BUSINESS IN BRIEF 1/12 VEC to embrace restructuring The restructuring process of Vietnam’s biggest state-owned highway developer the Vietnam Expressway Corporation has taken a landmark step forward by getting the prime minister’s approval to change the capital structures of five of its major highway projects. Under a prime minister decision dated November 8, the capital structures at five major expressways under the Vietnam Expressway Corporation (VEC) would change markedly against their formerly approved investment plans. The projects cover the building of the Cau Gie-Ninh Binh and Noi Bai-Lao Cai expressways in the north, and the Ho Chi Minh City-Long Thanh-Dau Giay, Danang-Quang Ngai and Ben Luc-Long Thanh expressways in the south. The government is allowing capital of these projects, including ODA, reciprocal funds, state budget moneys, and project bonds enacted as direct state capital contributions to all be restructured. According to VEC estimates the total capital is in excess of VND106 trillion ($5.05 billion). Following the changes, the state will hold a 49 per cent position in the Cau Gie-Ninh Binh expressway (open to traffic since June 2012), 29.5 per cent of the Noi Bai-Lao Cai expressway (to open in mid-2014), 63.05 per cent of the Ho Chi Minh City-Long Thanh Dau Giay expressway (to open late 2014), 60.5 per cent of the Ben Luc-Long Thanh expressway, and 60.7 per cent of the Danang-Quang Ngai expressway (to be completed by 2017). “The Ministry of Transport (MoT) has been asked to pen feasible restructuring plans for each project and re-approve their investment plans after consulting with the Ministry of Planning and Investment and Ministry of Finance,” said Prime Minister Nguyen Tan Dung. The prime minister also required MoT to study and propose an organisational and operational model for VEC after restructuring the projects to ensure efficiency and further attract capital from domestic and external sources into other highway projects. According to deputy chairman of the Vietnam Bridge and Road Association Nguyen Ngoc Long, VEC is a state corporation which means injecting more state capital into its projects will not drive up Vietnam’s public debt. Under the new capital structure, three out of five projects were believed to be capable of recouping investment within 17 to 32 years. The other two, Noi Bai-Lao Cai and Danang-Quang Ngai, need further state capital to deal with pending debts due to the enormous size of the investments and modest traffic volumes. Following the move, the total value including interest of all VEC loans related to these projects will be around VND57 trillion ($2.7 billion) which should bring VEC’s chartered capital to debt ratio down by half to 1:57 by 2017. In a dispatch from December 26 last year by the Government Office, the prime minster stressed the need to maintain the operational model and develop a mechanism to bolster VEC’s financial capability. “Prime minister approval will enable the MoT to improve VEC’s organisational and management model to boost efficiency and further attract domestic and external capital sources into transport infrastructure development,” Thang said. Hiway launches new capital superstore Local company Hiway Vietnam launched its second supermarket in Hanoi last week after its first, the Ha Dong Hiway Supercenter, launched in October last year. Nguyen Bao Loc, deputy director of Hiway Vietnam, said the expansive Ngoc Khanh Hiway Supercenter was a modest addition to Hanoi’s Ba Dinh district. The company is a joint venture between the Son Ha Group and strategic shareholders. Son Ha put $45 million into the complex. Hiway Vietnam is expected to open one more store in Hanoi in the near future, the Tu Liem Hiway Supercenter. Although it entered Vietnam later than some competitors, Loc said they are confident that there is plenty of room for new investors, adding “We clearly see that current supermarkets and other facilities are not meeting market demand.” Hiway stores are located on main traffic routes and feature food courts, fashion and game centres along with their more traditional supermarket facilities. From now through 2016, Hiway plans to open 20 more retail supercenters throughout the capital and country. Dinh Thi My Loan, general secretary of the Vietnam Retail Association, said the participation of foreign retailers has changd Vietnam’s retail industry and brought more competition that will ultimately benefit consumers. Giordano targets early retail entry Vietnam continues to attract foreign investors as new players join the burgeoning retail market. Richard Leech, executive director CBRE told VIR that the size and youthfulness of the population, growth in middle income earners and rapid urbanisation would make Vietnam an attractive investment option, especially in relation to the retail sector. Giordano International, Hong Kong’s leading fashion apparel and accessories retailer in mid-November signed a joint venture agreement with Yeo Boon Liang and Vietnamese representative Nguyen Thanh Tung on opening retail outlets in Vietnam under the Giordano and BSX brands. Under the agreement, Giordano International will hold a 60 per cent stake in the $600,000 joint venture. Liang and Tung will each hold 20 per cent. However, the opening date for their first outlet has not yet been made public. Peter Kwok Kuen Lau, chairman of Giordano International Limited said that Vietnam was an emerging market with significant potential in terms of fashion retail. The joint venture would allow the company to have a more direct reach into the Vietnamese market and more involvement in terms of the operation and control of local retail outlets. “By entering the market early, the company believed that it would be able to select the best strategic locations and position itself correctly from the outset with the right brand imaging,” shared Lau. Lau added that the company also believed that both Liang and Tung would be able to offer their assistance in the establishment and operation of the retail outlets, as both possessed significant experience and knowledge in fashion retail and supply as well as local infrastructure and systems in Vietnam. According to Giordano International Limited, Liang is regional general manager of the company’s Southeast Asian markets. He is well-connected with international department stores chains and experienced in running Giordano as an international brand in Southeast Asia. Tung, the company’s existing franchisee in Vietnam, has in-depth understanding of local market developments and its rules and regulations. Many other sectors such as fast food and beverages have also attracted a series of huge foreign retailers to Vietnam. The US-based Dunkin’ Donuts, the world’s top coffee and baked goods chain will expand its business in Vietnam this month, with the first location in Ho Chi Minh City. Last year, the restaurant service provider signed a franchise agreement with the Imex Pan Pacific Group’s Vietnam Food and Beverage Co. Ltd., whose partners have a proven track record of success in the local restaurant industry to develop the brand in Vietnam over the coming years. Next month, leading Filipino food and beverage manufacturers Universal Robina Corp (URC) will build its third beverage manufacturing facility, with a $35 million investment in the central province Quang Ngai. URC is intensifying its Southeast Asian expansion programme in line with plans to diversify and boost profits, with Vietnam likely to see growth matching the current size of the Philippines’s market over the next 10 years. Based on a growth trajectory of 17 per cent a year, URC’s Vietnam business could hit $1 billion in 10 years. In Vietnam, URC is well-known by its successful C2 and Rong Do beverage products. The world’s largest fast-food chain McDonald’s is expected to launch its first Vietnam restaurant in Ho Chi Minh City next February after signing a master franchise agreement with Ho Chi Minh City-based Good Day Hospitality, founded by IDG head – Nguyen Bao Hoang. Philand Ranh backs out of $30m Pointe91 deal Philand Ranh, a subsidiary of the US’ Phil Group, plans to withdraw from a luxury resort in the Chu Lai Economic Zone due to construction delays. Deputy head of Chu Lai Economic Zone Management Authority Do Xuan Dien told VIR last week that Philand Ranh signed an agreement to back out of the project in accordance with the authority’s request. “We asked the investor to withdraw from the project because the delays have gone on long enough. Philand Ranh failed to give us a firm time as to when they would resume construction,” he added. In July 2011 Philand Ranh held a ground breaking ceremony starting the construction of the $30 million Pointe91 resort in Tam Hai commune, five kilometres from Chu Lai airport. The developer said the resort and residential community would include a five-star hotel, a private residence club with 30 separate cabanas and 227 homes ranging from 700 to 4,000 square metres, a farmers market, education centre, and multi-faith worship centre for the local community and international visitors. Henry Fahman, chairman and CEO at Phil Group, in an interview with VIR in July 2011, said the project started with $30 million but would invest a total $350 million into completing its 60-month master plan. However, from the beginning the project was plagued with problems. Fahman did not respond to requests for comment last week, but in an email to VIR in August he said Phil Group had delayed the project because it wanted to “change the design and relocate it to a place more appropriate to the current context of the property and tourism markets.” Dien revealed that the US developer had approached other investors to get involved in the project and had proposed a new plan but that the province did not agree to the changes as they did not fit the province’s development strategies. So far Philand Ranh has completed site clearance and that local authorities and the developer were working to calculate the cost of the work. “Once we find a new developer for this project Philand Ranh can recover these costs from the new project owner,” he said. Firms fume at new duty-free check All imported duty-free machines and equipment used for making fixed assets for projects in Vietnam would face customs examinations, according to the draft amended Law on Customs under discussions. Firms will face delays in accessing imported machinery due to draft new inspection rules At present, under the existing Law on Customs’ Article 30, all such imported goods are exempted from customs examination. However, according to Vietnam Customs, though this article has made it easier for investors to implement their projects, especially foreign invested firms, it has enabled investors to conduct trade fraud by raising the real value of such imported products. “It is necessary to examine all types of imported goods, even duty -free goods used for constructing fixed assets, to curb fraudulent activities such as transfer pricing in order to ensure revenue is being sent to the state budget. Of course, the new regulation will make enterprises unhappy,” said Nguyen Tuan Sy, head of Dong Nai Provincial Customs Agency’s Inspectorate Division. Malaysia, Taiwan and British Virgin Island-invested cloth maker, Hualon Corporation based in the southern province of Dong Nai’s Nhon Trach Industrial Park was recently found to have imported a cloth making production chain for less than $400,000. However, the firm reported to the local tax agency that the chain had been imported at a price of nearly $16 million. The company was also found to have reported consecutive losses in Vietnam for nearly 20 years. It was forced to pay an outstanding tax sum of over VND78 billion ($3.71 million) to the state coffers. “Many localities have also witnessed enterprises raise the value of their imported goods used for making fixed assets, while reporting losses from their business performance to dodge tax obligations,” Sy said. “This has caused dents in the state budget and affected the country’s foreign direct investment (FDI) picture.” Duong Kim Khanh, a foreign-invested import-export firm representative said many firms in Vietnam, especially foreign-owned ones, were using the current regulations related to the import of goods for developing fixed assets being exempted from customs examination, as one of the law’s loopholes to import goods “not necessarily used for constructing fixed assets, to benefit from import tax exemption.” “I think this loophole is one of the causes behind Vietnam’s low budget revenue,” Khanh said. “Without a customs examination, enterprises can bring cheap technologies to Vietnam although they declare on their customs application forms that they are importing high-tech products into Vietnam. As a result, it is very difficult for Vietnam to reach its target of attracting high-technology FDI.” However, Khanh said, despite the draft new customs examination regulations, enterprises could have their own tricks to “bend the law” to benefit themselves. “It is vital that Vietnam has specific and effective mechanisms to control the real value of imported products in such cases from the moment they are imported into Vietnam from overseas. This is because the value may be raised not in line with the quality of products in the exporting market,” she said. “However, such mechanisms are unavailable in Vietnam.” Foreign firms snap up Phu My Hung homes Ho Chi Minh City has seen a clear trend in which foreign-invested enterprises have bought more apartments to accommodate staff in the Phu My Hung city centre in Saigon South. FIEs are buying apartments for staff in Phu My Hung A number of the buyers said they preferred buying property outright as they could avoid rental payments and could be more flexible in allocating homes to staff. In addition, the apartments would remain company assets. In November alone, FIEs signed contracts to buy 12 Phu My Hung apartments. Property developer Phu My Hung Corp. has apartments available in Canh Vien 3, Riverside Residence, Riverpark Residence and Top House Sky Garden. In addition, those who select an instalment payment plan can choose either Happy Valley or Star Hill apartment developments as they will be available for delivery over the next two years. For those foreigners that are not eligible to buy residential houses under Vietnamese laws, Phu My Hung offers a long-term lease contract. If the tenants later qualify and want to buy a home, the company will help process the change in ownership form. During the fourth quarter this year, Phu My Hung is selling block L, the final block with golf view in the Happy Valley development. On offer are two apartment sizes measuring 99 and 134 square metres, with instalment payment options stretching over 2.5 years. The apartment project is situated near a golf course, river, the city’s international commercial and financial district, and Crescent Quarter, which is home to the Star Light Bridge and Crescent Mall. Phu My Hung has become an iconic Ho Chi Minh City landmark development, and is located just 15 minutes drive from District 1. Sudden rush to buy super-fat pigs by Chinese traders In the last two months, Chinese traders have been purchasing large quantities of super-lard fat pigs from Vietnam, causing the price of pigs to climb very high and raising concerns about shortage of pork by year end in the local market. Since September, Chinese traders have been flocking to Vietnam to buy pigs, even going to far-off southern provinces to make their purchase. Many traders have also been seen in border provinces in the north, such as Lang Son and Quang Ninh. According to Thu, owner of a popular restaurant near Huu Lung Quarantine Station in Lang Son Province, during the last two weeks, purchasing of pigs has become a vibrant activity during day and night, which now has led to a hike in price of pigs in the north. Le Van Hung, a small trader in Bac Giang, said that the price of pigs has soared to VND50,000 per kilo from VND45,000 per kilo in the past week, or upto VND52,000 per kilo for fine quality from earlier VND38,000-40,000 per kilo. Local traders claim that the rise in the price of pigs is because China is increasing import of pigs for consumption for year end. Currently, pigs were mainly imported to China via three border gates, namely, Chi Ma and That Khe in Lang Son Province, and Bac Phong Sinh-Mong Cai in Quang Ninh Province. At An Noi Market in Binh Luc District in Ha Nam Province, a famous pig market in the north where pigs from everywhere in the country are gathered before being transferred to border gates in the north, the scene has been much more bustling than on normal days. Trader Vu Van Bao said that Chinese traders have bought up as many available super-lard fat pigs; hence during the last month he has delivered a truck load of 100-120 super-lard pigs or 10 tons of pigs, to Lang Son Province every week. Nguyen Van Trong, Deputy Head of Animal Husbandry Department under the Ministry of Agriculture and Rural Development, said that from the point of view of farmers, a hike in the price of pigs is good news as it helps them to earn profits. During the last few months, local price of pig was running below cost price, or even dropped to VND36,000-38,000 per kilo sometimes. However, the Chinese market is unstable and can suddenly stop purchasing at any time. Local traders usually do business with Chinese traders without contracts so they are totally defenseless. Chinese traders prefer to buy pigs with more lard with weight of 90-100 kilo upwards as Chinese consumers love braised pork and roast pork while Vietnamese consumers prefer pigs with more lean. Therefore, if farmers raise super-lard pigs, their pigs will be unsalable when Chinese traders stop buying. Thus it is pretty risky if farmers indulge in raising super-lard pigs due to current price influence, warned Mr. Trong. Mr. Trong said that local swine supply still ensures demand at year end and Lunar New Year festive season. However, the department also suggests that provinces control export of pork and continue to raise pigs and poultry to assure market stability at year end. Nguyen Manh Hung, Deputy Director of the Department of Agriculture and Rural Development of Ha Nam Province, said that they have recommended to farmers not to switch to super-lard swine or let the weight of swine be over 100 kilo for immediate profits as they will suffer huge losses when China stops buying pigs from Vietnam. Experts said that a similar situation in 2011 caused sudden hike in local food prices while lean-pig supply slumped. Authorities do not want this scenario to be repeated yet again. Savills Viet Nam attracts S Korean property investors Savills Viet Nam, a foreign property consultancy firm, expects to receive a delegation of South Korean investors by the end of this month. The delegation is scheduled to visit projects in Viet Nam to learn more about investment opportunities here, the firm said yesterday. The visit was planned following a seminar to introduce property investment opportunities in Viet Nam, which had been held in Seoul last week by Savills Viet Nam and Savills Korea. The seminar attracted some 110 guests including Korean finance experts, real estate investors, banking sector representatives, consultants and developers who are interested in Viet Nam. At the seminar, Neil MacGregor, managing director of Savills Viet Nam, provided an overview of the Indochina real estate market, including an in-depth look at current market trends and areas of opportunity for Korean investors. "Korean developers have been active investors in Viet Nam for many years, and we are now seeing renewed interest in Viet Nam," Neil remarked. "This is being driven by the fact that Viet Nam is now at the bottom of the real-estate market cycle, and developers want to position themselves for the market recovery," he continued. "We are also seeing strong interest from investors looking to purchase good quality operating assets such as office buildings, serviced apartments and hotels," he added. Viet Nam is showing strong signs of recovery, with foreign direct investments (FDIs) up around 65 per cent year-on-year, a steady currency, lower inflation and interest rates, and a very strong remittance rate from Vietnamese people living overseas, Savills Viet Nam stated. — Credit institutions to shoulder burden of debt restructuring Governor of the State Bank of Viet Nam (SBV) Nguyen Van Binh published a plan addressing directives from the prime minister to manage bad debts and create an asset management company. The prime minister's approval of the projects "Dealing with bad debts in the credit institutions' system" and "Establishing the Viet Nam Asset Management Company" was outlined in Decision 843/QD-TTg, dated May 31, 2013. Based on this, the SBV governor issued a plan to implement the necessary provisions (Document 8421/NHNN-TTGSNH), calling on credit institutions (CIs) to develop and implement plans to settle bad debts and improve credit quality within the 2013-15 period, as part of the overall plan to restructure credit institutions, according to the Viet Nam Business Forum. These changes remain in line with the spirit of the Government's plan to restructure the credit system. The governor's objective is to clear away the current bad debts, effectively control and enhance credit quality, and successfully meet the objectives of the restructuring plan. The governor has called on banks to assess bad debts and credit quality from 2011, 2012 and the first six months of 2013, including bad debts by credit level or those created by buying corporate bonds, fiduciary bonds, and credit. Bad debts must also be divided according to collateral value and provisions for risk. Bad debts with and without collateral must be recorded. Bad debts classified by state-owned enterprises and other businesses, individuals or households; bad debts classified by industry; and bad debts incurred by affiliates, transaction offices, branches and units of CIs will also have to be recorded. In addition, Vietnamese banks are also required to perform analyses and evaluation of bad debts' data and structure as of June 30, 2013, based on the following classifications: bad debts defined under Decision 493/2005/QD-NHNN, dated April 22, 2005, and Decision 18/2007/QD-NHNN, dated April 25th 2007. This does not include those bad debts defined by the SBV governor under Decision 780/QD-NHNN, dated April 23, 2012, or bad debts defined under Circular 02/2013/TT-NHNN, dated January 21, 2013, on asset classification, provisions and the provisioning method, as well as using reserves to handle the risks associated with the banking activities of CIs and foreign bank branches. CIs also need to review, produce statistics, assess the status of loans including those with interest due but unpaid and added to the total amount of the loan. Total debts must also be clearly reported according to classification. CIs must accurately evaluate the level of risk for loans and the financial situation and business activities related to them. In particular, CIs should propose solutions to deal with the estimated bad debts and provide an estimate of the number of bad debts that can be resolved with each solution and for each year up to 2015, including loans sold to the Viet Nam Asset Management Company. They should also create solutions to deal with the bad debts of affiliates, branches, and other units of credit institutions. In terms of improving credit quality, CIs need to develop measures to enhance the quality of appraisal and lending decisions, including monitoring changes in credit conditions, record-keeping, processing, procedures, the process of credit appraisal and approval, and the responsibilities of individuals and units involved in the process. Measures must be adopted to improve monitoring to ensure loans are used for the purposes stated in their credit agreements. Finally, the governor requires CIs to introduce measures to strengthen internal inspections and control as well as conduct internal audits on credit quality. For example, CIs must propose changes in internal control rules and inspection content and procedures for inspections conducted before, during, and after the credit approval process. Methods must be adopted to handle illegal loans or loans that present a risk to CIs, including classifying and accounting for these kinds of debts in accordance with the law, closely supervising the restructuring and handling, creating mechanisms to help prevent these debts from arising, and putting an end to the provision of illegal loans. Sugar group opposes imports from Laos Mixed opinions arose over Hoang Anh Gia Lai Group's recent proposal to the Ministry of Industry and Trade for an import quota for 30,000 tonnes of sugar from the group's factory in Laos's Attapeu Province in the 2013-14 crop. The Viet Nam Sugar Association has suggested the Prime Minister not allow the import. In addition, the association asked the Prime Minister not to permit small-volume exports of sugar not originating from Viet Nam through Ban Xuoc border gate, from northern Lao Cai Province's Bat Xat District to China. This was in response to Bien Hoa Sugar Company's request for permission to import crude sugar produced in Laos by Hoang Anh Gia Lai, to be processed for re-export. The association estimated the 2012-13 crop to lift the sugar inventory to around 400,000 tonnes and expected the stockpile to remain large after the coming crop, forecast to amount to 600,000 tonnes. Together with the large volumes of smuggled sugar breaching Viet Nam's borders, the import, if allowed, would become a burden on more than forty local sugar processing plants and million of farmers. With the domestic sugar industry in strife, small-volume exports to China were the only choice for local producers, according to the association. It said that importing Hoang Anh Gia Lai's sugar manufactured in Laos for processing and re-export would badly affect local industry. The price of Hoang Anh Gia Lai's sugar manufactured in Laos is much lower than that produced locally, thanks to the Lao Government incentives. Consequently, re-export prices will still be lower than local prices, meaning Vietnamese manufacturers will be unable to compete. However, chairman of Hoang Anh Gia Lai Doan Nguyen Duc was quoted by Tuoi Tre (Youth) newspaper as saying the import would have no impact on the domestic sugar industry because the sugar would all be re-exported after processing. He said this would help provide Bien Hoa Sugar Company with raw materials and that the firm would also pay taxes to the Government. He added that according to its World Trade Organisation commitments, Viet Nam must import thousands of tonnes of sugar each year. So, importing sugar manufactured by Hoang Anh Gia Lai in Laos would help Vietnamese enterprises. According to Tran Cong Thang from the Institute for Agriculture and Rural Development Strategy, domestic sugar production cost were currently high. The ASEAN tariff removal scheduled for 2015 would hit the sector hard if domestic producers could not lower costs and improve quality. Binh Duong expects trade surplus The southern province of Binh Duong is expected to post a trade surplus of US$2.86 billion in 2013, according to the provincial People's Committee. By the year-end, Binh Duong hopes to gain an export value of over $14.44 billion, up 15.7 per cent annually, with the foreign-invested sector making up 81.3 per cent of the total. Its imports are forecast to reach $11.58 billion, with raw materials for production as well as machinery and equipment adding to a year-on-year increase of 16.5 per cent. The head of the Binh Duong Importers and Exporters Club, Pham Van Xo, said the club's 156 members had all signed export contracts until the end of the year, and the apparel, leather and footwear industries had received large orders for cheap, high quality goods. Enterprises must cut production costs, apply modern technology and employ qualified staff to increase profits, Xo said. This year, local leather and footwear enterprises had been producing good designs and applying modern technology in production and management to reduce risks, he said. Binh Duong's Department of Industry and Trade revealed that the locality had exported $9 billion worth of goods over the first nine months of this year, surging 15.6 per cent year-on-year. Department Director Vo Van Cu attributed the performance to stable foreign exchange rates and falling material prices and interest rates, as well as recovering foreign markets such as the US, the EU and Japan. During the reviewed period, the province's imports saw a yearly increase of 16.5 per cent to $7.8 billion, resulting in a trade surplus of $1.2 billion. Listed companies post big losses Viet Nam's listed firms had posted accumulated losses of over VND10.8 trillion (US$509.4 million) as of September 30, according to financial information website vietstock.vn. The losses marked a 50 per cent rise against the same period last year, with 131 of the 661 listed companies (excluding banks and funds) finding themselves in the red. PetroVietnam Construction's (PVX) losses alone reached more than VND2.6 trillion ($122.6 million). It was closely followed by Petroleum Saigon Construction And Investment (PSG), steelmaker Pomina (POM), Viet Nam Ocean Shipping (VOS) and Mientrung Petroleum Construction (PXM). PetroVietnam subsidiary pays 10% dividend PetroVietnam Drilling Services (PVD) plans to issue 25 million shares next month to pay dividends at 10 per cent. During the first nine months of this year, the company earned revenues of VND10.4 trillion (US$490.5 million) and VND1.48 trillion ($69.8 million) in profit. It expect to make a year-end profit of VND1.8 trillion ($84.9 million), a 32.4 per cent increase on its initial target. Military Bank's investment arm increases capital Investment fund MB Capital was granted a licence to double its charter capital to VND200 billion ($9.4 million) by issuing 10 million shares, according to the State Securities Commission. The move is aimed to develop the firm's financial capacity so that it can set up more unit funds. Military Bank (MBB) currently holds a dominant 82.26 per cent stake in the fund. MB Capital earned profits of VND21 billion (nearly $1 million) in the first nine months of this year. Real-estate firm expands business operations Property developer An Duong Thao Dien (HAR) will buy a 51 per cent stake (equivalent to VND25.5 billion – US$1.2 million) in Ascentro Investment and Trading Co. By so doing, it expands its business into agriculture and forestry. In June, An Duong Thao Dien spent VND27 billion ($1.27 million) on a 40 per cent stake in Binh Dinh Mechanic and Mineral Co, hoping to reap a 35 per cent profit. An Duong Thao Dien's profits for the first nine months reached VND10.75 billion ($507,000), just 18.3 per cent of its yearly target. The below-par figure was attributed to declining real estate operations. Nation has potential for green development Vietnam has adopted a national strategy on green development and this is a huge opportunity for cities to combine low-carbon development with economic growth, said Deborah Day, director of Planning and Development of Victoria City in Canada’s British Columbia. Speaking at a seminar on local economic development in Dong Nai Province on Wednesday, Day said that Vietnam has a young population while many localities in the country have begun the urbanization process. The nation can learn from the green growth models of other countries to apply in local cities. Victoria City’s government has encouraged the use of renewable energy in office buildings and has called for residents to use public transport, walk or travel by bicycle instead of driving a car, she said. Nguyen Quang, director of the UN-Habitat program in Vietnam, said that green development is a low-carbon economy, meaning that the cities prioritize renewable energy use and support clean production. Residents in those cities also live a healthier, green life as well as saving energy and natural resources. During the 90s, South Korea recognized its problems during its development process, prompting the nation to set up a green development strategy. The United Nations and countries around the world have considered the model as a good initiative for sustainable development and energy saving and have applied it in a number of cities, Quang said. Vietnam has also witnessed its own pioneers in green development such as Hoi An City with ecological tours and Thai Nguyen Province with a community-based tourist model, Quang added. David Devine, Ambassador Extraordinary and Plenipotentiary of Canada to Vietnam, said that the target of local economic development is to support local governments in strengthening their roles, assisting green development and creating a friendly environment for the community. Small and medium-sized enterprises (SMEs) are the motivation of employment, economic growth and poverty reduction. Therefore, they should receive the necessary support from local authorities. “We have cooperated with Soc Trang and Ha Tinh provinces to support SMEs, raise competitiveness in the agriculture industry, assist farmers and push up green development,” Devine added. Office rents increase on lower supply Office rents in HCMC are expected to increase in the coming time as supply from new office building projects becomes lower, industry insiders said. Greg Ohan, director of office service unit of CBRE Vietnam Company, said that office building supply has declined as many projects have fallen behind schedule. Meanwhile, existing buildings have seen occupancy ratios increasing sharply. A survey conducted by the market researcher shows that new office leasing area this year had reached around 81,000 square meters as of the end of the third quarter, up 25% from that in the whole 2012. Office rents also increased around 3% against the previous quarter, with grade A office rents offered at around VND680,000 per square meter and grade B at around VND388,000 a square meter. Most customers are those moving to new offices or expanding their offices while the number of new clients is low. For CBRE, the number of its customers moving offices accounted for around 44% of 122 transactions made this year, Ohan said. Located at the corner of Ton Duc Thang and Le Thanh Ton streets, Lim Tower has started operating, launching around 34,000 square meters of office space onto the market. Around 80% of the building has been occupied so far. CBRE said that 175 buildings with around 175,000 square meters of office space will be launched in HCMC within the next two years. Of which, many buildings will include head offices of investors, so supply will be limited. The city has seen many big projects underway, including The One HCMC complex developed by Bitexco Group. The project will have a commercial center, offices, serviced apartments and a five-star hotel. Mario J. Lotti Jr, director of the project, said that the foundation of the building is being constructed. Therefore, the project will not show up on the market until next one or two years.  FMCG rises in cities, unchanged in countryside The fast-moving consumer goods (FMCG) segment continued to stay unchanged in urban markets while it experienced strong growth in rural areas, according to a report by the market research company Kantar Worldpanel. In particular, the FMCG market in urban areas had struggled to maintain growth of 11% while the market in rural areas had grown firmly with a rise of 14% in value. Kantar Worldpanel made its survey during a 12-week period ending on October 6, expecting the FMCG market to partly regain growth motives to continue the high growth if the economic situation keeps showing positive signals from now until the year-end. According to the enterprise, except for traditional markets, all major retail channels had maintained double-digit growth rates. Manufacturers make huge investments annually in developing new products to meet the rising diversified demand of consumers, said Kantar Worldpanel. This explains why the speed of launching new products is pretty impressive, with one new item introduced every two hours. Kantar Worldpanel studied shopping habits of consumers for over 100 types of FMCG at 2,350 urban households in HCMC, Hanoi, Danang and Can Tho. Meanwhile, the study of nearly 300 new products of 25 big FMCG items in the last five years indicates that a new product will attract one among 15 households or 7% of the total number and that 28% will purchase the item again. Imported food market under inspection The Ministry of Industry and Trade will apply strict regulations on the quality of imported foods from December 20. Beverages, vegetable oil, starch and dairy products as well as their packaging will be subject to inspection. Products which fail to meet standards, as well as those from areas with polluted water sources or infectious diseases will be tested for their safety. Other products will go through the same process until they are proven their quality during at least two consecutive inspections, or have been given approval from the Ministry of Industry and Trade. After that, they will be checked for labels and origins. If the products are not approved, traders will be within their rights to file complaints and ask for another inspection. As the year's end approaches and people start shopping for Tet Holiday, the demand for food increases. It is also typically a time for high activity for smugglers and unethical traders to make profits with poor quality products. In years past, food hygiene and safety have become one of the most urgent problems in Vietnam. Imported dairy products such as Abbott, Dumex, Similac, GainPlus EyeQ, which account for 70% of market share, are under suspicion of being contaminated. This problem has raised the most public concern because it directly affects the health of mothers and children. Gun primed on credit growth race A looming rush to achieve the annual credit growth plan might dig Vietnam even deeper into its bad debt hole and oversupply the market with capital. By the end of the third quarter many commercial banks were still behind their credit growth targets, some were under 50 per cent. A few are facing negative growth including Navibank, Saigonbank, PGBank, and Southern Bank. In terms of the national credit growth target of 12 per cent, 8 per cent has been achieved. In capital terms, another $760.6 million needs to be lent. Financial experts are worried that in their push to make up the difference, banks may neglect credit quality. According to economic expert Vu Dinh Anh, a similar problem occurred in 2011 when the State Bank announced a credit growth limit for 2012. The race to lend toward the end of the year resulted in credit shrinking by 2.25 per cent in the first quarter of 2012. Again this occurred in late 2012 when credit jumped by 6 per cent with an annual national target of 9 per cent. This strongly indicates growth did not reflect true demand. “Credit growth this year should be only 9-10 per cent. Most important is credit quality, and if this is ignored, bad debts will mount over the next 3-6 months,” said Anh. “The biggest issue is if the State Bank loosens monetary policy, the economy may suffer serious consequences,” he added. According to Nguyen Thi An Binh, deputy general director of Military Bank, a possible way to grow credit quickly and safely would be to disburse at least some of the vast amount of capital planned for government projects in transportation and construction. Military Bank has achieved credit growth of 8.8 per cent in the first nine months of this year. Bad debts are still the main obstacle between bank capital and the marketplace. “Banks cannot risk lending to customers who may not pay as they have to provision 100 per cent of the loans,” said Le Xuan Nghia, member of the National Financial and Monetary Policy Advisory Council. “If NPLs are dealt well, credit growth of next year can reach 14-15 per cent,” said Nghia. InterContinental stonewalls Keangnam hotel queries The operator of the country’s tallest hotel is still in question despite the involvement of InterContinental Hotels Group in the project for a few years. In August this year then director of sales and marketing of the InterContinental Hanoi Landmark 72 Jessica Koh told VIR that the hotel was expected to open in the fourth quarter this year. Koh has recently been appointed as director of sales and marketing for InterContinental Nha Trang Hotel, which is expected to open in the next few months. Odd activities were seen last week as the billboard bearing the InterContinental name was moved out of the Keangnam Landmark 72, the tallest building in Vietnam. There were reports that employees who had been hired over recent months had been dismissed and only one person remained. But VIR was unable to contact company sources despite repeated calls. A source from Keangnam Vina, the developer of the hotel, confirmed with VIR that the team had moved out. The hotel occupies the space at the very top of the country’s tallest tower perched on floors 62-71. It boasts 359 rooms, a variety of restaurants, and state-of-the-art meeting facilities. Offices and serviced residences occupy the lower part of the 72-storey building. Keangnam Vina has advertised the logo of the InterContinental on the fence of the complex since the company started construction more than five years ago. A representative of the InterContinental Hotels Group Clarence Tan, chief operating officer for South East Asia & Resorts on the other hand said the company was still working with property owners and planning to open the hotel. “We will be better positioned to share more information on the hotel at a later stage,” Tan said, declining to add more information. Discussing the group’s development strategy in Vietnam, Tan added that the group was planning to more than double its presence in South East Asia over the next three to five years. “Although our focus market is Indonesia, Vietnam is also a market we are looking to grow in,” he stressed. At present, the group is operating three InterContinental hotels in Vietnam with properties in Hanoi, Ho Chi Minh City and Danang. The fourth InterContinental in Vietnam will be opened in Nha Trang. In addition to InterContinental, the group is also operating two other hotels under Crowne Plaza brand, including one resort in Danang and one hotel in Hanoi. ‘Cheated’ buyers spark disputes The ailing real estate market is facing new challenges with the number of conflicts and disputes on the rise. Disagreements between property developers and residents have centred around management fees, usage of public facilities, and property valuations. Some of the more prominent were the Keangnam Palace, Golden Westlake, and Sky City Towers. Recent conflicts included tempers flaring at the Sparks residential complex in Hanoi after customers said they were displeased with the calculations of space. The developer did not cut out heavy duty columns and common utility rooms and spaces from the payable area for buyers. A similar situation arose at the 928 unit Hyundai Hillstate project after buyers refused to pay for areas taken up by walls and utilities. General director of PMC Nguyen Hong Minh said misunderstandings about the definition of public and private area ownership are often the main cause of disputes. Other conflicts, such as at the Golden Westlake or Keangnam Palace, have been over management and parking fees. At Pacific Place, another high-end residential project, residents requested the Vietsing medical clinic in the basement and the Rooftop restaurant and bar on the roof be closed, and were unhappy about the intrusion from three elevators being added to the adjoining office building. Residents were concerned about medical waste from the clinic, complained that the bar was too noisy despite closing before midnight, and criticised the structural changes because of the new lifts. According to Tran Huu Huynh, chairman of the Vietnam International Arbitration Centre, property disputes have become more prevalent and specific. This has resulted in constant battling between developers and residents. Former Deputy Minister of Natural Resources and Environment Dang Hung Vo added that the disputes were becoming increasingly complicated, to the point that resolution was impossible. Vo blamed the problems on unclear and overlapping laws and regulations. Nguyen Truc Hien, an executive partner from law firm Vilaf Hong Duc said many developers draw up contracts that prioritise their interests and push risks and disadvantages on to buyers. Lawyer Phan Vu Anh, former head of the Legal and External Affairs Department from Vinaconex agreed with Hien, saying that property contracts highly favoured developers. “Buyers are signing contracts they don’t understand and are being cheated,” Anh said. Hien said the legal system at current did not have the comprehensive regulations needed to protect buyers’ rights and that supervisory bodies were incompetent. Dao Ngoc Chuyen, a lawyer and arbitrator from the International Arbitration Centre agreed that poor management of the real estate market was to blame. “Over the last decade, speculation has been the driving force behind the market and many businesses with little or no experience in property development jumped in. This inexperience has caused numerous disputes,” Chuyen added. Before conflicts can be resolved, Vo said buyers’ rights need to be protected and there needs to be detailed guidelines for contracts that are fair to both developers and buyers. “This is a complicated issue, but it must be solved and we should start now. All sides [developers, buyers, policy makers] need to get serious and recognise that everyone will benefit from mapping out solutions,” Vo concluded. Source: VEF/VNA/VNS/VOV/SGT/SGGP/Dantri/VIR