VietNamNet Bridge – Vietnam’s recently amended bankruptcy and real estate business laws are acting at cross-purposes with the country's need to sell off its massive bad debts.

The Vietnam Asset Management Company (VAMC), the state-owned entity responsible for buying off bad debts and restructuring the country's credit institutions, had been hoping to sell much of the overall debt to foreign institutions, a common international practice.

But the new laws, which had been counted on to pave the way for such debt sales, fail to recognize foreigners’ land use rights and ownership. Without such rights, interest on the part of foreigners to invest in Vietnamese bad debts is minimal, at best.

VAMC’s chair, Mr. Nguyen Quoc Hung, told the press last week that his firm had held working sessions with international institutions interested in buying Vietnamese debts. VAMC has signed the contracts on the debt market survey  with Cushman Wakefield and Alvarez &Marsal.

It has also presented potential foreign investors with a list of debts for sale worth VND7.8 trillionand consisting of mortgages deemed as bad debts, for them to choose from.

These include apartment, office and industrial zone projects in HCM City, Da Nang and Hai Phong.

VAMC is a state-owned legal entity launched in July of last year to buy bad debts from credit institutions to help them restructure debts.

VAMC reportedly has purchased over VND47.4 trillion worth of bad debts from banks so far, of which only VND8.7 trillion has been settled. That works out to just over 18 percent of bad debts having been settled after one year of the purchasing program. The firm is striving to deal with VND2.5 trillion worth of purchased bad debts this year, while planning to buy tens of trillions dong more.

However, given the barriers to foreign investment presented by the new laws, the question of how VAMC can implement its plans is now murkier than ever.

Analysts maintain that the plan on selling bad debts to foreign investors has failed completely. As foreigners cannot obtain land use rights and ownership, they will not be interested in purchasing Vietnamese bad debts, most of which relate to properties.

Foreign investors had hoped that the amendment of the real estate business law would grant them greater rights to participate in the domestic real estate market. And indeed, the Ministry of Construction, when drafting the law, had planned to allow foreign institutions and individuals to receive the land use rights transferred by owners of the real estate development projects.

However, the tentative provision was removed, because it does not comport with current land laws. Under these laws, foreign individuals and institutions cannot receive the land use rights transfers, while Viet Kieu (overseas Vietnamese) are only entitled to take over land in industrial and export processing zones.

In order to participate in the property-based Vietnamese bad debt market, foreign investors only have one option – teaming up with Vietnamese individuals and institutions, who come forward and buy the bad debts.

The amended bankruptcy law also presents a barrier to bad debt settlement. Under the law, all creditors of a given debt are equal in interests and obligations. This means that no creditor, or even non-unanimous group of creditors, has the right to impose its will on the fate of a debtor business. As such, debt trade cannot take place if even one percent of creditors do not agree on the debt settlement methods.

In 2008, an investment fund from the US and another from South Korea had planned to buy the bad debts of a Vinh Phuc-based enterprise. If successful, they planned to delve more deeply into the debt market in Vietnam. However, the plan failed because some small creditors did not accept the debt trade. The enterprise filed for bankruptcy, but the bankruptcy procedures still have not been fulfilled.

TBKTSG