What Solution to Capital Demand for PPP Projects?

8:51:41 AM | 9/17/2021

As the budget is not abundant while credit sources are increasingly difficult, the goal of building nearly 4,000 km of expressway in 10 years set by the Government needs more solutions to mobilize new capital. Which option will alleviate the "thirst for capital" for expressway projects under the mode of public-private partnership (PPP)?

Mobilization from social resources

According to the Vietnam Chamber of Commerce and Industry VCCI), highway construction in Vietnam in the last 10 years has made great progress with nearly 1,200km of roads completed, 10 times higher than that of 10 years previous. However, to realize the goal of the Resolution of the 13th Party Congress, the whole country will have to complete an additional 4,000 km of highways, nearly four times as the previous phase.

Mobilizing capital is a big problem in construction of highways, especially the North-South expressway project in the period 2016 - 2021. According to the original plan, 8 out of 11 component projects are invested in the form of PPP. However, because investors could not be found, 5 of these 8 component projects were converted to public investment. Only the three remaining projects, in sections Dien Chau - Bai Vot, Nha Trang - Cam Lam and Cam Lam - Vinh Hao, have found investors and are implemented in the form of PPP.

It is necessary to mobilize the entire social system to participate in highway projects. To do that, it is necessary to have policies to attract private enterprises to participate in the form of PPP and BOT.

The Law on Investment in the form of PPP is an important legal framework for mobilizing capital from the whole society for infrastructure investment, especially in transport works.

A representative of Deo Ca Group, the investor of one of the three North-South expressway projects, said it was facing difficulties in mobilizing capital when banks tightened lending. The total investment of Deo Ca in traffic projects is currently over VND60,000 billion. The demand for capital in the coming time is very big, forcing the company to consider raising capital by corporate bonds.

Mr. Nguyen Viet Huy, Deputy Director of the PPP Department (Ministry of Transport), said that issuing corporate bonds was a legal solution and would open the door for investors to participate in the implementation of high-quality projects by PPP method.

Recently, the government issued Decree 28/2021/ND-CP on the financial management mechanism of investment projects under the PPP method with many regulations for issuing corporate bonds in PPP projects.

Accordingly, the source of loan capital mobilized from the issuance of corporate bonds and other lawful sources of capital up to the time of project contract negotiation is determined on the basis of a written commitment or agreement between lenders, bond-buying investors or bond-issuing organizations and investors, PPP project enterprises.

The total amount of capital committed to provide by the lender, bond-buying investor or bond-issuing organization is at least equal to the capital that the investor or PPP project enterprise must mobilize. In which, the total loan capital, including capital raised from the issuance of corporate bonds and other forms of borrowing (if any), does not exceed the total loan amount as prescribed in the PPP project contract.

Planning to issue corporate bonds for the first time

If successfully implementing the first corporate bond issuance in September and October 2021, Deo Ca Group will be the first enterprise to use this capital mobilization channel. It is expected that Deo Ca will issue corporate bonds equivalent to VND2,700 billion to implement a number of newly won projects. Currently, Deo Ca is planning to implement Cam Lam - Vinh Hao project, a component project of the North - South expressway with a total investment of VND 9,000 billion, Huu Nghi - Chi Lang project with about VND7,500 billion and Dong Dang - Tra Linh project with VND12,000 billion.

Mr. Tran Van The, Vice Chairman of the Board of Directors of Deo Ca Group, said that in 2020 and 2021, the corporate bond market has developed dynamically, even more than the stock market, and has well met the needs and capabilities of the enterprise. Therefore, Mr. The considers this to be an important investment attraction channel in the future.

"I hope to soon issue corporate bonds to the public and even international bonds, because the transport sector needs huge capital," suggested Mr. Tran Van The.

The leader of Deo Ca also said that the bond issuance interest rate is expected to be about 12%/year, which will be paid to organizations and individuals on a monthly or quarterly basis. The bond interest rate expected to be issued will be about 1.5%/year higher than the interest rate in the project finance plan. In order to ensure the feasibility of raising capital from bond issuance, the investor will reduce the profit margin at the project and take part of the profit from other production and business activities to compensate for the part of the differential interest rates.

With the goal of promoting the business community to participate in PPP projects, the Business Office for Sustainable Development (SD4B), the Vietnam Chamber of Commerce and Industry (VCCI) and the Public-Private Partnership Committee - National Council for Sustainable Development and Competitiveness Improvement are implementing the project: “Strengthening participation of the private sector in public-private partnership in Vietnam (2020-2024)”.

Accordingly, the project supports the development of a policy framework to attract private investment in public-private partnership programs, especially projects related to sustainable development goals, and increases the efficiency of social investment capital.

Source: Vietnam Business Forum