Firms plan capital infusion, analysts worried

Friday, May 2, 2008
Many companies have announced plans to increase their chartered capital by hitting the market again or making rights and bonus issues, a move that is causing concern about its effect on the stock market.
Unlisted Saigon Hanoi Commercial Joint-Stock Bank, or SHB Bank, received shareholders’ approval last month for increasing its chartered capital from VND2 trillion (US$124 million) to VND4.5 trillion through a right issue next month.

It will offer existing shareholders shares at par in a ratio of one for every two shares held.

The bank also plans to convert its convertible bonds into equity, also at face value and in a similar ratio next December.

General director Nguyen Van Le said the bank was keen to boost its capital adequacy at a time when the country was integrating globally.

“It will [also] enable us to expand operations, set up a financial leasing company, a securitization firm, and infrastructure investment and development companies nationwide,” he added.

Vietnam Construction Import Export Corporation, or Vinaconex, plans to double its chartered capital to VND3 trillion ($186 million) by issuing fresh shares, while Bien Hoa Sugar, a manufacturer of white refined sugar, wine and spirits, will issue bonus shares in an unspecified ratio.

South Rubber Industry Company received approval at its shareholders meeting for a three-for-one bonus issue.

But these companies’ plans are worrying some analysts.

An expert from IPA Investment Corporation, who wished to remain unnamed, said it was likely to hurt the already gloomy market by increasing supply.

The HCMC market has fallen by more than 43 percent this year.

Investors are also concerned about the way many firms spend the money they raise from share issuances to buy stakes in other companies.

“Dozens of listed firms suffered heavy losses last year [in this manner],” an investor in HCMC said. (Thanh Nien)

Chairman denies losing company money in personal investments

Friday, May 2, 2008
The chairman of a southern sugarcane company has rejected allegations that he bankrupted the enterprise by investing company money in the stock market.
On Monday, shareholders of the La Nga Sugarcane and Sugar Company in Dong Nai Province sent a petition to several ministries and the Government Inspectorate accusing chairman Pham Nhu Hoa of misspending company funds.

The shareholders claimed Hoa had earmarked around VND17 billion (US$1.05 million) for personal stock investments without asking for approval from the board of directors.

The investment incurred heavy losses, according to the shareholders, who said that their April 22 meeting had to be postponed as there was no money to pay their dividends.

The fuming stakeholders have repeatedly demanded that the dividends be paid back.

Speaking with Thanh Nien Wednesday, Hoa said he had invested in the stock market in a bid to bail the company out of financial difficulties.

The beleaguered chairman said he had invested under the La Nga company name, not under his own.

He showed correspondents two contracts acknowledging that La Nga Company had bought shares in Rubber Securities Company and the Sacombank Securities Company.

Though Hoa admitted he had failed to obtain approval from the board of directors, he insisted he had acted in the interests of the company, not his own.

Hoa told Thanh Nien that five out of the board’s six members had backed his investment at a directors’ meeting on April 18, though he did not seek official approval.

He said he would elaborate more on the investment decision and apologize to the shareholders at another board meeting on Saturday.

The firm’s next shareholder meeting is scheduled for mid-May, according to Hoa. (Thanh Nien)

xpert says Viet Nam stock market woes linked to inflation fight

Viet Nam’s complicated battle against inflation has weakened its stock market, John Shrimpton, a director of Dragon Capital, a HCMC-based investment fund, said in a Bloomberg Television interview Tuesday.
How’s the Vietnamese stock market looking?
John Shrimpton: It’s still pretty weak and it’s likely to remain so as long as the government continues to target inflation as its key issue.

Is it not getting any support from the renewed confidence in the US markets – isn’t that doing any good to the confidence among investors?

Not really, first of all I think we can say that the performance of the Vietnamese market is somewhat non-correlated with what’s going on in the outside world and especially the US market.

Viet Nam is very much moving under its own factors.

The key one is the government, quite simply, is in a bit of a bind.

We’ve got inflation at a level of 21% year-on-year and it’s very much constrained in terms of its ability to tackle inflation which of course is being driven by things like food prices as we see elsewhere, [and] by the need also to pay attention to maintaining high growth in order that the job creation rate required by the demographics of this country is maintained.

So the net result is it really is between a rock and a hard place at the moment.

So what is the risk of a return to hyperinflation as seen back in the late 80s?

- I think that’s not a likely scenario.

The economy of course is in a much more sophisticated situation these days; it’s a much more complex picture for the government to tackle and so the remedies that were indeed rolled out successfully back at the end of the 80s and beginning of the 90s to take inflation down from levels of more than 400 percent down to 1 or 2 percent per annum as we saw into the mid-nineties [may not work].

It’s going to require a more sophisticated approach these days because of the level, for example, of integration into the global economy, courtesy not least of Viet Nam joining the World Trade Organization (WTO) last year.

The result of that is that the asset markets including the stock markets are collateral victims of the government squeezing liquidity and seeing interest rates heading up.

Well, what do you mean when you’re recommending a sophisticated approach to the problem over inflation, the government has already raised rates this year and raised the reserve requirement ratios selling more bills and bonds…

That’s correct, but the big issue in Viet Nam, as indeed elsewhere, is that the key driver for inflation is food prices and Viet Nam is a net food exporter and the second largest rice exporter.

So, in many respects, it’s a beneficiary of the higher commodity prices we see prevailing particularly in terms of soft commodities that we see at the moment.

But the key issue is one that you can’t wage an all-out campaign on a single issue such as inflation without having regard for the effects of what goes on with its currency and, in turn, its attractiveness as a foreign direct investment destination because the big challenge that underlies everything the government does here is the demographics mean that one and a half million people come into the job market every single year.

That means there’s always underlying pressure to create jobs and, with a shrinking state sector these days, that means creating more reforms, better conditions for foreign investment and also for private sector investment in the country - so it’s not really just a question of targeting a single issue here.

It requires a much more symphonic approach than has been encountered before. (Bloomberg)

Greenbacks get the love

Friday, May 2, 2008
Local companies are rushing to borrow dollars from commercial banks before the State Bank’s regulation to tighten dollar lending takes effect.
According to an official from Bank for Investment and Development of Viet Nam (BIDV)’s treasury department, demand for dollar credit has gone up sharply since the State Bank released Decision 09/2008/QD-NHNN on April 10. The decision came into effect on April 25, 2008.
“Borrowing in dollars is much cheaper than in dong. Companies are borrowing from banks even without a real need for foreign currency before it becomes more difficult to do so,” said the BIDV official.

The lending rate in Viet Nam dong varies from around 18-20% while dollar rates are around 9-10%.

A source from Bank for Foreign Trade of Viet Nam (Vietcombank) said that due to strong demand for dollar borrowing recently, the bank had to borrow dollars from other banks via the interbank market.

Nguyen Thanh Toai, Asia Commercial Joint Stock Bank’s deputy general manager, estimated that over the last two weeks, the demand for dollars increased by close to 30%. According to a State Bank official, companies borrowing without need has been one factor which has forced authorities to tighten the regulation.

With Decision 09/2008/QD-NHNN, customers are now permitted to borrow dollars from commercial banks for three purposes instead of the previous eight: for importing goods and services, settling pre-mature foreign debt and investing overseas.

State Bank statistics show that since December 2007, credit growth in dollars has surpassed credit growth in dong. Over the first three months of 2008, credit growth in dollars hit almost 13%. The State Bank hopes that by tightening dollar lending, the economy’s dollarisation will be easier to control.

The International Monetary Fund rates an economy with foreign currency deposits in excess of 30% as a dollarisation economy. Viet Nam’s ratio, after peaking at 41.2% in 1991due to hyper inflation, has been fluctuating between 20-30%.

In a dollarisation economy, controlling credit growth is more difficult. The central bank’s measures such as raising reserve requirements and issuing central bank notes to withdraw money from circulation are only effective in controlling local currency credit. (Dau Tu)

Nearly 100% of banks raise interest rates

Friday, May 2, 2008
On April 29, at the same time the Viet Nam Banking Association released an announcement on adjusting the negotiated ceiling interest rate among its members, many banks applied new interest rates.
By the end of April 29, most of the banks belonging to the 38 members of the Viet Nam Banking Association announced they would raise interest rates to the ceiling level, bringing the interest rate on VND deposits to 11.5%/year for deposits of less than 6 months and 12% for deposits of over 6 months.
12% is the ceiling level defined by the State Bank of Viet Nam in late February 2008.
Oriental Commercial Bank (OCB), Viet A Bank (VAB), Saigon-Hanoi Bank (SHB), Southeast Asia Bank (SeABank), Techcombank, VPBank, Sacombank applied the above interest rates.

Notably, state-owned commercial banks quickly joined the game. Vietinbank announced it will increase the interest rates on 7- and 9-month bills to 12% a year as of May 1, 2008.

The Bank for Investment and Development of Viet Nam (BIDV) also stated it will apply the maximum interest rate of 12%/year as of April 29.

According to the Vietnam Banking Association, the adjustment of interest rates aims to ensure positive real interest rates under the government’s instruction. (TBKTVN)

Collateral shares to banks cast shadow over market

Friday, May 2, 2008
The diminishing value of shares accepted by commercial banks as collateral for loans has put pressure on many banks to protect the value of their security interests by selling off the shares before market values fall further.
The upshot: if banks act on the rational impulse to cut their losses, they will dump huge numbers of shares on an already depressed stock market. The prospect has given many in the securities industry, as well as State regulators, a bad case of the heebie-jeebies.
Before the State Bank cracked down on the practice about a year ago, commercial banks accepted an enormous quantity of stock as collateral in loans to stock market investors. Many of the borrowers have since lost money on their stock investments and banks fear that the loans may fall into default.

Each day that the banks delay selling the shares to pay off the debts, the collateral is losing value.
The clock is ticking
During the hot growth of the stock market in 2006-07, investors were easily profiting from securities investments. Investors were readily able to mortgage their appreciating shares and reinvest in even more.

Then the State Bank, sensing the risk of a bubble bursting and leaving commercial banks in a crisis, cracked down on the process.

Late last year, the stock market plunged, and the shares held as collateral by commercial banks lost an enormous proportion of their value.

Earlier this year, commercial banks began dumping shares, and the VN-Index fell to the 500-mark.

With the stock market now restricted to a daily trading band of 2%, there’s little room for shares to regain their lost growth, and commercial banks are now chomping at the bit to sell more shares and realise the value of their collateral. But, for the moment, the State Bank has cried, whoa, Nelly.

"Even though the State Bank has ordered State-owned commercial banks not to sell collateral shares, and has strongly encouraged private joint-stock banks not to, as well, the existence of these shares is a burden on the market," said independent market analyst Nguyen Tien Dung.

"Sooner or later, the banks will sell these shares on the exchange despite the warning from the State Bank," Dung said, warning that the volume of shares held by commercial banks was too much for the market to absorb at a time when the market was already oversupplied.

John Nolan, an analyst for a HCM City fund management board, said, "In different markets worldwide, market regulators have a dedicated fund to solve market problems. Why doesn’t your country have a similar fund?"

According to Nolan, the State Bank could spend a certain amount of money from such a risk management fund to buy back collateral shares. The shares could then be held for a certain period.

When the market warmed up again, commercial banks could then buy back the shares from the State Bank and re-sell them at a profit.

In the meantime, commercial banks were following the State Bank directive and holding onto the shares, said Le Xuan Nghia, head of the State Bank’s Banking Strategy Department.

"The banks themselves have begun to understand that selling more shares at a time when the market is already facing oversupply doesn’t benefit themselves. That’s why they’ve delayed selling shares," said Nghia.

"I’ve also heard that the Government may direct the State Bank to implement a discount loan to commercial banks at 9% a year, which would be enough to get them to delay selling the shares for a while," he added.

Mortgaged out

A large number of collateral shares are also lurking in the vaults of securities companies that have offered mortgage services to their clients.

Dung noted that these also posed a danger to an oversupplied market as securities companies were under no regulation requiring them to delay foreclosing on shares and selling them.

"It’s understandable that firms or banks need money at this moment, and may be forced to sell shares because investors have not paid off their debts," said Dung.

However, Dung noted, this action could be delayed for a time with a guarantee from market regulators to ensure the viability of securities companies during this difficult period.

"The listed companies’ association has urged securities companies to delay selling mortgaged shares. But at the core is how much securities companies will be aware of their actions in the near future," said Nguyen Son, head of the market development department of the State Securities Commission.

"The more they are aware, the more we are assured of a solution." (Viet Nam News)

Ceiling interest rate removed, deposit interest rates may rise

Friday, May 2, 2008
Experts believe that once the ceiling interest rate scheme is removed, a new interest rate race will kick off, which may see deposit interest rates rise to 15% per annum, higher than the highest peak seen in the February race.
While the State Bank of Viet Nam was still working with the Saigon Commercial Bank (SCB) on SCB’s promissory note issuance, which was denounced as violating the banks’ agreement on the ceiling interest rate of 11%, the Prime Minister decided that the ceiling interest rate scheme must be removed.
The 2-day working session between the State Bank of Viet Nam and SCB ended earlier this week, while the minutes of the meeting did not say if SCB’s move to issue promissory notes with the interest rate higher than the ceiling interest rate was wrong or right.

SCB, which was first accused of violating banks’ agreement on ceiling interest rate, has automatically become the pioneer in removing the ceiling interest rate scheme with the Prime Minister’s decision.

Immediately, bankers have expressed their concurrence with the Prime Minister’s decision.

“The decision shows that the government is trying to regulate the national economy based on economic rules, not on administrative orders,” said Luu Duc Khanh, General Director of An Binh Bank.

Khanh said that the decision will help commercial banks mobilise capital more easily and settle difficulties caused by the tightened monetary policies.

“In principle, the best solution to fight inflation is to withdraw money from circulation, and the best tool to do that is the interest rate policy. The decision on removing the ceiling interest rate proves to come in line with economic laws. The other thing the government needs to do now is to calculate and forecast the inflation rate, so that people will make deposits at banks,” said Dang Quoc Tien, Deputy General Director of Military Commercial Joint Stock Bank.

Bankers say that the removal of the ceiling interest rate scheme will pave the way for commercial interest rates to go up further, possibly to 15% per annum.

Worries have been raised that the higher deposit interest rates will bring about lending interest rate increases, which will still put heavy burdens on businesses. However, Pham Anh Dung, General Director of SCB, said that it is more important to have capital for lending than the interest rate for lending.

Dung said that if banks continue offering low interest rates, people will not make deposits at banks anymore, but will make investments in other channels, buying gold, for example. As a result, compulsory reserves will decrease, which proves to be bad for the central bank’s management of the monetary market.

Analysts have pointed out that the ceiling interest rate scheme proves to be in contrast to the government’s policy on curbing inflation. As interest rates were lowered, depositors could not enjoy real profit on their deposits and decided to withdraw money from banks to buy gold. The director of a HCM City-based bank said that during five days, March 2-7, VND600bil was withdrawn from his bank, a surprisingly high figure.

High inflation and tightened monetary policies have been putting big difficulties on commercial banks. Most of the banks had very satisfactory business results in 2007 (big capital, large operation scale, low bad debt ratios), while they all faced low liquidity in early 2008. (VNN)

Kinh Bac plans to raise 106 million USD

Tuesday, April 29, 2008
The listed firm Kinh Bac Urban Development Joint Stock Co is planning to offer more shares this year to hike its charter capital to 1.7 trillion VND (106 million USD).
Chairman Dang Thanh Tam made the announcement at a recent Kinh Bac shareholder meeting, saying the company was aiming to make over 1.18 trillion VND (74 million USD) in revenue and 611 trillion VND (38.2 million USD) in after tax profit, and pay a dividend of at least 30% in 2008. He also announced that the company would pay a 2007 dividend of 43% in shares.
“A growth rate based on a firm foundation will help the company have enough financial capacity to be ready for large projects in the future,” the chairman noted.Current projects the company is working on include a 100 million USD plan to expand Bac Ninh province’s Que Vo industrial complex to over 600ha, a 200 million USD Yen Phong industrial zone project in the first phase in Bac Ninh and the Phuc Ninh urban zone project coming in at 200 million USD.
This year, the company will joint hands with Taiwanese Foxconn Group to develop the Trang Cat high-tech and new urban area complex in the northern port city of Hai Phong , along with other projects.
Kinh Bac, an affiliate of Saigon Invest Group, specialises in real estate development, trade, financial services, infrastructure construction, investment consulting, power generation and mining. (VNA)

Vinaconex to sell stakes in cement plants to foreign investors

Tuesday, April 29, 2008
Viet Nam Construction and Import-Export Corp., a state-owned construction company, plans to sell an additional 20% stake in two cement plants to overseas investors to help fund expansion.
The company will sell the stake “to foreign strategic partners who commit to retaining the stake for at least three years and support us in terms of technology, finance, personnel and market expansion,” Phan Vu Anh, a spokesman for Vinaconex, as the company is known, said by telephone from Hanoi Monday.
Vinaconex spent VND4.7 trillion (US$294 million) to build the plants in Quang Ninh and Ba Ria-Vung Tau provinces, according to a statement on the Hanoi-based company's website.
The plants had a combined capacity of 2.3 million metric tons a year, Anh said.
International investors already owned about 10% of the plants, he said, declining to name them.
”The corporation has many big projects using cement from theplants, and producing cement is still profit-making,'' he said.
The production capacity in Viet Nam could exceed demand in five years, he said.
Vinaconex plans to list its shares on the Hanoi Securities Trading Center this year, according to its website. (Bloomberg)

April 29, VN Index surges, HaSTC Index slumps

Tuesday, April 29, 2008
Ending the last trading session of April, the 1776th trading session of the Vietnamese stock market, the Ho Chi Minh City Stock Exchange (HOSE) kept its increasing impetus on the stock market as the VN Index rose 2.94 points or 0.56% to 522.36 pts with the total matching order trade of over 9.5 million shares and fund certificates worth over 403 billion dong, marking the second consecutively increasing session on the stock market.
Among 154 shares and fund certificates being listed on the southern bourse, the stock market saw 65 shares increasing while 18 others stood still at the reference price, 71 shares decreasing. Of which, some 50 share codes reached the ceiling price and 60 others fell to floor price.
Particularly, STB lost 600 dong to 33,500 dong, SSI slipped 1,000 to 49,000 dong, FPT down 1,500 to 81,000 dong per share.
Others reached the ceiling price including VNM, VPL and PVD up 2,000 dong to 134,000 dong, 117,000 dong and 117,000 dong, DPM, HPG and ITA up 1,000 dong, VIC leaped 1,500 dong and PPC jumped 700 dong per share.
STB reached the biggest trading volume with 1,769,600 shares, DPM with 1,279,060, PRUBF1 with 431,120, PPC with 380,420 and others like VSH, FPT, SSI and HPG.
Foreign investors bought 79 shares with the total volume of 2,669,180 shares. DPM kept the first place with 658,350 shares, PPC with 299,080. VSH with 226,710, PVD with 141,270 and VIC with 136,850 shares.
Conversely, the Hanoi Securities Trading Center (HaSTC) today April 29 slumped on the stock market as the HaSTC Index dropped 2.00 points or 1.17% to end at 169.11 pts with the total market trade of 3,255,900 shares worth nearly 113 billion dong.
Amongst 135 listed shares on the northern bourse, the stock market saw 59 shares increasing while 65 others decreasing, four shares stood still and seven shares with no trades.
Four shares stood still including DSC, SIC, SJM and XMC.
Seven shares with no trade were CTB, HSC, HUT, KMF, LBE, NPS and VE9.
MIC was the biggest gainer when adding 2,700 dong and followed by SCJ up 1,800 dong and VTS leaped 1,000 dong. Others increased below 1,000 dong per share.
S99 and SD2 showed the strongest decrease when losing 1,600 dong and followed by SD7 lost 1,500 dong, HLY and SDA down 1,300, BVS slipped 1,200 and L62, PSC, PVC and SNG dropped 1,000 dong per share.
DBC took the pole place in trading volume with 327,400 shares, followed by KLS with 204,200 shares, HNM with 185,600 and ACB with 158,700 shares being traded.