VIETNAM - BUSINESS IN BRIEF 13/11

by lexie Sun Nov 13, 2011 10:56 am

Last update 13/11/2011 07:00:00 AM (GMT+7)

BUSINESS IN BRIEF 13/11
Vietnam to have second budget carrier

Private airline VietJet Air said it would operate as a low-cost carrier with its first commercial flight next month.

The airliner will offer services between HCMC and Hanoi, HCMC and Da Nang, and Hanoi and Da Nang in its initial stage of operation.

It will become the second budget carrier in Vietnam, besides Jetstar Pacific.

VietJet Air will also be the second private airline to offer domestic services besides Air Mekong, and the fifth to offer civil flights in Vietnam together with Vietnam Airlines, Jetstar Pacific, Air Mekong and Vietnam Air Service Co.

Earlier the carrier was expected to join hands with Malaysian-based low-cost airline in a joint venture to set up the budget carrier VietJet AirAsia, but the two parties failed to reach an agreement two months ago.

Vo Huy Cuong, head of the aviation department of the Civil Aviation Authority of Vietnam (CAAV), said VietJet Air had leased three Airbus A320 aircrafts from a foreign airline and the first of them was expected to arrive in Vietnam this month.

He was quoted by the Saigon Times Online as saying that the airline was licensed to bring the aircrafts to Vietnam before getting the air operator's certificate from CAAV.

Startled agency speeds up Da Nang airport work

Minister of Transport Dinh La Thang appears to have shocked the management unit of the project to build the new terminal at the Da Nang International Airport into action by publicly sacking its head last month.

Work on the long-delayed project is progressing at rapid pace, and is likely to be completed by December 31, the revised deadline.

It should have been completed in the first quarter of last year, but the work remained way behind schedule.

Last September Thang had ordered the Central Airports Corporation, the agency in charge, to finish the work by December 31.

But on October 4, when he visited the site, he found no progress had been made.

He sacked the head of the project management unit, Dang Hong Cuong, on the spot and ordered the Do Tat Binh, deputy general director of the Southern Airports Corporation, to take over.

All officials in the unit would face action if they failed to meet the new deadline, he warned.

The sacking was unprecedented in Vietnam and came in for much public approbation.

An executive at the Central Airports Corporation said without it the project could well have been delayed until June next year.

But now it is in the final stages, with around 400 workers scrambling to complete it.

Hoang Thanh, chairman of the Central Airports Corporation, said basic construction had been completed and everything would be finished by November 15.

“The new terminal is expected to receive the first domestic flight on December 12 and an international flight from Malaysia the following day,” he said.

He attributed the timely progress to the support provided by Thang.

“Earlier it would take us a long time for our complaints and requests to be considered, delaying projects for years.”

Aeon to build at least 7 shopping centers in Vietnam

Japan-based biggest retail group, Aeon, is planning to build at least seven shopping centers in Vietnam, said its CEO.

It is planning to inaugurate its first trade center namely Aeon Tan Phu Celadon by early 2014, Nagahisa Oyama, CEO of Aeon Group, told Thoi Bao Kinh Te Sai Gon newspaper.

Construction work on the $100 million Aeon Tan Phu Celadon trade center is expected to start in 2012.

The3.5-hectares 1st phase of Aeon Tan Phu Celadon trade center will be built in the 82.5- hectare Aeon Celadon City SC complex in Tan Ky-Tan Quy Street in Ho Chi Minh City’s Tan Phu District.

According to the Japanese investor, the trade center is one of an extensive network of shopping centers that they will build across Vietnam in the future.

Aeon is known as a Japanese powerful retailer and it is expected to be a big rival for local retailers in the near future.

In addition to the investment in the shopping center, the Japanese group is planning to invest in entertainment, recreation, restaurant, bar, and gym facilities in Vietnam.

Earlier, the HCMC People's Committee has officially granted an investment license to Aeon Vietnam Co., Ltd, the Vietnamese arm of the Japanese retail group, according to the municipal Department of Planning and Investment.

It has also partnered with universities in HCMC for labor training and recruitment.

Aeon Group is known for the Jusco supermarket chain, according to Japanese media. It has also opened branches in Malaysia.

Currently, Japan's investment into Vietnam in the field of distributed mainly MiniStop convenience stores, Family Mart, and the same-price Daiso supermarket chains.

Vietnam’s retail market is expected to see the entry of at least 2 more giant foreign retailers.

Hong Kong’s Dairy Farm International Holdings has got a license to begin operations in the country this month. Dairy Farm will open an outlet of Giant, its supermarket chain, at the Crescent Mall Center in Phu My Hung Township in HCMC’s District 7.

In 2007 a subsidiary of Dairy Farm, Giant South Asia Vietnam, entered Vietnam with its Wellcome supermarket chain.

E-Mart, one of the largest retailers in South Korea, has also joined hands with the Binh Duong-based U&I Group to open a supermarket chain in Vietnam.

E-Mart will hold an 80 percent stake in the E-Mart Vietnam joint venture, which will invest $1 billion to open 52 supermarkets and stores in urban areas around the country.

Some existing foreign retailers are eyeing market share expansion.

Korea’s Lotte Mart said it had received the government’s green light to hike its investment to $50 million.

In 2008 it tied up with Minh Van Co for a $15-million joint venture in which it held 80 percent to open two supermarkets in HCMC.

Germany’s Metro Cash&Carry early this month set up a $500,000 fishery collection center within its facility in the Mekong Delta city of Can Tho.

Mekong Delta is Vietnam’s main agriculture-fishery hub.

It has also expanded its network with the establishment of two new outlets worth some $33 million in the northern cities of Ha Long and Vinh.

VN’s banking industry, economic risk downgraded on new methodology

Standard & Poor's Ratings Services (S&P) has revised its Banking Industry Country Risk Assessment (BICRA) and the economic risk on Vietnam to group '10' from group '9' after having published its updated methodology.

In addition, S&P has assigned a risk score of '8' for the industry, according to Reuters.

The BICRA groups summarize S&P’s view of the risks that a bank operating within a particular country and banking industry faces relative to those in other banking industries, ranging from group '1', (the lowest risk) to group '10' (the highest risk).

Other countries in BICRA group '10' are Greece and Belarus, S&P said.

Economic risk score of '10' for Vietnam reflects "very high risk" assessments on economic resilience and economic imbalances, and an "extremely high" credit risk in the economy.

Vietnam has a low-income economy, developing financial system, and evolving policy framework. These weaknesses increase the vulnerability of the economy to severe shocks, the rating agency said.

But healthy growth prospects, reinforced by the government's persistent efforts in economic restructuring, partly offset these weaknesses.

“We believe there is a very high risk of economic imbalances, given the rapid credit growth in the past several years. Strong growth in real housing prices also contributes to the risk of a sharp drop in prices,“ said S&P.

“Our "extremely high risk" assessment of credit risk in the economy is based on high private sector credit, low income levels, and rudimentary underwriting standards. In our view, the legal system has inefficiencies, which could lead to low recoveries and delays in settlement of foreclosures.”

“Our industry risk score of '8' for Vietnam reflects an "extremely high risk" assessment of the institutional framework, a "very high risk" assessment of the competitive dynamics, and an "intermediate risk" assessment of system-wide funding”.

The regulatory standards of Vietnam's institutional framework lag international norms and the central bank is prone to regulatory forbearance, so S&P do not believe there is an effective early warning system that could be used as a pre-emptive supervisory tool.

“We note that regulatory intervention has typically been reactive rather than proactive. In our view, the institutional framework is further weakened by weaknesses in governance and transparency. Most banks do not publish financial statements on a timely basis, and notes typically do not contain sufficient details.”

“In our assessment of competitive dynamics, risk appetite for the banks is moderate and focused on growth. We also consider the market to be saturated, with moderate overcapacity, which leads to competition between banks for both loans and deposits,” S&P said.

“We expect pressure on net interest margins to put stress on the ability of financially weaker and smaller players to price adequately for risk. Furthermore, we believe the banks system is subject to market distortion from the frequent use of administrative controls.”

Vietnam's banking system is supported by a healthy level of stable core customer deposits, resulting in a low dependence on external funding. Nevertheless, there are few funding alternatives available to the banks, given Vietnam's narrow and shallow domestic debt capital markets, said the agency.

“We believe the government would play a supportive role in the funding of the banking system, if needed.”

Vietnam government has been classified as "highly supportive" toward domestic banking since S&P has observed a track record of support for systemically important institutions, including capital injections.

Standard & Poor's Ratings Services in September that its ratings – BB-/Negative/B – on Bank for Foreign Trade of Vietnam (Vietcombank) are unchanged following the bank's capital and business alliance with Mizuho Corporate Bank Ltd.

In August, it placed its 'B' long-term corporate credit rating and 'axBB-' ASEAN scale rating on Vietnam-based Hoang Anh Gia Lai Joint Stock Co (HAGL) on CreditWatch with negative implications.

It also lowered the its local currency long-term sovereign credit rating on Vietnam to 'BB-' from 'BB' after revising its methodology and assumptions for rating sovereign governments.

Banks rush to collect realty loans, firms suffer

As required by a tightening credit policy, banks have been urging borrowers in real estate to clear their debts, while most property developers are unable to do so, leading to major price cuts in the housing sector.

As ordered by the State Bank of Vietnam to keep outstanding loans to the real estate sector under 16 percent by December 31, banks have all jumped into a race to demand debt payments to meet the deadline.

The CEO of a commercial bank said so far this year his bank had stopped granting new loans but only focused on collecting debts.

“To ensure meeting the central bank’s deadline, we have repeatedly reminded the borrowers of their loans,” he said.

However, he admitted that most of the loans had been cleared by individual borrowers, while borrowers who were real estate investors remained a big nuisance.

A deputy CEO of a bank said bank loans were a heavy burden for property investors, who had borrowed hundreds of billions of dong at the high interest rate of up to 25 percent a year.

“Most of the time, investors have to borrow at the very first stages of the projects,” he said.

“After three to four years paying the high interests, when their apartment projects were eventually put on sale, they failed to pay the debts due to poor sale when the market suddenly became frozen,” he explained.

Weirdly, when the borrowers failed to clear their debts, it is the lenders that gave out helping hands to their debtors.

Accordingly, if the apartment projects were still unfinished, banks would continue to provide financial aids to enable the investors to bring their products to the market.

Banks would also force investors to provide promotion to attract customers and quickly recoup investment for clearing the bank loans.

An executive of a bank said there were cases when the investors who could not afford to repay their loans were forced to transfer their projects to the banks as debt payments.

With this method, many banks have managed to quickly reduce their outstanding loans to the real estate sector.

A top official at a tax agency in Ho Chi Minh City said he had signed a number of project transferring files during the last few months, with the recipients being the banks.

While banks are boosting their debt collection, many debtors, who have been operating in steep losses, have little ability to repay in this gloomy time of the real estate sector.

For instance, the Investment and Trading of Real Estate JSC (ITC) posted a VND38-billion (US$1.8 million) loss in the third quarter, while the respective Q3 losses of Phat Dat Real Estate Development Co (PDR), Van Phat Hung Co and PetroVietnam Power Land are VND7.17 billion, VND3 billion and VND4.4 billion.

Most of the real estate companies said the main causes were the bank loan burdens and the poor sales.

With the real estate market becoming increasingly depressed plus the tightening credit, many analysts said the debtors could even fail to pay the interests let alone clearing the debts.

For instance, according to PDR’s Q3 financial report, the company’s loans and debts were quoted at VND538 billion, at the average interest rate of 21.6 percent a year.

This means the company has to set aside VND9.9 billion for debt payment every month, while its revenue in the third quarter was only VND1 billion.

India, UK firms eye Vietnam opportunities

A delegation of more than 50 Indian businesses is in Ho Chi Minh City to explore investment opportunities while a similar British delegation will arrive next week.

The Indian executives, including from some top companies, many in finance, mechanical engineering, energy, machinery, cosmetics, agriculture, and education, yesterday held a meeting with suppliers of raw materials and construction materials.

Mark S. Fernandes of Sylvester & Co said his firm was looking for a supplier capable of shipping around 200 tons of seafood products a month to India.

His company also wanted to tie up with businesses in the transport and port development sectors.

Vo Tan Thanh, deputy general sectary of the Vietnam Chamber of Commerce and Industry, said economic cooperation between the two countries had been growing in the last few years.

“India has gradually become a major export market for Vietnam for pepper, electronic parts, rubber, footwear, and coal,” he said.

“[Trade] this year has risen by 40 percent year-on-year to $3 billion.”

The two countries sought to increase trade and reduce Vietnam’s deficit with India, he added.

A delegation from the UK would visit Vietnam from November 14 to 18, newswire VietnamPlus reported.

It quoted Peter Bishop, deputy chief executive of the London Chamber of Commerce and Industry (LCCI), as saying British businesses in many sectors would look for opportunities and partners in Hanoi and Ho Chi Minh City.

They would also visit software developer Harvey Nash as well as HSBC, Prudential, Shell, and GlaxoSmithKline in Vietnam.

Vietnam was an attractive destination -- along with China, Russia, India, Brazil, and South Africa -- for British investors.

The delegation would comprise executives from a variety of sectors such as service, finance, retailing, infrastructure, and software.

Direct flights from London to HCMC and Hanoi, to be launched next month, would facilitate bilateral trade.

In the next two volumes of LCCI’s publication, two pages would be dedicated to the Vietnamese investment environment.

Footwear exports surge after EU lifts dumping tax

With the European Commission removing anti-dumping tariffs on Vietnamese footwear products this year, the country’s footwear exports have soared, according to the Ministry of Industry and Trade.

In 2006 the EC had imposed a tariff of 10 percent, and only lifted it last April.

Since then many exporters had seen orders from global importers jump, as they transferred their orders from China, whose products continued to attract a 16.5 percent anti-dumping tariff in the EU, newswire VnEconomy reported.

With exports of US$5.11 billion in the first 10 months, a 25.8 percent year-on-year rise, footwear was the country’s third largest hard-currency earner after crude oil and textile and garment.

The Vietnam Leather & Footwear Association (LEFASO) expects the full-year figure to top $6 billion.

But it said footwear exporters faced problems like the lack of a skilled workforce and rising transport and other costs.

Elsewhere, the textile sector had seen orders for the last quarter slump and feared it could continue next year, especially for small and medium-sized enterprises, the Saigon Times daily quoted the ministry as saying.

Figures from the ministry show that exports were worth around $1.3 billion each in the last two months, down by $200 million from August.

In the year-to-date exports have fetched $11.7 billion, and the full-year figure is expected to reach $13.5 billion.

The US accounts for around half of the exports usually and the EU for almost a fifth.

The ministry said exports were facing difficulties in both markets due to the debt crisis.

Some SMEs said orders in October had dropped by 20 percent from the last year period.

Some Vietnamese exporters have begun to target new markets like Australia, Africa, Canada, and Korea, but it is likely to take them time to increase volumes.

Besides, they had to compete with Indian and Indonesian exporters who offered more competitive prices, the ministry said.

Furniture trade fair opens in HCM City

Businesses are showcasing furniture and interior decorations on 350 stands at the Vietnam Furniture & Home Furnishing Fair (VIFA Home 2011) in Ho Chi Minh City.

The November 11-14 event creates a good opportunity for local businesses to introduce their products and promote marketing activity. It has attracted leading timber producers and processors in Vietnam such as Hoang Anh Gia Lai, Truong Thanh, Rossano, Minh Duong and Nha Xinh.

On display are curtains, cloth, kitchen equipment, lights, picture frames, ornamental trees, handicraft products, porcelain, rattan, and bamboo products. These high-quality Vietnamese products have won local consumer trust.

Lao Cai hosts Vietnam-China international trade fair

The 11th annual Vietnam-China International Trade Fair 2011 opened in the northern border province of Lao Cai on November 11.

The fair is hosted alternately by Vietnam’s Lao Cai province and China’s Yunnan province.

This year’s six-day event attracted 279 Vietnamese and Chinese businesses who are displaying their products on 367 pavilions.

Items showcased include farm produce, seafood, garments, machinary, electronics, and fertilizers.

Seminars on trade and investment promotion will also be held during the fair, together with meetings between leaders of Lao Cai and Yunnan provinces.

Vietnamese goods penetrate the leading Asian supermarket

Vietnamese businesses will have the chance to supply their products to the Republic of Korea’s Lotte Mart supermarket chain through the Vietnam-Indonesia goods exhibition & fair.

The fair is taking place at Lotte Mart Centre in the RoK from November 11-16 by the Vietnamese and Indonesian embassies in Seoul.

This is the first time the RoK retailer chain has organised a programme to introduce foreign goods. The fair aims to promote high-quality Vietnamese products, and open up new business opportunities for Vietnamese enterprises in the RoK.

On display are around 177 Vietnamese products and some of them offers 25 percent discounts. The event will help Vietnamese businesses improve their product quality, design, and prices to penetrate foreign markets, said fair organisers.

Lotte Mart Supermarket Chain hopes that revenue of Vietnamese goods will increase by 1-5 percent and Vietnamese goods can penetrate other foreign markets such as Indonesia, China and India through its offices in these markets.

Lotte Mart has opened two shops in Vietnam.

Trade Fair promotes agricultural achievements

The 11th annual Vietnam Agriculture Trade Fair (AgroViet 2011) opened in Hanoi on November 11.

The event is an important trade promotion activity of the agricultural sector, which aims to help individuals and businesses promote their brands and exchange information on science and technology.

The fair features nearly 400 stands from 200 local and foreign businesses, displaying agro-forestry and seafood products, handicrafts, different types of seeds, machinery, and equipment. It also exhibits technologies for production, processing, and post-harvest preservation.

Addressing the opening ceremony, Minister of Agriculture and Rural Development Cao Duc Phat asserted that the event offered a good opportunity for businesses, manufacturers, and researchers to share experiences, approach advanced technologies, and improve the competitive edge of products.

The fair will serve as a bridge between production and consumption, promote agro-forestry and seafood products in the local market, and strengthen trade ties with foreign partners, said Phat.

A trade exchange between Vietnamese and foreign businesses will also be held during the fair to help businesses learn more about each other’s expertise and import-export potential to devise proper business strategies.

DHL launches third freight office

DHL Global Forwarding, an air, sea and road freight specialist, has opened an office in Hanoi. The company already has two offices in HCM City and in the northern province of Bac Ninh.

The Hanoi operation will become the control tower for DHL’s newest range of flexible and fast overland freight services linking China and Southeast Asia with Vietnam.

“Hanoi itself is undergoing a transformation in terms of infrastructure and economic activity. The challenge for DHL is to provide out clients here with cost-effective services that allow them to take advantage of Vietnam’s hub location, its new logistics capabilities and booming domestic market at rates that keep their products competitive,” said Amadou Diallo, DHL Global Forwarding CEO, Africa and South Asia Pacific.

http://english.vietnamnet.vn/en/business/15230/business-in-brief-13-11.html