Large banks focus on corporate bonds

HA NOI (VNS)— The total value of corporate bonds sold during the first six months of this year has reached VND15 trillion (US$707.5 million), equivalent to 88 per cent of last year’s total, according to a report from the Bank for Investment and Development of Viet Nam (BIDV).

Property developer VIDP Group issued VND7.6 trillion ($358.4 million) in corporate bonds, mineral giant Vinacomin raised VND2.5 trillion ($117.9 million) and HCM City Infrastructure Investment (CII) issued VND1 trillion ($47.1 million) worth of bonds.

The BIDV report recorded small scale issuance of under VND100 billion ($4.7 million) from other companies. “Most of the bonds belonged to real estate firms,” the report said.

Corporate bonds were favoured by commercial banks. BIDV and Techcombank bought VND500 billion ($23.8 million) and VND3 trillion ($141.5 million) worth of bonds in VIDP Group, while all the bonds issued by CII, totalling VND1 trillion ($47.6 million), were sold to Vietcombank (VCB).

“Attractive yields have brought banks with large cash reserves to corporate bonds,” the report said. “Despite the gloomy economic situation that made it for bond issuance more difficult, large corporations are still alluring to investors.”

The supply of corporate bonds is expected to continue to rise as companies take advantage of low interest rates to raise capital. “Along with increasing supply, demand will be large, especially for bonds from reputable businesses,” the report said.

Bond yields for three to five-year terms range from 13-15 per cent.

Meanwhile, Government bonds were less attractive, according to Viet Dragon Securities Co. Government bonds during the first six months yielded about 6-9 per cent. Declining yields discouraged investors, especially banks.

In June and the beginning of this month, foreign investors sold Government bonds with a net value of VND7.2 trillion ($339.6 million). — VNS

Vietnam’s economy ranks 42nd in the world

VietNamNet Bridge – With the gross domestic product (GDP) estimated from purchasing power parity (PPP) calculations equivalent to $322 billion, Vietnam’s economy ranks 6th in Southeast Asia, after Indonesia, Thailand, Malaysia, the Philippines and Singapore.

According to the rankings announced last week by the World Bank, the U.S. remains the largest economy in the world with GDP last year reached $15.7 trillion. It is followed by China with about $12.5 trillion, India with $4.8 trillion and Japan with $4.5 trillion.

Russia overtook Germany to become the 5th largest economy in the world with $3.4 trillion. The figure for Germany is $3.3 trillion.

In Southeast Asia, the biggest economy is Indonesia (16th) with more than $1.223 trillion, followed by Thailand (21st) with more than $655 billion, Malaysia (26th), the Philippines (29th) and Singapore (39th). Vietnam ranks 42nd, behind Singapore, with more than $322 billion dollars.

The World Bank’s rankings of 177 economies is different from the rankings based on nominal GDP of the International Monetary Fund (IMF).

According to the IMF, the U.S. and China still top the list with over $15.7 and $8.2 trillion. The following economies are Japan, Germany, France, England, Brazil and Russia. Vietnam ranks 51st in the list with nominal GDP of over $141 billion.

JPMorgan lends $175 mil to Vietnam food maker Masan

The US’s largest bank, JP Morgan, has lent a subsidiary of food maker Masan Consumer US$175 million for three years to invest in its consumer business, news website VnExpress reported.

Masan Industrial earlier borrowed from the bank two years ago and is set to repay its matured debt of $108 million. The new loan carries a lower interest rate than the previous one, the company said without disclosing numbers. Of the loan, $150 million is guaranteed by the Multilateral Investment Guarantee Agency, a World Bank affiliate, making Masan the first Vietnamese private business to be backed by it.

To get the guarantee, a business has to go through risk assessment by MIGA based on project viability, the sector and its importance to the host country, financial viability, potential for earning export proceeds in freely usable currency, and environmental impacts.

Masan Consumer is the market leader in fish, soya, and chili sauces and the second largest producer of branded instant noodles in the country. It shares were up 1.7 percent to VND90,000 at the close on July 12. But the stock is down 11 percent for the year. This year the company targets 35-50 percent growth in after-tax revenues from VND2.781 trillion ($131.1 million) last year.

Vietnam should study Temasek model to boost state firms

Vietnam should consider following the model of Singapore’s Temasek Holdings Pte and Malaysia’s Khazanah Nasional Bhd. as it seeks ways to boost productivity at state-owned enterprises, McKinsey & Co.’s country head said. “It could be very interesting to look at successful stories that Malaysia and Singapore had,” Marco Breu, McKinsey’s chief executive officer in Vietnam, said in an interview. “They created this arms-length view between the government and the SOEs, this entity which then started managing them professionally with only business incentives in mind.”

Singapore created Temasek in 1974 to nurture the development of state corporations including the national phone company and airline. Khazanah was set up in 1993 with a similar mandate. Temasek managed S$215 billion ($169 billion) in investments as of March 31, while Khazanah’s net asset value reached 86.9 billion ringgit ($27 billion) at the end of 2012.

Vietnam is trying to raise competitiveness and efficiency at state companies as economic growth slows after the Communist Party said in 2011 that unprofitable government-controlled firms had become a burden. Prime Minister Nguyen Tan Dung approved a master plan in February to spur its companies to focus on core businesses and accelerate public share sales.

The Singapore and Malaysia models allowed the state investment firms to introduce common corporate governance practices and impose higher management standards. They have successively sold shares in former state companies and then reinvested the proceeds outside their home countries.

Role models

Temasek’s biggest holdings now include shares in Singapore Telecommunications Ltd., Southeast Asia’s biggest phone company; DBS Group Holdings Ltd., the region’s biggest bank; U.K. lender Standard Chartered Plc; and Industrial & Commercial Bank of China Ltd., the nation’s largest bank.

Khazanah owns stakes in some of Malaysia’s biggest listed companies, including electricity producer Tenaga Nasional Bhd., mobile-phone company Axiata Group Bhd., lender CIMB Group Holdings Bhd. and hospital operator IHH Healthcare Bhd. The investment firm sold Proton Holdings Bhd., the national carmaker and owner of luxury sports-car maker Lotus, last year.

Breu also mentioned Kazakhstan’s Samruk-Kazyna, the sovereign wealth fund that controls assets accounting for about half of the country’s economic output, as a model.

Hidden inefficiencies

Vietnam’s sovereign credit rating was cut one step to B1 in December 2010 by Moody’s Investors Service, which cited concerns including “debt distress at Vietnam Shipbuilding Industry Group,” or Vinashin. Standard & Poor’s followed the same month, placing Vietnam three levels below investment grade.

The country targets 5.5 percent economic growth this year, which would be its first period of three straight years of growth below 6 percent since 1988, according to International Monetary Fund data. The government is trying to fix a banking sector weighed down by bad debt, which the central bank said was 7.8 percent of outstanding loans at the end of 2012.

Governments have difficulty giving state-owned companies more independence because they often serve as vehicles for state policies, Breu said.

“In SOEs, you will find a lot of hidden inefficiencies because they might not have been managed according to business principles,” Breu said in the July 2 interview. “Many times they function as a way to keep unemployment down.”

Without mechanisms to retrain workers, “it is very hard to all of a sudden say cut it 30, 40 percent,” he said. Breu declined to say whether McKinsey is advising Vietnam’s government, saying the company has a policy not to comment on its clients.

Small steps

Vietnam has taken small steps to replicate entities like Temasek with its State Capital Investment Corp., which was formed in 2006 to manage government shareholdings and operates under the Ministry of Finance, said Alan Pham, chief economist at VinaCapital Group. SCIC’s role should be expanded, he said.

A Temasek-like organization would have difficulty functioning within the fragmented power structure in Vietnam, said Jonathan Pincus, an economist with the Harvard Kennedy School’s Vietnam Program in Ho Chi Minh City.

“The problem is every level of government controls entities that are commercial in nature.” he said in a phone interview. “You have SCIC and the Ministry of Finance trying to be Temasek, but nobody wants to give them any assets.”

Vinashin, the state-run firm that had planned to build and export $1 billion of ships in 2009, almost collapsed in 2010 because it over-diversified and failed to manage its cash flow and debt properly, according to the Ministry of Transport.

Prime Minister Dung faced a call for a confidence vote in the National Assembly in late 2010 for his handling of Vinashin. Dung, who apologized for the shortcomings in a televised broadcast in October 2012, eventually faced the vote last month and passed with 67 percent support from lawmakers.

Market volatility

A stock market slump has slowed down Vietnam’s equitization process, Dominic Scriven, the CEO of Ho Chi Minh City-based fund manager Dragon Capital, said on behalf of the Capital Market Working Group at a conference last month.

The Ho Chi Minh City Stock Exchange’s benchmark VN-Index (VNINDEX) has lost 7.7 percent from this year’s June 7 high. The gauge has rallied 18 percent this year, at least 7 percentage points more than any other Southeast Asian benchmark tracked by Bloomberg.

Vietnam Airlines Co., the national carrier, has selected banks to manage an initial public offering, CEO Pham Ngoc Minh said April 9. He didn’t give a time frame for the sale.

One in five publicly traded companies may post losses this year, State Securities Commission Chairman Vu Bang said last month. Investors are awaiting the results of the government’s plans to resolve non-performing loans and restructure banks and state-owned enterprises, he said.

Productivity improvements

Productivity in manufacturing and services must improve by 50 percent for Vietnam’s economic growth to return to more than 6 percent, Breu said, citing a McKinsey report published last year. Vietnam can’t rely on the two other drivers of economic expansion – the labor force and urbanization – for growth, he said. South Korea achieved such productivity improvements during the 1970s, as did China more recently, he said.

“Unless you fundamentally change SOEs, reform these things, you will end up more at 4.5 percent to 5 percent growth,” Breu said.

Thanh Nien

Monetary and fiscal policies go their separate ways

Vietnam has been mostly relying on the monetary policies in regulating the national economy, while the fiscal policy has been ignored. (VIETNAMNET)

According to the Governor of the State Bank Nguyen Van Binh, by the end of May 2013, the outstanding loans had increased very slightly by 2.98 percent in comparison with the end of 2012. Of this, the dong outstanding loans had increased by 5.48 percent and foreign currency loans decreased by 8.41 percent.

As such, the lending interest rates have reduced by 2-4 percent in comparison with the beginning of the year, while the new loans’ interest rates are now equal to the rates applied in 2005-2006 and even lower than that in 2007. However, despite the sharp falls, the credit growth rate remains very modest. While commercial banks have continuously launched low-cost credit packages, businesses still keep silent and don’t intend to borrow money for the investment.

Bankers have affirmed that they have slashed the lending interest rates to the lowest possible levels.

Meanwhile, Binh said that the margin between the deposit and the lending interest rates has decreased to 3.03 percent, and if deducing the provisions against risks, the gap would be 1,93 percent only, much lower than the 2.33 percent seen at the end of 2012.

Binh said this was one of the reasons which led to the sharp falls of the credit institutions’ profits in 2012 and the first months of 2013.

Experts have been pointed out that the monetary policy has been abused, while the fiscal policy has not been used to stimulate the national economy. In other words, the monetary and fiscal policies have been going their separate ways, while they should strive to one thing.

Dr. Le Xuan Nghia, Head of the BDI, a business development research institute, said he and his colleagues have carried out a business survey and found out that businesses nowadays only strive to short term business plans, while they do not think of long term business strategies.

In 2009, when the government launched the interest rate subsidy package, under which the lending interest rate was lowered to 6.5 percent per annum, a lot of businesses believed that the government would stabilize the interest rate for a long term. With the confidence, they injected their money in developing their business and expanding the production.

However, just after some disbursement fits, the interest rate suddenly soared to 20 percent per annum. A lot of businesses merely got bankrupt, while their new production lines were left unused, because they could not bear such the sky high interest rates.

Businesses, which have lost confidence on the interest rate policy, have decided that they should strive for short term profits only.

A good monetary policy should not only try to increase the money supply to pave the way for the interest rates to go down. More importantly, it should strive to a stable monetary policy,” Nghia commented.

Only when the inflation rate, exchange rate and interest rate are stabilized, will businesses be able to think of their long term business plans and feel secure to make investment.

“No one can do business well, if the inflation rate goes up to 15-20 percent and down to 5-6 percent so regularly,” Nghia maintained.

He has blamed this on the abuse of the monetary policy in dealing with the problems, while the fiscal policy has been the“outsider.”

Vietnam plans to extend stock trading hours to boost liquidity (Bloomberg)

Vietnam’s two main stock exchanges will extend trading hours to help boost liquidity and lure investors to a market that’s 13 times smaller than Singapore’s.

 The Ho Chi Minh City Stock Exchange, the country’s main bourse, will extend afternoon trading hours by 45 minutes to end at 3 p.m. local time, Chairman Tran Dac Sinh said in a telephone interview today. Trading hours for the Hanoi Stock Exchange will also be extended by 45 minutes for the afternoon session, Deputy General Director Nguyen Thi Hoang Lan said by phone.

“Longer trading hours will allow institutional and professional traders to spread out trading more,” said Attila Vajda, a Ho Chi Minh City-based analyst at ACB Securities Co.“It will be slightly easier to beat the market, especially if volumes are sizable.”

The VN Index (VNINDEX) has rallied 27 percent this year, the best performer among benchmark gauges in Southeast Asia, as the country’s central bank cut interest rates last month for an eighth time since the start of 2012 and the government stepped up efforts to tackle banks’ bad loans.

The nation’s stocks are valued at $45.6 billion, compared with $595.8 billion in Singapore, the region’s largest market.

The new trading hours for the Ho Chi Minh City bourse may start in the third quarter, while July 8 is targeted for the Hanoi exchange, according to the exchanges’ officials. There are no changes in trading hours for the morning sessions.

The plan to extend trading hours for the Ho Chi Minh City Stock Exchange was earlier reported by Vietstock, an online financial news service.

About $51 million of securities traded daily on average this year on the Ho Chi Minh City Stock Exchange, the country’s main bourse, compared with $1.34 billion for Singapore, according to data compiled by Bloomberg.

The State Securities Commission has agreed in principle to the trading hours extension, Nguyen Son, head of market development at the regulator, said today. The exchanges have started pilot programs to test the system, he said.