New rules discourage banks from listing
by Thien Ly
Joint-stock credit institutions, including banks and financial companies, are expected to face even more difficulties to be listed on the stock market after the central bank’s newly issued circular goes into effect on October 29.
On September 13, the State Bank of Viet Nam issued Circular No 26/2012/TT-NHNN, guiding approval procedures for listing shares of joint-stock credit institutions on domestic and foreign securities markets.
According to the new circular, joint-stock credit institutions, including joint-stock banks, joint-stock financial companies and joint-stock financial leasing companies, will be required to meet nine conditions if they want to get permission from the SBV to list shares on the stock market.
One of the strictest regulations concerns the non-performance loan (NPL) ratio. At the end of the quarter, it must be less than 3 per cent of the total outstanding loan during the two quarters preceding the application, instead of two years as the current rules require.
In the context of current economic and financial difficulties, many banks, including major ones, are unable to keep their NPL ratio under 3 per cent for two quarters.
Banks are also required to perform debt classification and risk provisioning at the end of the quarter, preceding the quarter of application, in accordance with the SBV’s regulations.
Many banks find it difficult to meet the rules of SBV Decision No 493 on classification of debts and loss provision for banking operations of credit institutions. Thus, many of them do not have qualified risk-reserve funds.
The new circular also says that subjected credit institutions must comply with restrictions to ensure safe operations in accordance with applicable legal texts for a continuous six-month period, preceding the time of application for listing shares.
The credit institutions eligible for being listed must have an internal audit entity and internal control systems to ensure compliance with Article 4041 of the Law on Credit Institutions and other relevant legal texts.
This regulation is also difficult for many banks to realise because many of them do not have qualified internal audit entities or control systems.
The circular also requires that joint-stock credit institutions will have an operational duration of at least two years, up to the date of the application, instead of five years in the current rule.
Nine credit institutions are listed on the domestic stock markets: the banks ACB, CTC, EIB, MBB, NVB, SHB, STB and VCB as well as a finance company PVF.
Many banks planned to list their shares this year, but they may have to delay their application because of strict regulations. They include Nam A, Phuong Nam, Dai A, DongA, Techcombank, Quoc Te and HDBank.
Foreign investors eye retail
While the market in most areas is sluggish due to the prolonged recession, the domestic retail and consumer goods industries are still attractive to experts and domestic and overseas investors, thanks to their stability.
Foreign investors, for example, are very interested in the milk industry because of its high growth rate.
Between 1996 and 2006, the industry grew15.2 per cent per year on average and its annual growth rate increased to 29 per cent for the 2006-2011 period.
The development potential was high because the country’s milk consumption was rapidly growing and would reach two billion litres estimated in 2013.
Viet Nam’s per-capita milk consumption is expected to increase much more in the future since it is still low with 15 kilos, compared to the Asian average of 35 kilos.
The Viet Nam Dairy Products Joint Stock Company (VNM), which holds a 40 per cent share of the domestic milk market, has already reached US$1 billion in turnover.
In addition, the Viet Nam Soya Products Company (VinaSoy) also generated VND1.2 trillion (US$57.63 million) in 2011 and expects to reach VND2 trillion this year.
Thanks to its yearly profit growth rate of 50 per cent, the price of VNM’s shares increased by 1.5 per cent in 2011 and are stable, although the rates on a series of shares listed on the market dropped significantly.
Foreign investors hold the maximum permissible level of 49 per cent of VNM’s stakes. They are also ready to pay prices higher than the market rates in order to be able to buy VNM’s shares.
Similarly, shares of Masan Group Corporation specialising in production of instant noodles, soya, fish and chilli sauce, are also being hunted down by foreign investors thanks its advantages and positive business results.
The main products of Masan include essential goods with low value, so consumers still need them in spite of high inflation. In addition, the Masan Group has a wide distribution network.
The company’s turnover is estimated to reach VND11 trillion ($523.8 million) and its after-tax profit is expected to be VND3.5 trillion($166.7 million) in 2012.
As a result, the US-based Kohlberg Kravis Roberts (KKR) Investment Fund is ready to spend $159 million to buy back 10 per cent stake in Masan Consumer, a unit of the Masan Group Corp, according to Viet Nam Stock Market News.
Foreign investors have paid attention not only to consumer goods producers but also to retailers and distributors because these kinds of enterprises have stable growth in line with foreign investors’ long-term investment policy.
FPT Joint Stock Company (FPT), for example, is proficient at retailing IT products and mobile phones, with up to 60 per cent of its turnover raised from this business. Foreign investors in FPT try to hold the maximum permissible level of FPT shares (equivalent to 40 per cent).
After spending more than $60 million to acquire a 10 per cent stake in software giant FPT last year, Singapore-based Orchid Fund increased its holdings to over 11 per cent this month through the purchase of another 2.7 million shares.
US-based Red River Holdings already holds a 5.5 per cent stake in FPT and has been trying to increase its holdings since early this year.
In addition, shares of enterprises involved in production of fertilisers, animal feed and breeding plants are also being sought by foreign investors.
Foreign investors hold a stake of between 25 per cent and 35 per cent at the National Seed Joint Stock Company (NSC) and Southern Seeds Joint Stock Company (SSC).
Fund to aid small firms
The Prime Minister on Sep
tember 7 signed a decision approving a development plan for small – and medium-sized enterprises (SMEs) for the 2011-2015 period. During this period, Viet Nam will have about 350,000 newly established SMEs and 600,000 by the end of 2015.
In the next five years, the country will strive to reach an export-turnover rate of SMEs at 25 per cent of total export turnover. Investment of SMEs would account for 35 per cent of the total social investment capital. SMEs would contribute to about 40 per cent of the country’s gross domestic product (GDP) and 30 per cent of the country’s total State budget revenues. They are expected to create more than 3.5 million jobs.
Eight groups of solutions were given to carry out the SMEs development plan. They include improving the legal framework for entry, operation and withdrawal from the market of SMEs; supporting finance and credit access and improving the capital-usage efficiency for SMEs; supporting technological innovation and application of new technologies in SMEs; and establishment of a fund to support SMEs.
Among them, the measure to set up a fund to support SMEs is considered to be the most important since most SMEs find it very difficult to get access to bank loans because of high interest rates and strict conditions.
According to the Enterprises Development Department, the future fund would be set up as a financial organisation specialising in supporting SMEs.
There is a difference between the current Credit Guarantee Fund and the future SMEs Support Fund. The new fund would be established only at the central level, and would be responsible for giving preferential loans to SMEs, or directly financing SMEs based on specific cases.
This means that with the SMEs Support Fund, enterprises with feasible investment projects would find it much easier to have capital to carry out business.
The capital for the fund would likely come from the State Budget and domestic and overseas organisations.
Many overseas sponsors have applied many measures to support Vietnamese SMEs, but this capital resource has been used ineffectively because of a lack of management unity.
The fund is expected to help use the sponsored capital resources effectively and, thus, attract the attention of more sponsors. — VNS