more than US$30 million, or year-on-year growth of over 60 per cent. That took its first-half after-tax profit to over $61 million, a 78 per cent jump.

Vietinbank reported over $89 million for 30 per cent year-on-year growth. Its first-half net was up 65 per cent at $131 million.

Nguyen Van Phung, deputy head of the Department of Taxation, questions whether banks are with the Government in the inflation fight. It is hard to accept the fact that banks achieved such strong growth in profits while many businesses suffered losses, had to cut production, and even risked bankrupcy, he fumes.

Paying interest of up to 25 per cent on bank loans significantly increases companies costs, he says.

But financial analyst Bui Kien Thanh rejects the argument, saying banks do not have to reduce their profits for the sake of businesses. The central bank has no right to use measures to lower their profits but has the duty services to ensure reasonable interest rates, he says.

Le Xuan Nghia, vice chairman of the National Financial Supervision Commission, stresses the importance of return on assets.

On average, domestic banks have an ROA of less than 1 per cent and their return on equity is around 10, which is not high compared to others in the region, he points out.

Developers find new ways

The high interest rates have scared away people from borrowing from banks to buy housing while developers cannot get loans for their projects.

This has put many developers in a pickle, but a few of them have come up with some imaginative solutions.

Joint-stock company Duc Khai, which is developing the Era Town apartment project in HCM City's District 7, is one such.

Instead of paying cash to its contractor Hoa Binh Corp, it has persuaded the latter to accept 240 units in Era Town, promising to value them reasonably.

In a similar barter deal, electrical equipment provider Khai Toan JSC has received an offer from Construction Corp 1 (CC1) to pay in the form of apartments at its Hanh Phuc Project also in District 7 or land lots in another project in District 12.

Khai Toan could supply equipment for the Hanh Phuc Project.

Sacomreal, the real estate arm of Sacombank, has struck deals with eight steel, construction, design, trading and other companies that are working on its projects.

Pomina Steel, Dong Tam, Phan Vu Construction, DP Consulting, and four other companies will provide Sacomreal with products and services at very reasonable prices. Sacomreal will pay for them in instalments but without interest.

The company is currently developing two apartment projects: Belleza in District 7 with almost 1,500 units, and Carillon in Tan Binh District with 440 units. They cost a combined VND2.8 trillion ($135 million).

But clearly this can only work if contractors and equipment and building-materials providers are in good financial shape.

Another popular method has been mergers and acquisitions, though no seller has officially admitted to a cash crunch as being the reason for the deal.

Recent deals have seen affiliates of Singapore's CapitaLand real estate group acquire major stakes in several local apartment projects.

Last week, Ascott LTD, its serviced residence business unit, reached an agreement with the Thuy Duong Investment Joint Stock Company to acquire a 90 percent stake in the Vietnamese partner's Somerset Central TD Hai Phong City development for $9.45 million. The tower with 132 apartments, expected to be finished next year, is part of TD Plaza that also comprises a five-storey shopping mall and an office tower.

Earlier this year another of CapitaLand's affiliates, Capita Home Value, struck two deals.

One was with the Khang Dien Sai Gon Real Estate JSC to buy a 70 per cent stake in a $70 million apartment project to build almost 1,000 units on 29,000sq.m in HCM City's District 2.

The other was the acquisition of a 65 per cent stake in Quoc Cuong Sai Gon for around $6 million.

QCSG has around 9,000sq.m of land in HCM City's Binh Chanh District where it plans to build around 800 apartments.

Source: VNS