Indirect investment is pouring into Vietnam’s financial market however weaknesses in Vietnam’s financial market is creating barriers to such cash inflows.
Over the last period, large listed firms have become targets of financial institutions. For example, Citigroup has been eying up the Saigon Thuong Tin Commercial Joint Stock Bank (Sacombank) and the Vietnam Dairy Product Company (Vinamilk) upon seeing their leading capital scopes in the market.
Reportedly, Vinamilk’s capitalization has reached $1 billion to date while Sacombank posts an equity of nearly $1 billion. Vinamilk is the lead player on the stock floor and listing its shares abroad is likely to become a reality, while the listing of Sacombank, which will be the first bank to go on the bourse by the middle of this year, is considered a pilot for the participation of two other big banks, namely, the Bank for Foreign Trade of Vietnam (Vietcombank) and the Bank for Investment and Development of Vietnam (BIDV) in 2007 and 2008.
In addition to these two big partners, Citigroup had sought a strategic partnership with Vietcombank. Citigroup had also signed an agent contract with Asia Commercial Bank’s Securities Company (ACBS) and bought government bonds and the shares of a number of listed companies.
If Citigroup focuses on Vinamilk and banks, it will be because their international transactions have to date fruited big values. These companies do not pump money into small enterprises like other investment funds.
When groups such as Citigroup start stepping into Vietnam’s financial market, foreign investment funds have no other option but to speed up disbursement and continue expanding their capital scope.
That is, Veil Fund managed by Dragon Capital will soon raise capital to $350 million from $250 million. Meanwhile, the Indochina Capital Fund, during a finance-investment conference held last week, reported that after 15 years in Vietnam it has injected nearly $1 billion into 16 projects and a number of listed firms. Indochina Capital is calling for a capital amount of some $150-200 million for its Indochina Land and some $70-100 million for a new securities investment fund scheduled to debut in the next few months.
Other funds like Temasek and Arisaig do not limit their investment capital in Vietnam. What is important to these funds is how to find efficient projects.
In another move, foreign funds are looking to investment into other securities companies. Vietnam Partners of the US has acquired a stake of the Saigon Securities Company, Dragon Capital has contributed capital to the Ho Chi Minh City Securities Company, and Indochina Capital now officially owns a 30 per cent stake of the Mekong Securities Company.
Reportedly, foreign investors are proposing the government allow them to participate in settling two key problems of the financial market, that is interest rates and corporate evaluation. For example, the Hong Kong and Shanghai Banking Corporation (HSBC) has become an underwriter for BIDV’s capital-increasing bonds.
According to Tran Bac Ha, BIDV’s general director, bond coupons are a headache for banks. Vietnam has not yet had coupon standards for bonds. Even Ho Chi Minh City’s issue of VND2 trillion worth of urban bonds faces difficulties due to interest rates.
Currently, coupons of government bonds are fixed by the Ministry of Finance. Thus in many auctions, bonds could not be sold out because the fixed coupons do not match the negotiated coupons of buyers. For example, in an auction held at the end of April, Ho Chi Minh City’s urban bonds were not sold out because the fixed coupon was less than 9 per cent a year while the lowest bid was 9.15 per cent a year.
Corporate evaluation is even more complicated. Equitisation of big entities has slowed down due to problems in corporate evaluation. Some say that corporate appraisal of special companies involved in petroleum, electricity, water, telephone, banking, insurance, construction, and aviation is required to invite foreign asset appraisal firms.
Some others have asked to change the methods of evaluating cooperate value whereby taking into account brand names, distribution systems, technological investment, and the qualification of staff, and not only focusing existing capital, asset, equipment.
While there continue to be many different opinions, businesses still have to suffer adverse impacts from slow equitization and equitization often fails to meet the requirements of speeding up reform of state owned enterprises, at a time when WTO integration is on Vietnam’s doorstep.
Currently, the state still owns 20-30 per cent of capital in 2,900 equitized firms, which is equal to hundreds of trillions of Vietnamese dong. However currently no agency or ministry manages state capital in equitised enterprises to regulate the market and make profits from such state stakes.
Saigon Economic Times
Vietnamese
