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Vietnam updates 2 - July 2015 - Duane Morris

 

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23 July 2015

 

 

SSC urges businesses to increase foreign-investor stake

Source: VietnamNet Bridge

Enterprises in several business fields are now able to implement regulations in Decree No 60 that increase the foreign-ownership ratio in Vietnamese companies, with no need to wait for guiding documents. The State Securities Commission (SSC) plans to send a dispatch to listed and public companies to ask them to identify the foreign ownership ratios in their companies and make adjustments in accordance with the companies’ chapters. There will be no need to wait for the circulars to guide implementation of the newly released decree. “Some enterprises such as securities companies can offer more room to foreign investors in accordance with the decree,” said SSC’s chair Vu Bang. Bang went on to say that the Ministry of Finance is considering amending existing regulations to ensure smooth implementation of the new decree. “Circular No 213 on granting codes to foreign investors for account openings, for example, will be amended. The required procedures will be simplified to allow investors to open accounts quickly and conveniently,” Bang said. Minister of Finance Dinh Tien Dung has said the circular to guide the implementation of the Decree 60 will come out in July, and that not only listed companies but insurance companies will also be able to have up to 100 percent foreign ownership ratio. The Saigon Securities Incorporated (SSI) said it was convening a board of directors’ meeting next week to discuss the lifting of the foreign ownership ratio ceiling. It is expected that SSI would organize an extraordinary shareholders’ meeting where shareholders will be consulted about the amendment of the company’s chapters. After that, the proposal about foreign ownership ratio lifting will be submitted to SSC. Analysts commented that it was highly possible that SSI would be the first listed company to accept 100 percent foreign-ownership ratio, as stipulated in the new decree. According to Doanh Nhan Sai Gon newspaper, the top 10 Vietnamese companies with large capitalization value which have foreign ownership ratio of 49 percent – or the ceiling level according to the old regulations – include Vinamilk (dairy producer), FPT (information technology group), MWG (phone distribution chain), REE (refrigeration enterprise), DHG (pharmacy), HCM City Securities, PNJ (gold, silver and gemstone), PVI (insurance), BMP (plastics) and CTD (infrastructure developer). However, the newspaper also quoted sources as saying that though Vinamilk and DHG have opened their doors more widely to foreign investors, it would still be difficult for the investors to increase their ownership ratios. This is because the State Capital Investment Corporation (SCIC), the state-owned corporation in charge of making investments in enterprises with the state’s money, now holds 45 percent of shares of the companies, while it does not have any intention to reduce its share ratio.

 

Private investors see opportunities in infrastructure development

Source: Vietnam Net Bridge

Many investors have registered to develop railways, airports, seaports and highways, but developing infrastructure, a lucrative business field, only suits financially powerful investors. The first investment wave occurred in 2006-2007, when the real estate market heated up. A lot of enterprises jumped into the field, though many of them then had to say ‘goodbye’. According to the Ministry of Planning and Investment, from now to 2020, Vietnam will need $16-17 billion a year for infrastructure development, of which only 50-60 percent would be from the state budget. Tens of registrations to develop infrastructure items have been made by private investors this year. Vingroup in late April started the construction of the Phu Quoc Port which covers 179.3 hectares of land. Once operational, the port will be able to receive international ships with tonnage of 225,000 GT, capable of carrying 6,000 people. Vingroup, owned by Pham Nhat Vuong, recognized by Forbes as the Vietnamese dollar billionaire, has also informed the Ministry of Transport about its willingness to buy three largest railway stations in Vietnam, namely Hanoi, Sai Gon and Da Nang. While Vingroup targets railway stations, Sun Group is lobbying for the right to invest in railroads and trains to upgrade services. The group is now developing many tourism and resort projects in the central region, and hopes the upgraded railway services will help bring more customers to the resorts. Airports and airport terminal are also infrastructure items private investors target. Rang Dong Group, a local corporation in Binh Thuan province, has invested in infrastructure items at Phan Thiet Airport, including the terminal in a VND1.6 trillion project, expected to be put into operation in 2018. At the end of the first quarter, Sun Group was chosen by the Quang Ninh provincial authorities as the investor for the Quang Ninh Airport (one runway and a terminal with the capacity of 2 million passengers and 10,000 tons of cargo a year). Sun Group obtained the project after defeating many other domestic and foreign investors, including Joinus Vietnam, Posco E&C and KAC from South Korea. In June alone, two joint groups of investors suggested expanding the terminals at two airports. Viet Xuan Moi JSC and Duc Binh Group have proposed to develop the terminal at Cam Ranh Airport under the mode of BOT with estimated capital of VND1.9 trillion. While Rang Dong is well known in Binh Thuan province, CII is well known in HCM City as the biggest infrastructure developer. CII is now the investor of eight transport projects implemented under many different modes, from BOT to BT.

 

Investors pour billions of dollars into garment industry in anticipation of TPP

Source: VietnamNet Bridge

Billions of dollars of foreign direct investment have poured into the textile and garment sector in anticipation of great opportunities to be brought by the TPP Agreement (Trans Pacific Partnership), which analysts warn will put pressure on Vietnamese businesses and the entire economy. While FDI to Vietnam has fallen significantly in the first six months of 2015, the FDI poured into the textile & garment sector increased sharply. At least $1.12 billion out of the $5.58 billion worth of capital registered went into the sector. One of the three largest projects was capitalized at $660 million, the highest ever in the field. The $660 million project, in a yarn factory in Dong Nai province, was registered by an investor from Turkey. The others include a $300 million project registered by a British investor in HCM City and a $160 million project in Tay Ninh province by a Hong Kong investor. Prior to that, Vietnam licensed three large projects to investors from China, including $400 million textile & garment complex in Nam Dinh province, $300 million in Quang Ninh province and $200 million in Hai Duong. Smaller projects are capitalized at tens of millions of dollars. Forever Glorious, a subsidiary of Sheico Group from Taiwan, has committed to invest $50 million in a project to make underwater sportswear.  Gain Lucky Limited belonging to Shenzhou International plans to invest $140 million to develop a fashion design and high-end product development center. According to the Vietnam Textile and Apparel Association (Vinatas), once Vietnam officially joins TPP, it would enjoy a zero percent tariff when exporting textile & garment to the US instead of 17-30 percent tariff.

A challenge to Vietnamese businesses

The biggest problem of Vietnam’s textile and garment industry now is the heavy reliance on imported materials. A report showed it needs to import 50 percent of input materials to make finished products, mostly from China. Meanwhile, only the products using input materials from TPP member countries will be able to enjoy the preferential tariff of zero percent. Vinatex is the only Vietnamese textile and garment company which has input material factories. The corporation has developed 51 fiber production, weaving, dyeing and garment projects since 2013 with total investment capital of VND8 trillion. However, the projects would only be able to satisfy 50-60 percent of the group’s demand. Le Tien Truong, Vinatex’s general director, said Vietnam, the second biggest textile and garment producer, is a direct competitor to textile and garment producers all over the world, because competing with China, the biggest producer, was an impossible mission.

 

Opportunities for foreign investment in banking sector

Source: VPG

Viet Nam is continuing efforts to reform its banking system and invite foreign banks to join the domestic market via increased bank ownership.

Promising finance-banking market

Foreign investors have viewed a high growth potential in emerging markets like Viet Nam, estimating it between two and two-and-a-half times higher than GDP growth rate.  Experts predicted that the Vietnamese banking market would expand by around 15% over the next ten years. Demands for financial and banking services, especially credit cards, would rise in new emerging markets including Viet Nam. Realizing that trends, Vietnamese credit institutions themselves have spared no effort to drastically restructure their operations and improve their financial, administrative and manpower capacity. According to the latest survey of the Monetary Statistics and Forecasting Department under the State Bank of Viet Nam(SBV) announced on July 20, 99% of commercial banks were upbeat that the credit growth would touch 18.2% this year. The figure was higher than the SBV’s preset goal of 13-15%. Lending interest rates would decline slightly and bad debts would fall to only 2.49% at the year end. Bank holdings are expected to rebound following the restructuring process. Hence, it is right time for foreign investors to join the domestic market. Since the first wave of wholly owned foreign banks in 2008, Viet Nam is home to eight overseas lenders including HSBC (the UK), Shinhan Bank (the Republic of Korea), ANZ(Australia); Standard Chartered (the UK), Hong Leong(Malaysia) and Public Bank Berhad (Malaysia). These foreign banks have played an important role in supplying credit inflows for FDI and domestic enterprises.

Strategic partners are still reluctant

However, the World Bank on July 20 published an Update on Viet Nam's Recent Economic Development” saying that despite recent legal revisions that allow for exceptions to the foreign ownership cap, there was no direct participation of foreign banks in any of the recent M&As. While some of banks involved in recent deals have had foreign investments, none of the transactions directly involved foreign banks. The WB attributed the result to a number of factors including lack of attractive banks and supportive regulatory framework. While the cap for total foreign holdings remains unchanged at 30% (consistent with Viet Nam’s WTO commitments), Decree 01, issued in January 2014 allows for higher foreign equity participation in weak banks subject to the PM’s approval. However, thus far, it appears that no foreign investors have been interested in the weak banks in Viet Nam. They proposed increased foreign ownership even 100% instead of the current cap of 30%. 

 Opening up opportunities

According to economic experts, despite saturated signs in the banking system, Circular 38/2014/TT-NHNN providing for dossier, order and procedures for approving the foreign investors’ purchase of Vietnamese credit institution’s shares still offered great opportunities for foreign players in Viet Nam. The SBV targeted to cut the number of commercial banks to only 15—17 in the next three years. The banking market would be more open and less fierce. In addition, in spite of violent competition, foreign commercial banks in Viet Nam still own business opportunities as they could provide other services which their Vietnamese peers are unable. They could also take full advantage of their large and powerful customer number including the FDI sector. It is not easy for foreign investors to obtain licenses to run wholly-owned foreign banks. Via M&As, they could reform weak banks and utilize braches. SBV Deputy Governor Nguyen Phuong Thanh said that the SBV is willing to pave the favorable way and support voluntary M&As in accordance with the legal regulations in favor of sound monetary and banking system and realization of the banking restructuring project.

More mergers on the horizon

The SBV on March 23 gave the green light, in principle, to Malaysian bank - The Public Bank Berhad to turn VDP Public, its joint venture in Viet Nam co-owned with the Bank for Investment and Development of Viet Nam Joint Stock Company (BIDV), into a wholly Malaysian-owned bank after acquiring BIDV’s stake. Earlier, in March 2015, Kasikorn, Thailand’s leading universal banking group opened a representative office in Ha Noi and HCM City after installing service network via cooperation with VietinBank and Agribank. Other Japanese and Korean banks are also looking to set foot in Viet Nam.

 

Will unlisted banks be forced to merge with others?

Source: VietnamNet Bridge  

Commercial banks which have not listed their shares on the bourse by the end of 2016 may be forced to undergo restructuring or merge with other institutions. The State Bank of Vietnam (SBV), in Circular 06/2015, to take effect on July 15, has decided that bank shareholders must reduce their ownership ratios at banks to under permitted levels by the end of the year. The commercial banks which have shareholders holding more-than-allowed share ratios are required to provide detailed information about their ownership ratios and the roadmap to reduce ratios below the permitted level. The process must be fulfilled prior to December 31, 2015. SBV will apply necessary measures to punish banks which cannot fulfill the request before the deadline. For example, it may force related investors or investors’ representatives to leave the board of directors and/or the management positions. They will also not be allowed to receive dividends in cash for the excessive shares they hold. SBV may also consider forcing the banks to undergo compulsory restructuring. The circular guides the implementation of the Credit Institution Law, which stipulates that every individual investor can hold no more than 5 percent, while institutional investor can hold no more than 15 percent of the chartered capital of one credit institution. The ownership ratio that shareholders and relevant parties can hold is no more than 20 percent. The State Bank, after checking, found that the Electricity of Vietnam (EVN), an institutional investor, now holds 16 percent of ABBank’s shares, while PetroVietnam holds 52 percent of shares in PVcombank and MSN 19.5 percent in Techcombank. Meanwhile, Tram Be, one of the most Vietnamese influential businessmen, and his family members hold 20.8 percent of shares in Southern Bank. Thai Huong, deputy chair and CEO of Bac A Bank, holds 6.99 percent of the bank’s shares. The HCM City Securities Company (HSC) noted that the circular on dealing with the excessive ownership ratio is part of the State Bank’s efforts to settle cross-ownership. Five out of 33 commercial banks have violated regulations on bank ownership ratio, while eight banks had shareholders and relevant parties holding more than 20 percent of capital. However, HSC warned that once the investors have to sell shares to reduce their ownership ratios, this would create pressure on the banking system this year. An analyst noted that it would be easy to sell the shares of big banks, while it would be difficult to find buyers for small banks’ shares. However, he said that the information will in no way affect the shares of listed banks. Unlisted banks, which have shares traded on the OTC market, will suffer the most.

 

Decree seeds foreign agri plans

Source: Vietnam Investment Review

A first-eve decree on special incentives for foreign agricultural projects is tabled to help Vietnam attract more  investments in this sector. The Ministry of Agriculture and Rural Development last week began to seek comments from foreign enterprises in Vietnam for the draft decree. Under the draft, investors will enjoy preferential corporate income tax (CIT) of only 10 per cent within the first 15 years of operations, for projects in extremely difficult geographical areas, agricultural zones applying high technology, large sample field areas, and concentrated material zones. Such a CIT level will also be given to areas of special investment incentives, and agricultural enterprises with hi-tech applications. Investors will be subject to a CIT level of 20 per cent for the first 10 years of operations, for projects in difficult geographical areas, and projects manufacturing machinery and equipment for agriculture, forestry, fishery and salt production. This also applies to projects making irrigation equipment, producing refined animal feeds, poultry and seafood, and developing traditional industries. Additionally, investors in “special preferential projects”, a category that has yet to be defined, can enjoy a CIT exemption for the first four years of operations, and a 50 per cent CIT reduction for the next nine years. Meanwhile, investors in “preferential projects” will be exempted from CIT for the first two years of operations, and given a 50 per cent reduction for the next four years. Also under the draft, foreign investors can receive subsidy for up to 70 per cent of vocational training costs. Total subsidy for one project shall not be over VND5 billion ($234,750). Investors will be given the most incentive land rents, including an exemption of 15 years for preferential projects that construct housing for workers, plant trees, and build works for public welfare. “The decree is very important to foreign investors, who have enjoyed almost no incentives in agricultural projects,” said one of the decree’s drafters. The draft is welcomed by many foreign enterprises expecting their difficulties to be solved. Flavio Corsin, Vietnam country manager of IDH Sustainable Trade Initiative, said foreign enterprises were  currently not treated equally in comparison to local enterprises. For example, they are banned from purchasing coffee directly from farmers, and must instead go through licensed dealers. Le Thi Khanh Hoa, representative of Swiss-backed Syngenta Vietnam, suggested that foreign companies be allowed to rent land from farmers to conduct pilot plant variety and pesticide projects. “In the current Land Law, foreign companies are not allowed to rent land from farmers. They have to rent from industrial or export processing zones  but they can’t do that because their projects must be cultivated on the fields,” she said. “The government should have an incentive policy for foreign companies to do these projects.”