South Korea, Japan, Singapore scouting for real estate opportunities in Viet Nam

Monday, Apr 25, 2016 08:15

On April 12 South Korean securities firm Mirae Asset Securities Co announced it would join hands with global investment company AON BGN, a former AON Holdings, to take over Keangnam Ha Noi Landmark Tower in Ha Noi.

They will pay 400 billion won (US$349.80 million) including 300 billion won from Mirae Asset, the largest overseas alternative investment made by the company.

Earlier this year Singaporean real estate developer CapitaLand, decided to buy Somerset Vista and Vista Walk in HCM City from Nguyen Binh Commercial Joint Stock Company for $46.5 million.

Another Singaporean developer, Keppel Land, paid $93.9 million to acquire the Empire City real estate project from the Thanh Pho De Vuong joint Venture Company.

Many foreign investors, including from South Korea, Japan, and Singapore, are coming to study the real estate market.

Some are eyeing office buildings, whether already completed, under construction, or scheduled to be built, in Ha Noi and HCM City.

According to CBRE Viet Nam, the real estate market has seen a boom in high-value mergers and acquisitions (M&A) in the first quarter, with the total value estimated at a billion dollars or more.

The increase in M&A activities has been attributed to a rise of liquidity in the market, low credit interest rates and a low supply of property products relative to demand.

Besides, large investors seem to prefer buying existing projects instead of applying for fresh licences.

Some analysts also attributed it to the changes in the law.

Decree No76/2015/ND-CP that guides the Law on Real Estate Business allows real estate investors to sell their projects in whole or part.

It has made a significant contribution to the increase in M&A activities by making transactions more transparent.

M&A deals are expected to get added momentum from the several free trade deals Viet Nam has signed.

Analysts said while Viet Nam remains a magnet for foreign developers and investors, the Government needs to facilitate foreign investment in real estate by resolving land title and clearance issues.

Steel losses

After briefly shooting up, steel prices have dropped to VND11,000-11,500 per kilogramme, a 15 per cent fall since late March.

Many steel distributors have been hit by big losses estimated at billions of dong as a result.

The most affected are those who stockpiled large quantities of steel products after the Ministry of Industry and Trade (MoIT) announced safeguard duties to be levied on imported steel from March 22.

The tariff on billets has increased from 10 per cent to 23.3 per cent, and on long steel products, from below 5 per cent to 14.2 per cent.

Expecting prices to increase as a result, many steel distributors stocked up, hoping to make a killing.

But prices settled down after some major steel producers promised not to increase them.

Level-one agents, who are direct distributors for manufacturers, have suffered billion-dong losses, second- and third-level agencies have lost hundreds of millions of dong.

On average, they suffer a loss of around VND2 million per tonne.

While the traders are counting their losses, many steel manufacturers have reported excellent results in the first quarter.

According to the Viet Nam Steel Association (VSA), member companies sold a record two million tonnes, up 56 per cent from the same period last year.

Only 97,000 tonnes were exported, while the remaining 1.92 million tonnes were sold domestically.

For the structural steel alone, they sold 1.01 million tonnes, up by 730 tonnes as compared with the figure forecasted by the VSA.

The surge in demand has enabled many steel companies to run their production lines at full capacity and also liquidate inventories of all kinds of products, including billets and long-rolled steel.

The Viet Nam Steel Corporation led the market with sales of 877,000 tonnes, a year-on-year increase of 52.9 per cent.

But insiders remain concerned about the possible risks caused by excessive supply.

As of late March inventories remained at 325,000 tonnes, and an additional one million tonnes will enter the market when a series of new steel plants go on stream this year.

CAR dropping

At its general shareholders' meeting in mid-April, the Vietcombank management announced plans to raise the charter capital from VND26.65 trillion ($118.444 million) to VND39.575 billion ($118.444 million), explaining the bank needs to maintain its capital adequacy ratio (CAR).

The CAR is the ratio of a bank's capital to its assets, and indicates how much loss it can absorb if assets go bad.

In late 2015 Vietcombank's CAR was at 11 per cent, but it dropped to 9 per cent in the first quarter of 2016, the minimum rate stipulated by the central bank.

If Basel II norms for CAR take effect as scheduled in February 2017 Vietcombank's CAR will be reduced to 7 per cent.

The norms are recommendations on banking laws and regulations issued by the Basel Committee on Banking Supervision to ensure banks can manage financial and operational risks.

The drop in Vietcombank's CAR was caused by the 6.7 per cent growth in credit in the first quarter.

The lender has set itself a full-year target of 17 per cent credit growth, meaning it has no choice but to increase its capital.

Faced with the situation, the management has planned to issue more shares to both foreign and domestic investors.

Many other banks are in a similar situation.

BIDV now has 9 per cent CAR, but the rate is expected to drop to 7 per cent with Basel II even if its assets do not increase.

Vietcombank has VND9.3 trillion in its reserves that can be converted into bonus shares for existing shareholders.

But analysts warn it is not easy for all banks to increase their capital, especially small ones that will also be forced to increase their capital as the new norms come into effect and credit growth again becomes robust. — VNS