Part 4: Seeking capital – a thorny path

VietNamNet Bridge – The State Bank of Vietnam has requested commercial banks to push up lending to ease the enterprises’ thirst for capital caused by the tightened monetary policies.

Part 1: Businesses’ production depending on bank loans
Part 2: Businesses rush to follow multi-field business model

Part 3: Real estate firms would die soon in the frozen market

Vo Tri Thanh, Deputy Head of the Central Institute of Economic Management (CIEM), when asked to make predictions about the national economy in the last months of 2012 and in 2013, said: “I believe that the national economy would witness “big changes,” at least until the first half of 2013.”

The answer has been described as containing “deep implications.”

Following a difficult 2011year, Vietnam has experienced tough days since the beginning of 2012. The GDP in the first six months of the year grew by only 4.38 percent in comparison with the same period of the last year, while credit has been standing still and 30,000 businesses have reportedly dissolved or stopped operation.

Having no capital, sitting idle

Phap luat Vietnam has quoted a survey conducted by the Da Nang City Socio-Economic Development Research Institute, as saying that 72 percent of businesses in the central region and Central Highlands need capital to maintain production. However, only 34 percent of businesses can access bank loans, while 66 percent say they do not think they can borrow money from banks.

Having no collateral remains the biggest barrier that prevents businesses from accessing bank loans. Meanwhile, the director of a state owned bank said in the interview given to the local press, that the bank would not loosen the requirements on borrowers, though it has profuse capital and really wants to push up lending.

Pham Hung Ut, Deputy Chair of Tan Phu District People’s Committee said on Saigon Dau tu that though commercial banks have launched low cost credit packages, capital remains without of the reach of businesses.

Businesses have urged banks to lend money without requiring mortgaged assets. However, banks have “refused with a shake of the head”, because they find the lending is risky in the context of the weak purchasing power in the market.

Seeking capital from foreign sources, why not?

Dominic Price, Chief Executive Officer of JP Morgan Vietnam, has suggested that mobilizing capital from foreign sources would be a reasonable solution for now, if it’s difficult to seek capital from domestic sources.

The Vietnamese stock market remains a fledgling with the modest trading volume of 25-30 million dollars per day. Meanwhile, commercial banks keep tightened lending policies, thus making the capital inaccessible for the majority of businesses.

In 2011, Vietnam witnessed 260 merger and acquisition (M&A) deals worth 3.7 billion dollars. The deals mostly made in the fields of processing industry, accounting for 24 percent of the total affairs in 2011, fast consumer goods (20 percent), materials (16 percent), banking (15 percent) and real estate (8 percent).

Besides, Vietnamese businesses can also seek capital on the international market by issuing shares, international convertible bonds, borrowing commercial loans. Especially, they can also list their shares on foreign bourses to mobilize capital through the market.

Truong Dinh Tuyen, former Minister of Trade, a well-known economist, also agrees that businesses should look for foreign capital. However, sharing with Thanh, Tuyen has warned that very few Vietnamese businesses can find capital that way.

The domestic corporate bond market remains young, while businesses have not got used to issuing bonds to call for capital. Vingroup is just one of the very few Vietnamese businesses which have succeeded in issuing bonds in Singapore.

According to Thanh, it would take 7-10 years to build up a domestic bond market.

Compiled byC. V