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VN seeks capital for expressway projects

The Ministry of Transport has canceled bids for two component projects of the North-South expressway, national highway 45 - Nghi Son and Nghi Son - Dien Chau, because it could not find investors.

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These are two of eight component projects of the North-South expressway project approved by the National Assembly invested in the form of a public-private partnership (PPP).

The People's Committee of Tuyen Quang province also had to cancel the pre-selection of investors for the Phu Tho - Tuyen Quang expressway project as the province did not receive any application.

According to the road network development plan for the period 2021-2030, with a vision to 2050 approved by the Prime Minister, Vietnam plans to build over 5,000 km of expressways by 2030.

So far, nearly 1,200 km of highway have been completed, so in the next nine years, Vietnam will have to build more than 3,800 km of expressway to meet the above target. This is a huge challenge for the transport industry. To achieve this goal, about 900 trillion VND of capital is needed, including about 393 trillion VND for the period of 2021-2025.

The road network development plan also identifies capital from all resources needed for building expressways, mainly in the form of public-private partnerships (PPP), with the State capital playing the role of "priming capital".

To develop highway projects, the most difficult thing is capital. It is not feasible to rely on commercial loans from banks, which is up to 60-70% of the total value of projects. The role of development banks is extremely important in providing capital for infrastructure, but in Vietnam it is relatively obscure. Commercial banks are not interested in lending to transport infrastructure projects because of the long loan period and large loan scale, which entails many risks.

Statistics from the State Bank of Vietnam show that, as of June 30, 2021, credit of the banking sector for BOT (build – operate – transfer) transport projects is 105,000 billion VND, equivalent to 1.1% of the total outstanding loan of the system of credit institutions.

Although this part is small, the ratio of bad debt is very high. As of the second quarter of 2021, the bad debt ratio for BOT transport projects increased by four times compared to the overall bad debt ratio of the economy. Currently, about 50% of projects funded by credit institutions have not achieved toll revenue as in the original financial plan; thus the possibility of arising bad debt will increase in the coming time.

Investing in highway projects is considered unattractive to banks, as the risks are very high. The capital sources of credit institutions are mainly short-term while BOT traffic projects have a long-term payback period, mainly 10-20 years, even over 20 years for some projects. Therefore, it is difficult to recover the loans, thus affecting credit quality.

The long loan terms and large loans cause other risks, while the capital mobilized by credit institutions is mainly short and medium term, creating an unbalanced structure that increases risk. The management of loan purposes is difficult. Credit institutions are therefore very cautious in lending to new BOT transport projects.

Nguyen Quoc Hung, Director of the Project Finance Department, Bank for Investment and Development of Vietnam (BIDV) said: “We don’t want to participate in BOT transport projects when balancing risks and benefits. Lending to the BOT sector has not yet brought commensurate benefits, while risks are clear.”

Long-term investment

International experience in investment in highway projects shows that, in addition to state capital, there are four main sources of capital: equity capital of investors, bank loans, corporate bond issuance, and capital from international financial institutions.

However, in Vietnam, these capital sources are not cleared. The financial capacity of many highway investors is not strong.

Some investors say they are promoting the issuance of corporate bonds, considering it an important channel to raise capital for BOT transport projects. For example, the Deo Ca Group plans to issue VND 30,000 billion of bond, with a high interest rate of above 10% per year, with a term of 5-7 years. In addition, investors also aim to issue bonds abroad.

However, businesses believe that issuing corporate bonds has many limitations, because the payback period of highway projects usually lasts 15-20 years, while the maturity of corporate bonds in the Vietnamese market is usually only five years. In addition, enterprises are only allowed to issue bonds that are not converted into equity capital, thus limiting the ability to raise capital through this channel. Raising international capital also faces obstacles because businesses are not reliable enough to call for foreign capital.

The State Capital Investment Corporation (SCIC) says that it is possible to become a partner in BOT highway projects. SCIC, as an investor of the Vietnamese government, has available financial resources of 65,000 billion VND and legal apparatus and mechanisms to join projects. SCIC can also establish an investment fund to mobilize capital from society. However, projects must be attractive and effective.

Hoang Van Cuong, a member of the National Assembly Finance and Budget Committee, said that according to the plan to develop Vietnam’s highway network by 2030, 900,000 billion VND of capital is needed, but in fact, the capital may rise by 1.5-1.7 times, equivalent to over 1.5 quadrillion VND. Therefore, raising capital from the private sector and the whole society is a must. There is still a lot of room to mobilize capital sources. But it is important to have attractive highway projects to lure investment capital.

Cuong says that investors should have a broader view. Currently, they mainly invest in building highways, not paying attention to roads connecting to expressways. For example, the Hanoi - Hai Phong expressway lacks connections to industrial zones in Hai Duong and Hung Yen provinces. It is similar to the expressway from Bac Ninh to Lang Son, so traffic volume is low.

When investing in expressways, the revenue from placing billboards on both sides of the road has not been taken into account. In fact, whenever an expressway is formed, advertising billboards appear immediately. Investors can also develop service centers, logistics centers, and industrial parks located along these expressways.

Experts say that it is necessary to increase the state capital in expressway projects, which should not be limited to less than 50% according to current regulations.

The Ministry of Transport has proposed piloting a specific mechanism for expressway projects. For capital mobilization, this agency also suggested increasing the state capital in these projects to more than 50% of the total investment. If the State capital is controlled at below 50% as prescribed by the current law, highway projects will fail to attract capital from banks and credit institutions.

Tran Thuy

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