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Foreign access to Viet Nam assets increases   2008-07-15 - VNS

More and more Vietnamese businesses are now selling their assets to foreign investors for a lot less than a few months ago in an effort to lure foreign partners.

Earlier this year, Vietnamese companies looking to sell a share of their holdings would be courted by a handful of foreign investors. However, now it is the local businesses that are doing the courting. A foreign investor that reveals intentions to buy a stake in a domestic enterprise is often inundated with offers from Vietnamese operations.

Due to mounting difficulties, domestic businesses are now opting to sell a portion of their assets to obtain the necessary funds for maintenance and development.

Several local companies have the potential for development but lack the capital to do so. Many are ready to transfer shares and bonds at low prices to entice buyers with bigger profits.

Businesses more starved of capital are usually involved in the real estate market.

Many international investors are willing to make the jump into Viet Nam but severe market fluctuations and a maddeningly vague legal system cause second thoughts.

Industries favoured by foreign investment are those with great strength and potential that can be tapped with effective development strategies and a skilled management staff.

Retailing, hospitality industries, financial services and real estate are big draws for international investors.

No cut for rates

The central bank instructed domestic commercial banks to keep their interest rates for mobilising capital at 17.5 per cent. With most deposit interest rates between 17.5 and 18 per cent and lending rates capped at 21 per cent per year, turning a profit is increasingly difficult. However, many banks still have no plans to cut rates.

For example, VietA Bank now offers an interest rate of 18.8 per cent for three month deposits. Its management board has no intention of reducing rates, but instead will adjust them when deemed necessary.

Despite adjusting interest rates, Kienlong Bank’s interest rate remains at 19 per cent per year for three month-term deposits. GiaDinh Bank’s is 18.9 per cent.

Most banks fear that reducing interest rates would ward off capital sources and new customers.

Recently, the banking industry achieved an average monthly growth rate of only 1.17 per cent in mobilised capital, the lowest amount since 2005. Last year, the monthly growth rate was 4 per cent.

Because the deposit interest rates are so high, local banks cannot risk business operations by lowering the current annual lending interest rate of 21 per cent.

Many bank managers admit that such high rates are leading to difficulties in lending, in turn producing more difficulties in realising profit targets.

Market fluctuations at home and abroad are scaring most local businesses away from loans with high interest rates.

Only long and medium-term lending contracts are easily approved. Banks are not having much success in persuading customers shopping for short-term loans or loans with fixed rates to accept their terms.

Financial experts predict that deposit interest rates will continue at the current level or climb higher in the meantime, but will fall next year at the latest.

Rice fields spread

Thousands of ha of orange and pomelo orchards in Vinh Long, sugarcane in Hau Giang and Ca Mau, coconut groves in Kien Giang, mangrove and eucalyptus forests in Tien Giang and Long An are giving way to rice fields. Dozens of ha of fish and shrimp farms are likewise being converted into rice fields.

Rice farms since the recent summer-autumn crop in the 13 delta provinces increased by 50,000ha over the winter-spring crop earlier this year.

The trend is expected to continue. For example, Vinh Long Province plans to increase rice cultivation for the autumn-winter crop by 20,000 ha, Soc Trang by 10,000ha and Bac Lieu by 30,000ha.

Orchards and aquaculture are being squeezed out by the spread of rice farms.

Recent price hikes here and abroad are to blame for the switch to rice cultivation. Farmers see more profits in rice than in fruit and aquaculture.

With the current price of unhusked rice of between VND5,500 and 6,600 per kilo, farmers can earn VND15 to 16 million per ha.

However, experts warn that farmers’ unchecked rush to grow rice could be dangerous.

Farmers will spend at least VND15 million to shift one ha of mangrove forest, orchard or shrimp farm to one ha of rice paddy. However, not all kinds of land are amenable to growing rice.

Farmers would bear the brunt of losses if their new fields yield few result or if market prices plunge.

Aviation stays aloft

Viet Nam’s aviation market maintained robust growth in the first half of the year despite record high oil prices.

Preliminary estimates indicate 12 million passengers passed through the country’s airports in the first half of the year, up 23 per cent from a year earlier. Airports handled nearly 214,000 tons of cargo and over 92,000 flights, up 15 per cent and 21 per cent respectively over the same period last year.

Domestic and international travel by both Vietnamese and foreigners are behind the aviation sector’s strong performance.

Around 2.5 million international tourists came to Viet Nam in the first six months of the year, a year on year increase of nearly 18 per cent.

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