BUSINESS IN BRIEF 7/4 Foreign investor decree clarified The Government has recently launched various measures to strengthen weak credit institutions. One of these measures is a draft decree regulating how many shares foreign investors can purchase in Vietnamese credit institutions, listed and non-listed shareholding banks, financial companies and financial leasing companies (collectively VCIs). The new decree replaces Decree 69/2007/ND-CP. The decree makes it appear that the Government is allowing foreign investors to own a greater percentage of VCIs. But there are a few issues that must be clarified. For instance, the decree lacks a provision distinguishing indirect ownership from direct investment. There is also no detailed definition of "affiliate", though the foreign ownership limitation applies to both foreign investors and their affiliates. This lack of clarification may cause confusion for both the buyers and sellers in an acquisition deal. While the current regulation requires all transactions involving foreign investors to be approved by relevant authorities, the draft decree proposes that only a few share transactions be required to obtain the relevant authority's approval. The list of transactions requiring state approval includes: (i) The purchase of shares resulting in ownership of 10 per cent or more of a VCI's charter capital; (ii) A purchase in which the foreign investor becomes a strategic investor of a VCI; and (iii) The purchase of shares resulting in ownership of 5 per cent or more of the charter capital of a VCI and the purchase of additional shares when the foreign investor already owns five per cent of the charter capital of a VCI. The current regulations only allow Vietnamese banks to have foreign elements after meeting certain requirements, including having charter capital of at least VND1 trillion (US$47.62 million) and having a "healthy" financial status. In contrast, the draft decree proposes the removal of all such requirements and allows all VCIs to have foreign investors whenever they deem it necessary. The draft decree also sets out a greater number of requirements that foreign investors must meet to be eligible to purchase shares in VCIs. Specifically, to be allowed to acquire 10 per cent or more of the charter capital of a VCI, a foreign investor must: (i) Have a stable rating or a higher equivalent rating provided by a reputable international credit rating agency; (ii) Have sufficient financial resources for the acquisition; (iii) Be in a position so that the acquisition of shares does not affect the safety and stability of credit institutions in Viet Nam or result in a monopoly or restraint on competition; (iv) Not have committed any serious breach of law in its home country or in Viet Nam in the past 12 months; and (v) Have total assets of at least $10 billion (if a foreign credit institution), or charter capital of at least $1 billion (if another type of foreign organisation). If the foreign investor wishes to become a strategic investor in a VCI, apart from the basic requirements for share purchase listed above, they must meet the following requirements: (i) Be a credit institution; (ii) Have at least five years of international experience in the banking or finance sector; (iii) Have total assets of at least $20 billion in the year prior to the purchase of shares in the VCI; (iv) Give a clear plan of how it will support the VCI; (v) Undertake to own or prove that it already owns at least 10 per cent of the charter capital in the relevant VCI; and (vi) Not own 10 per cent or more of the charter capital in any other credit institution in Viet Nam. Fuel hike to drive up fares Many taxi firms in Ha Noi are expected to raise taxi fares by VND600 -1,000 per km in the next fortnight responding to the recent petrol price hike.—Photo Ha Noi Taxi Association  Transport firms will soon raise fares to cover the losses they will likely incur from the recent 16 per cent increase in petrol prices. In Ha Noi, taxi fares are expected to go up by VND600 -1,000 per kilometre in the next fortnight, according to Ha Noi Taxi Association chairman Do Quoc Binh. "In the past, transport firms –including taxi companies –have struggled to deal with increased petrol prices by raising fares. But this means they risk decreased passenger numbers and reduced revenue," Binh said. The retail petrol price jumped to VND24,580 (US$1.17) per litre last Thursday – the highest increase recorded after the Government's efforts to ensure prices remain stable. But a representative from Taxi 52, a taxi firm in the capital, said the firm could not cover operation costs if it did not raise fares. Taxi drivers currently operate under a contract mechanism, under which they have to pay a fixed amount to their companies. As the petrol price goes up, they have to spend an additional VND30,000 - 50,000 ($1.4 -2.4) each day, causing their income to fall 30 per cent to VND900,000 -1.5 million ($43-71.7). While Binh said firms had "no choice" but to increase fares, he pointed out that companies should also reduce other costs as much as possible and offer a support policy for drivers. In HCM City, major taxi firms have also considered raising fares, said Chairman of Viet Nam Automobile Transport Association Nguyen Manh Hung. Coaches were mainly diesel-powered, so they did not need to raise fares based on the fuel price increase, as the diesel price went up by only VND362 per litre or about three per cent. However, they also faced higher costs for labour and road use as well as fuel, he said. Nguyen Huyen Trang, a resident in Ha Noi's Hoan Kiem District, said that there was no question that transport fares would increase. Even motorbike taxi drivers and market vendors were increasing prices of their products and services, citing the raised petrol price, Trang said. Hung from the transport association said the increase was beyond expectations for both the public and enterprises because Viet Nam mostly imported petrol and the global petrol price was falling. "The Government should have reduced the import tax on petrol instead of raising retail petrol prices, which would relieve the burden for both the general population and enterprises," he said, noting that the current import tax for petrol was 12 per cent and the tax for diesel stood at 8 per cent. The ministries of Finance and Industry and Trade announced that over a month ago, the world oil prices fluctuated at high levels while domestic retail prices were VND1,000 -3,000 per litre below base price. To stabilise the market and curb inflation, the Government did not allow prices to increase and used the Petrol Price Stabilisation Fund to cover losses. However, last Thursday the fund ran out – leading the ministries to approve the petrol increase. Nguyen Anh Tuan, vice head of the Price Management Department of the Finance Ministry, said that without the price stabilisation fund, the petrol price would have gone up four times since the beginning of this year. Currently, the fund is managed by enterprises who must ask for the ministries' approval to use the fund in cases where world oil prices go up but the Government doesn't want to increase the domestic price. Tuan said the funding process needed to be transparent, so the ministry would make monthly announcements about the fund rather than quarterly announcements in order to inform the public and other authorities in a timely manner. Businesses turn to black market for capital Businessmen have resorted to illegally borrowing capital at extremely high interest rates, often known as “black credit", leaving them to sink deeper into difficulty. Tran Minh Toan, who is involved in a mining business in Tuyen Quang Province, had to seek out a local lender to borrow money when his mining licence expired. He said, "It takes some money to get a new licence and I still have daily business expenditures to deal with. I’ve been in debt for half a year now." People have turned to the black market because the procedure is simple, they do not even need to offer collateral and can receive the money immediately. However, if the swinging interest cannot be paid in time, they will face serious trouble. Toan said his interest rates was raised once so he borrowed VND3 billion (USD144,000) from several lenders to ease the interest deadlines. "This is the last resort. Not only do I have to find partners to improve the business situation and pay staff wages, but I also have debts to worry about," Toan said. Nguyen Manh Thang, an owner of a steel company in Vinh Phuc Province said when the economy was in recession, he was willing to let his full payment be prolonged until after the construction completed. However, Thang is in debt to others. "I have to pay the suppliers before the final deadlines and I have nothing else to be used as security for loans so I came to the black market," Thang said. He said sometimes he wanted to shut down operations but he still has loans. An employee of a company in Hanoi said, "Borrowing money from local lenders is quite common since the banks tightened their lending activities. Borrowing money on black market has its perks but it's dangerous. Firms are ignoring the danger now because of the slump." Crimes related to black credit have surged in the last two years. Since 2010 until late 2012, Vietnam had over 100 cases of insolvencies totalling nearly VND4.5 trillion. People often borrow money from many lenders and use such money to give loans. Taking advantages of the loop holes, the lenders can apply rates of 30% per month or more without issuing a legally binding contract. The General Police Department for Crime Prevention and Suppression said they did not have strict enough sanctions to deal with such crimes. Explaining about the wide spread of black credit in the past two years with Vietnamnet, lawyer Truong Quoc Hoe said firms came to the black market to pay debts to partners and especially banks loans. "Because most contracts are legal, if lenders can't use gangsters to recoup the loans, they can sue the borrowers in court," he said. Many business owners have had to sell their belongings at cheap prices after being threatened. Nguyen Van Dai, owner of a company in Hanoi had to divorce and escape to South Korea because he could not pay his debts. However, his family is still harassed daily. Meanwhile, VnEconomy reported that since early 2013, many banks cannot give out loans and suffer from weak liquidity. Some banks such as Vietcombank decided to lower deposit rates from 8% to 7.5% in the hope that depositors would withdraw the money. "Banks want to make loans but they can’t because many firms are in bad financial situations, and firms that have healthy credit are reluctant to borrow despite the lower interest rates." said Nghiem Xuan Thanh, Director General of the State Bank of Vietnam Office.  VietNamnet