VIETNAM BUSINESS REVIEW - SEIKO ideas...VIETNAM BUSINESS REVIEW Vol 02, Jan 08th 2014 Highlights...

VIETNAM

BUSINESS REVIEW Vol 02, Jan 08th 2014

Highlights

Figure & Events

Economy

Banking & Finace

Investment

Market & Price

Legal Updates

Vietnamese Brands

Vietnamese Culture

IN THIS ISSUE

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VND 60,272 bln VND 2,074.8 bln USD 21,628 bln

is the total capital of

Hanoi urban railway

project – route Ho

Tay – Ba Vi. This is a

PPP project, planned

to execute in the

period of 2015-2019.

is the total public

debt in 2013, in

which Gov’t debt is

VND 1,573.8 bln, up

VND 431.9 bln

compared to the

figure in 2012.

is the total newly-

registered and

additional capital

of Vietnam’s FDI in

2013 with 1,175 new

projects, up 54.5%

year-on-year.

ECONOMY

1 | Vietnam Business Review – Vol 01

Low PPI reveals hardship

Saigon Times - The low producer

price index (PPI) in 2013 delivered

hard blows to local producers,

esp farmers.

PPI for agriculture-forestry-fishery

sector inched up a mere 0.57%

while inflation rate is 6.04%,

meaning farmers’ income shrank

considerably.

PPI for industrial manufacturers

rose 5.25% YOY in 2013.

However, it is major State-owned

manufacturers that benefited, as

their prices increased according

to the State’s roadmaps, while

private enterprises suffered losses.

Private manufacturers as a whole

saw a PPI of 3.4%.

No Gov’t back up for foreign

loans

VNS – VN Gov’t won’t be

responsible for foreign loans that it

has not guaranteed, according

to a new PM decree coming into

effect on Feb 15, 2014.

Borrowers impacted by the new

decree are enterprises that have

been established & are operating

under Law of Enterprises, credit

institutions & foreign bank

branches under Law on Credit

Institutions, or co-operatives under

Law on Co-operatives.

MoF to release $5b G-bonds

VNS - The Ministry of Finance

(MoF) announced VND17 trillion

($823.1m) worth of Gov’t bonds

were mobilised after its 10

auctions in Dec 2013.

The State Treasury sold VND11.589

trillion, VN Development Bank sold

VND4.648 bln & the rest was sold

by the Social Policy Bank.

Bonds’ interest rate declined by

0.2% per year in Dec compared

with Nov. MoF expects to release

VND100 trillion G-bonds in 2014.

Price policies to boost market

tranparency

VNS – VN’s price administration &

stabilisation policies, esp for

essential goods, will keep

following market mechanisms

& the rules of balancing cross

interests this year.

The relaxation of fiscal policies &

the issuance of VND17 trillion

($809m) investment bonds during

2011-15 will also affect prices.

Gov’t attempts to help enterprises

overcome crises & accelerate

economic growth will help to

circulate the widespread flow of

money more rapidly. This will likely

put some pressure on inflation.

Economists argue that any

change in prices this year should

depend on the administration of

electricity, coal, fuel, healthcare

services & education.

Experts called for a flexible

approach to issuing, allocating &

implementing policies with a

provision for minimising the

impact on the market. The State

was also expected to apply anti-

monopolistic measures to raise

competitiveness. Prices will be

publicised to reinforce public

scrutiny.

FIGURE & EVENT


BANKING & FINANCE

22%

22%

19%

17%

17%

3%

How does your company calculate your bad debt reserve?

Selected AR

Percent of sales

Percent of AR

Historical basis

Hybrid formula

Others

SBV vows to apply int’l

standards in debt

classification

Vietnamnet - While domestic

banks insist on delaying Circular

No. 02 on classifying debts

according to int’l standards,

foreign banks want the

opposite thing. SBV doesn’t

want any further delay.

Reports showed that NPL had

reached VND140 trillion by the

end of Nov 2013, accounting

for more than 4% of the total

outstanding

loans.

While affirming

the necessity for

VN to apply the

int’l standards in

classifying debts,

bankers warn

that a lot of

banks would get

collapsed if the

Circular No. 02,

with its strict requirements,

would reveal the real situation

of banks’ bad debts which is

worse than reported.

The bad debt ratio of the

banking system is now

reportedly at 3-4%, but it would

be as high as 10-20% if bank

debts are classified in

accordance with the Circular

No. 02.

However, foreign experts don’t

think VN should delay any

further. Applying the Circular

No. 02 as soon as possible will

help minimize the risk of the

banking system & improve

investors’ confidence.

Few takers for foreign currency loans

VIR - Unlike in past years when there was great

demand from companies for foreign exchange to

pay for imports, this year most do not want to

borrow money, making it hard for banks to find

customers.

Until Dec 25, foreign currency outstanding loans

were worth VND160.74 trillion ($7.6b), or 16.9% of

total bank loans. It was much lower than the 22% in

2012 and 27.08% in 2011.

The SBV's Circular No 37 early last year on

enterprises' foreign currency borrowing causes

difficulties for exporters by requiring them to prove

their capacity to repay.

With demand slumping, many banks slashed

lending interest rates to 3-5%.

VietinBank offers short-term loans at 3.5-5%.

Eximbank, ACB & Sacombank are charging 4-5.5%

for short-term loans.

Pham Hong Hai, deputy director of HSBC VN, said

businesses were forced to use other bank services

to get these loans.

But they can get dollar loans from foreign banks at

3-4% without having to use their other services

because they have access to cheap funds from

their parents.


INVESTMENT

34.58

29.21 29.04 27.91

15.64 12.59 10.62 10.33

6.99 6.47

0

10

20

30

40

0

1000

2000

3000

4000

Top 10 FDI investors in Vietnam 2013

Total registered capital (bln USD)

Number of projects

JICA funds 2 transport

projects

VOV - JICA have signed two

2013-14 fiscal year loan

agreements providing US$447

mln in funding to transport

projects in VN.

The agreements secured

financing for the construction of

the Mai Dich-Nam Thang Long

section of Hanoi’s belt road No.

3, and the construction of

Terminal No.2 at Noi Bai Int’l

Airport.

This is the 21st consecutive

year the Japanese Gov’t

has provided ODA to VN.

Its ODA commitments are

now $21b.

FDI surges to $21.6b in

2013

VNS – FDI surged by 54.5%

last year to US$21.6 bln,

according to Ministry of

Planning & Investment. Of this,

$11.5b has been

brought in, an

increase of nearly

10% over the last

year.

Analysts said it

showed that

foreign investors

feel confident

about investing in

VN despite the

continuing economic woes.

Thai Nguyen was the top

destination with inflows of $3.4b,

followed by Thanh Hoa with

$2.92b & Hai Phong with $2.6b.

Some major projects licensed

last year include $2.8b Nghi Son

oil refinery in Thanh Hoa, the

Chinese-invested $2b Vinh Tan

1 thermal power plant in Binh

Thuan & Samsung Electronics

VN's $2b plant in Thai Nguyen.

FDI companies added $88.5b to

the country's exports, a rise of

22.4% from the previous year.

Con Dao Island to get wind-power station

VNS — A wind-power station will be installed on Ba Ria-Vung Tau Province's

Con Dao Island & be put into operation in Q3 - 2015.

The investor is Green Resources Technology Development JSC

(Greenmade). It will estimatedly cost VND345 bln ($16.37m). The

contractor is PetroVietnam Engineering Consultancy JSC (PV Engineering).

The contractor is looking for suppliers for 2 wind turbines with a total

capacity of 4MW, which will be installed 2.5 km offshore.

The wind-power station will also help save VND38 bln ($1.8m) per year for the Ba Ria – Vung Tau Province

budget.


53.32%

21.24%

4.67%

4.29% 4.14%

12.35%

FDI by sectors in Vietnam 2013

Manufacturing, processing

Real estate business

Accomodation & food service

Construction

Power, gas, water, air conditioning

Others


MARKET & PRICE

Electronics market faces

tough year

VNS — Domestic electronics

retailers are facing challenges

this year because of a sharp

decrease in consumer

purchases & fierce competition.

The market last year seemed to

display little growth. The

demand for electronic products

in the local market fall 30%

compared to 2012 despite

promotion of even 30-50% off,

The VN Retailers Association

said the electronics market was

considered to have high

potential, since no one

company accounted for more

than 10% of the domestic

market share.

However, experts said the

greatest challenge facing

electronics retailers this year

would be competition from

both domestic companies &

integration into the global

economy.

Gold market has tough 2013

Tuoitre News - The local gold

market saw strong fluctuations

in 2013. Sew policies on gold

market management released

by SBV.

Gold prices tumble

Gold prices tumbled by 25%

over 2012 after rising steadily in

the previous 5 years. In the local

market, the gold price slid from

VND46.53 mln in late 2012 to

VND34.92 mln per tael on Mon,

the lowest level over 3 years.

SBV’s gold sales hit 68 tons

In 2013, SBV for the first time

launched gold auctions to help

banks balance gold positions.

Goldenization fall

People reduced gold holdings,

shifting to securities, bank

deposits, production & business.

Gold market sluggish

The steady decline of gold

prices & the wide gap between

local & int’l prices made the

precious metal less attractive.

Gold firms change strategies

SJC, which holds a market

share of over 90% at home, has

shifted to gold bar & jewelry

trading instead of gold bar

production & trading like

before. SBV became the

monopolistic gold bar producer

in the country.

Many enterprises have also

given up gold bar trading,

resulting in a strong revenue

decline in 2013.

Tet season drives prices up

VNS – Hanoi CPI in Jan – during

the Lunar New Year (Tet)

holiday – will climb roughly 1.1%

due to high demands.

CPI increase during Tet will be

driven by price hikes of essential

consumer goods, which are

likely to increase 10%.

Rice prices are predicted to rise

5%. High demands will also push

the price of chicken, pork &

beef to surge between 5-10%.

The price of vegetables is also

expected to increase of 10-15%.





LEGAL UPDATES

New rules govern e-

commerce firms

VNS - Enterprises and individuals

operating e-commerce

businesses will be fined if they

have not registered their

businesses with the Ministry of

Industry and Trade (MoIT).

According to Decree No 185 of

Gov’t, which came into effect

on Jan 1, 2014, unregistered

firms and individuals will be

fined VND10-100 mln (US$475-

4,760) & VND10-50 mln ($475-

2,380), respectively.

The penalties can also be

applied for companies,

individuals that do not report

changes of information on their

registered websites or who

make use of their e-commerce

business to illegally attract

capital.

Websites providing e-

commerce services will be

suspended from operating from

6-12 months. Management

agencies are to confiscate

evidence of violations,

withdraw domain names ".vn",

ask owners to resolve problems

they caused and pay for illegal

profits.

Decree regulates non-cash

transactions

Gov’t has recently issued a

decree, which will be effective

on Mar 1, 2014, on non-cash

transactions, specifying cases

which are not allowed to pay in

cash.

Organizations using State

budget are not allowed to

conduct transactions in cash,

except for several cases in

accordance with regulations of

MoF & SBV.

Organizations & individuals shall

not pay in cash for stock

transactions at Stock

Exchanges or Securities

Depository Centers.

In addition, businesses shall not

use cash in capital contribution

& transactions, as well as in

transfer of capital contributions

while businesses, which are not

credit institutions, are not

allowed to borrow and lend in

cash with each other.

New guidance on corporate

income tax

Gov’t has promulgated Decree

No. 218/2013/NĐ-CP to provide

guidance on implementation of

Law on Enterprise income tax.

According to the Decree,

cooperatives & companies

must separate the incomes

from farming, breeding & fishery

from the incomes from other

stages of processing or

manufacture to determined the

amount of tax exempted.

If such incomes cannot be

separated, tax-free income

depends on the ratio of the

cost of the operations exempt

from tax to the total operating

cost in the tax period.

The calculation of other tax-free

incomes are also specified in

this Decree such as incomes

from performance of scientific

research contracts, incomes of

the companies where at least

30% of workers are the disabled

and rehabilitated drug addicts,

etc.

The Decree takes effect on Feb

15, 2014 & is applicable to the

tax period from 2014.



VIETNAMESE BRANDS

VIETNAMESE CULTURE

Founded 1999

Capital VND3,403 million

Products Travel service

Revenue VND13,037 trillion (2012)

Growth

rate

10.05% (2012)

Awards Vietnam’s most favourite

brands

Website http://www.saigon-tourist.com/

Saigontourist – Vietnam’s most favourite brand 2013

At “The favourite Vietnamese Brands 2013” award ceremony on

Jan 5, Saigontourist has been voted to be one of the most

favourite tourism corporation in Vietnam and achieved the award

“Golden Brand” for the eight consecutive times.

Saigontourist is the biggest state-owned enterprise in hotel & travel.

Saigontourist has diversified its business activities & has been

currently running 8 travel companies, 54 hotels, 13 tourism zone &

28 luxury restaurants.

In 2013, Saigontourist has welcomed above 430,000 domestic &

int’l visitors, up 25% compared to the year 2012.

Book on life & career of General Vo Nguyen

Giap made public

The Youth Publisher has made public a book about

the life and career of General Vo Nguyen Giap

through 103 outstanding events.

The book depicts important landmarks in the

General’s life. It helps readers to understand the

portrait of the talented and decisive General.

In addition, in each event, a part from document

about the General, the book also provides

information about related characters and historical

situations.

This will help readers to quickly approach

information and have an overview about the life

and career of General Vo Nguyen Giap; and also

help readers who have no conditions to study works

about the General to grasp major events and

impressions about the life of a legendary person.

General Vo Nguyen Giap (1911 – 2013) was the

most prominent military commander, beside Ho Chi

Minh, during the Vietnam War, and was responsible

for major operations and leadership until the war

ended.


http://www.saigon-tourist.com/

http://en.wikipedia.org/wiki/Ho_Chi_Minh

http://en.wikipedia.org/wiki/Ho_Chi_Minh


HIGHLIGHT

Vietnam Economic Outlook 2014: Exports,

FDI to support growth

International Business Times - The future is looking

brighter for Viet Nam as the country begins the Year

of the Horse.

New investment in manufacturing coupled with improved

E.U. and U.S. demand will lift exports 2014. HSBC / Trinh D

Nguyen

“With global conditions improving and trade

negotiations in the works, export-oriented firms will

enjoy another year of robust growth,” said Trinh D

Nguyen, an economist at HSBC, in a note. “Exports,

especially foreign-invested manufacturing firms, will

provide a boost to Viet Nam’s growth [in 2014].”

Nguyen expects exports to rise 20% this year from

15.4% in 2013, which will help gross domestic

product expand 5.6% in 2014, up from 5.4% in 2013.

Foreign direct investment (FDI) is likely to grow

strongly in 2014, outpacing overall growth and

resulting in a “two-speed” economy, Standard

Chartered's Betty Rui Wang predicted.

“International manufacturers and investors are

attracted to Viet Nam’s low-cost labor pool and

large domestic market. They are showing sustained

investment interest in the country, despite structural

challenges to the economy,” Wang said.

Registered FDI rose 95.8% to $13.1 billion in the first

10 months of 2013, and disbursed FDI rose 6.4%

year-over-year to $9.6 billion over the same period.

While foreign-invested sectors accounted for only

about 18% of 2012 GDP, they accounted for 63% of

Viet Nam’s exports and 53% of its imports.

Electronics exports have also significantly increased

in importance over the past few years -- they now

make up 24.5% of total exports, compared with

4.4% in 2008, according to Prakriti Sofat, an

economist at Barclays Capital. The main impetus

has come from mobile phone exports -- with

shipments accelerating sharply since late 2011.

In 2009 Samsung Electronics Co., Ltd. (KRX:005930)

opened its first handset plant in Viet Nam, (total

investment of US$1.5 billion), which is also its

second-largest factory worldwide. The company,

which surged past Apple Inc. (NASDAQ:AAPL) to

the top of the mobile-phone industry, built the

business by tapping China’s cheap and abundant

labor force. But not for much longer. Samsung is

shifting its output to Viet Nam to take advantage of

even lower wages.

The South Korean company recently signed a

contract to build its second factory (US$2 billion),

which will make 100 million phones a year. Other

mobile phone companies such as LG Electronics

Inc. (KRX:066570) and Nokia Corporation

(NYSE:NOK) are also investing. Nokia opened its first




factory in Viet Nam in October 2013. The US $300

million plant is expected to create 10,000 jobs and

produce 45 million handsets per quarter, Thanh

Nien News reports.

Viet Nam’s wage levels are a lot lower than

elsewhere in Asia. According to a JETRO report,

monthly pay for general workers in Viet Nam is

roughly 32% of levels in China, 43% in Malaysia and

Thailand and 62% in Indonesia.

“Looking into 2014, we expect further price hikes for

energy commodities such as electricity and fuel.

While inflation will accelerate in 2014 to 7.9%

(average), the State Bank of Viet Nam has scope to

keep rates on hold in the first quarter of 2014,”

Nguyen said.

Vietnam securities gain strongest growth in

Southest Asia

The growth of Vietnam's stock in 2013 was over 20

percent, while that of other Southeast Asian

countries declined or increased only 3-10 percent.

At the end of 2013, the VN-Index grew by 20

percent and currently takes the lead in Southeast

Asia. Placed behind the VN-Index is the EMAS Index

of Malaysia with an increase of 11.44 percent. At

the same time, the stock markets of Thailand, the

Philippines, Indonesia and Cambodia witnessed a

decline.

Most of the stock markets in Southeast Asia are

classified as emerging markets on the global

financial map. However, foreign investment flows

into these markets in 2013 was uneven.

According to Bloomberg, in December alone,

Vietnam's stock market took the lead in net

purchases of foreign investors with more than $50

million. Meanwhile, the Thai market had $1.3 billion

in net sales and it was $476 for Indonesia.

For the whole 2013, foreign capital flows into

Vietnam's stock market reached a net value of over

$250 million, second in Southeast Asia. The Thai

market had the highest net sale value of more than

$6 billion.

The political unrest in Thailand or the risk of

devaluation of local currencies in the Philippines,

Malaysia and Indonesia affected the growth of the

stock markets of these countries. Meanwhile, the

macroeconomic situation of Vietnam is gradually

stabilizing, the value of the local currency is

maintained and low inflation rate are the factors

that attract the attention of foreign investors.

In 2013, Vietnam focused on the implementation of

the objectives of macroeconomic stability. Interest

rate reduced to 7 percent from 14 percent in 2012.

The inflation rate was curbed at 6.04 percent, the

lowest level in 10 years. The GDP growth was 5.42

percent, compared to 5.25 percent in 2012. The

value of the domestic currency of Vietnam was

stable, increasing only 1 percent after 12 months.

The policies to restructure the economy are still

being carried out such bad debt purchasing by

VAMC, the bailout package of VND30 trillion for the

real estate, the restructuring of the banking system

and credit institutions, restructuring of state-owned

corporations.

The stock market benefited from these policies,

when the shares of different sectors rose. Lowering

interest rates made the prices of shares of the

energy and steel, petroleum, shipping increase.

Mr. Nguyen Viet Duc - Director of Research and

Economic Analysis at the Sai Gon - Hanoi

Investment Fund Management JSC said 2013 was




the most optimistic time of the Vietnam stock

market in the past 5 years.

He said that in the next two years, the growth

potential of Vietnam's stock will become stronger.

International experts also made good reviews

about Vietnam market. Strategist Sean Darby of

Jeffries told CNBC: “When the fundamentals in

Indonesia and Thailand weaken, Vietnam has

become a bright spot. We believe that this market

will continue to lead the region in 2014."

8 biggest real estate M&A deals in 2013

Vietnamnet - The year 2013 witnessed a series of

successful merger and acquisition (M&A) in the real

estate sector. The biggest deal was valued at

VND9.8 trillion.

Vincom Center A in HCM City

In the deal worth VND9.823 trillion, Vingroup, which

is owned by the Vietnamese richest stock millionaire

Pham Nhat Vuong, transferred the project to VIPD,

the Vietnam Infrastructure and Property

Development Group, making a profit of VND4.3

trillion.

Vincom Center A is located at No. 53 Le Thanh

Toan, 171 Dong Khoi, 6A Le Loi and 116 Nguyen

Hue in the central district No 1 in HCM City. It’s

comprised of six basements and 9 stories, including

the three basements for car parking, while the other

three basements and four stories have been used

for shopping mall and amusement park. A five star

hotel is situated on the 5-9th floors. Vincom Center

A was inaugurated in October 2012.

Warbug Pincus buys 20.02 percent of Vincom

Retail’s stakes

The investment fund spent $200 million to acquire

20.02 percent of stakes in Vincom Retail in May

2013. Finance Asia noted that this is the biggest

ever investment in a Vietnamese business made by

an international private capital company.

In 2013, Vingroup inaugurated two big shopping

malls in Hanoi. Leading the retail property market

segment, Vingroup now possesses 600,000 square

meters of retail premises.

Lotte Legend Saigon

The South Korean investor has bought 70 percent of

the hotel’s stakes from Kotobuki Group at $62

million. The other 30 percent of the stakes is being

held by Vietnamese Hai Thanh Company.

Lotte Legend Saigon is a five-star hotel with 17

stories, 283 rooms and 6 restaurants.

Center Point building

The 17-storey building in Phu Nhuan district has

been transferred to another owner in a deal worth

$54 million. It has changed hands three times just

within two years.

The project was initially developed by Refico with

the investment capital of $40 million and became

operational in 2009.

Just one year later, the project was transferred to

Japan Asia Vietnam, a real estate investment fund.





Sources said Refico earned $69 million from the

deal.

Meanwhile, a report of CBRE, a real estate service

provider, showed the new owner of the project is

Mapletree Vietnam.

EXS Capital contributes $37 million into Son Kim

Land

The investment from Hong Kong decided to buy

Son Kim Land, a subsidiary of Son Kim Group, at $37

million. Besides the initial investment capital, EXS has

committed to increase the investment to $50 million

or $80 million in the future.

Son Kim Land is considering making investment in six

projects, including the two big projects in district 2 in

HCM City.

ParkCity Hanoi

In early 2013, Perdana ParkCity (S) Pte (Malaysia)

announced it has acquired Park City Hanoi project

after buying 100 percent of the project’s

contributed capital from VIDC and Vinaconex-

Hoang Thanh.

ParkCity Hanoi covers an area of 77 hectares and

has the total investment capital of VND1.5 trillion.

ReCapital buys 36 percent of Ninh Van Bay

In early 2013, TechcomCapital and ReCapital from

Indonesia poured money into Ninh Van Bay, a firm

specializing in developing resort real estate.

Foreign investors now hold 48 percent of Ninh Van

Bay’s chartered capital. In 2013, Ninh Van Bay

poured VND30 billion into Hoi An project, VND10

billion into Six Sensen Saigon.

Gemadept building transferred to CJ Group

The deal was completed on the last days of 2013,

under which Gemadept building was sold to CJ

Group from South Korea on December 27.



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