Home » Business » BUSINESS IN BRIEF 24/1

BUSINESS IN BRIEF 24-1DHL extends pickup cutoff time for customers in south

Global express service provider DHL Express has applied an extension of 45 minutes to the pickup cutoff time for customers located in southern Vietnam looking to send packages and documents internationally.

DHL Express said in a statement that the change would see counters extending their cutoff times to as late as 17:45 p.m. from Mondays to Fridays for customers to ensure a full business day.

Christopher Ong, general director of DHL-VNPT Express, clarified in the statement the later departure of DHL’s flight would benefit its customers in HCMC, Long An, Binh Duong, Dong Nai and Vung Tau as these localities are home to some of Vietnam’s main manufacturing and industrial zones.

“Our access to the company’s Asia air network will see DHL offering the latest pickup cutoff times for same day uplift in comparison to other international express companies operating in Vietnam’s southern provinces,” Ong said.

Yasmin Aladad Khan, senior vice president of DHL Express Southeast Asia, said the extension of the pickup cutoff times not only allowed the company to make the day a little longer for the manufacturers but also underscore its capabilities to offer timely and reliable services to customers.

“With all of this history behind us here and our experience from working with Vietnamese customers, we understand what they need and are constantly striving to offer them value added services,” Khan said.

DHL Express has been operating in Vietnam for almost 25 years.

The latest service enhancement is part of DHL’s efforts to facilitate ease of trade for Vietnamese businesses and to ensure their scalability in the international scene.

Osram joins hands with local firm for production

Germany-based Osram, a member of Siemens Group, has signed a cooperation agreement with Khai Toan Joint Stock Company (KTG) to make lighting devices in Vietnam.

Osram will transfer technology and supply main components to produce lighting devices under the brand of Osram-AC for industrial and civil use in Vietnam and some Southeast Asian markets.

Do Huu Hau, general director of Osram Vietnam, said this is the first time Osram has brought its brand to Asia, where Vietnam is seen holding potential for the lighting device sector.

According to Hau, instead of setting up a plant that costs a lot of time and money, the brand combination is a great way to achieve growth in the Vietnamese market.

Under the plan, KTG will annually produce around 500,000 sets of outdoor and indoor lighting products for Vietnam, Laos, Cambodia and Myanmar. The firm expects to achieve growth of 30% per year.

According to Dang Trong Ngon, general director of KTG, the demand of lighting products is increasing while prices of such items imported from Europe are high. Therefore, the brand combination will make those products more affordable.

The import tax rate of completed lighting products is around 30% while components are subject to a rate of 5-10%,

Ngon said that the lighting market is impacted by the slow development pace of the construction over the past two years.

Country’s largest trade center almost full

Over 80% of the 230,000 square meters of the Vincom Mega Mall Royal City center is occupied, with most tenants being big names in retail, food and entertainment sectors, said developer Vingroup.

Located on Nguyen Trai Street in Hanoi’s Thanh Xuan District, the center is considered the largest commercial facility in Vietnam with about 800 outlets of local and foreign brands.

It is expected to receive up to 10,000 customers a day when being officially opened at the end of this July.

Two steel flyovers to be opened to traffic soon

Two steel flyovers in HCMC will be opened to traffic this Sunday after about six months of construction, the city government said.

The inauguration of the overpass at Thu Duc Intersection will be held at the foot of the structure in Thu Duc District at 9:00 a.m., the municipal authorities said in an announcement. Meanwhile, the flyover at Hang Xanh Roundabout in Binh Thanh District will be inaugurated on the same day.

The Thu Duc overpass has a total length of 570 meters, connecting the city with Bien Hoa City in neighboring Dong Nai Province with four lanes. It is built with structured steel and reinforced concrete slab at a total cost of VND277 billion funded by the city’s budget.

Costing VND183 billion, the Hang Xanh flyover stretches 390 meters in length and 16 meters in width with four lanes. It is expected to help reduce chronic congestion in the area when in place.

The third steel overpass will start construction at Lang Cha Ca Roundabout in Tan Binh District on February 11 or the second day of the upcoming first lunar month, the city’s Department of Transport said.

Intercontinental Danang gets five-star status

The Vietnam National Administration of Tourism (VNAT) has recognized the Intercontinental Danang Sun Peninsula as a five-star resort.

The Intercontinental Danang Sun Peninsula nestled in the hills of Danang’s Son Tra Peninsula was put into operation last June. The resort is attractive to those who want to seek new experiences and relax in luxurious rooms overlooking the sea.

Invested by Sun Group, the Intercontinental Danang Sun Peninsula, one of the most luxurious resorts in Asia, consists of 197 guest rooms of low-rise blocks and bungalow villas, swimming pools, restaurants, bar, spa and other amenities.

With the recognition of the Intercontinental Danang Sun Peninsula as a five-star resort, Danang City has had eight five-star hotels and resorts with 2,041 rooms.

Equipment imports of FDI firms surge

While Vietnamese enterprises’ import of equipment and machinery was declining, such import by foreign direct investment (FDI) companies increased strongly last year.

Statistics of the General Department of Customs indicate the import bill for machinery, equipment, tools and machine parts amounted to US$16.04 billion last year, up 3.2% from 2011. Of this figure, FDI enterprises accounted for US$8.57 billion, up 30%, and the rest belonged to Vietnamese businesses, down 14.6%.

These figures are indicative of the high business expansion and investment demand of FDI enterprises. In previous years Vietnamese enterprises always outdid those in the FDI sector in terms of equipment and machinery imports.

According to Dr. Vo Tri Thanh, deputy head of the Central Institute for Economic Management (CIEM), local enterprises are in trouble, so their needs for equipment and machinery were not as big as in previous years.

Last year, Vietnam imported US$5.19 billion worth of equipment and machines from China, increasing by a mere 0.2% from 2011, while the import of such products from the U.S. and EU dropped by 12-15%. Besides, the nation’s imports from Japan and South Korea were quite high, with a rise of 20.4% at around US$3.4 billion and 38.9% at US$1.74 billion respectively.

Beer prices rising ahead of Tet holiday

Prices of many beer brands have increased slightly just ahead of the buying spree on the country’s biggest traditional holiday, Tet (lunar new year).

Le Hong Xanh, general director of Sabeco Trading Co., said Saigon and 333 beers had marked up by 5% since last Tuesday, citing the special consumption tax rise from 45% to 50% since January 1.

According to a beer and soft drinks distributor on Phan Van Tri Street in HCMC’s Binh Thanh District, other beer products than Sabeco have slightly inched up, with Tiger rising by VND7,000 a crate.

Similarly, the owner of a big grocery store on Vuon Lai Street, HCMC’s District 12, said most beers have inched up by VND5,000-7,000, with 333 beer edging up to VND200,000 a crate, and Tiger beer to VND280,000.

The beer price hikes are projected to continue in the lead up to the Tet holiday due to a high demand and may be slightly higher than that of the previous holiday, she added.

Speaking to the Daily, Nguyen Phuong Thao, director of Maximark Cong Hoa Supermarket, said consumers have yet to do the shopping for Tet.

In the Daily’s observation, few buyers have been seen at Saigon Supermarket’s beer and beverage section. Beers 333, Heineken, Tiger, Sapporo, and Zorok at the supermarket are quoted at VND206,000, VND372,000, VND285,000, VND375,000 and VND184,000 a carton respectively.

Exploring prospects in home-for-rent segment

People often think about large commercial centers and serviced apartments managed by foreign companies when it comes to the realty rental segment. However, individual owners have begun joining this market segment.

Huynh Kim Doan, director of Eden Real, is mulling promoting the service of leasing apartments owned by individuals in Vietnam after her trip to Singapore. A three-bedroom unit whose rent is only one-third of a hotel room rate is very suitable for companies that want to save money when arranging multi-day trips for their employees and customers.

Her idea is supported by many individual investors who own apartments in several projects in HCMC since those owners have found it hard to rent their homes on their own. Moreover, these investors have been unable to sell their apartments, so leasing them is a way out in the current tough market conditions.

High-income people choose hotels or luxury serviced apartments during their business trips, while a majority of companies look for affordable accommodations to cut costs. Therefore, these budget-conscious businesses are target tenants of apartments owned by individuals, said Doan.

The rent for an apartment of 2-3 bedrooms is around VND1 million per day, inclusive of power, water and sanitation services costs.

Doan said her company had had some 70 units available for lease, including high-end apartments in districts 1, 2 and 3, villas in Tan Binh District and mid-end condos in Nha Be District. Initially, the company targeted about 100 units, but later raised the number to 200 to meet the needs of tenants and house owners.

Unlike apartment sales that are tough at the moment, leasing services guarantee stable revenues for management companies that enjoy 3-5% of the monthly rent.

Doan said her company was introducing this type of service to a number of domestic and foreign companies, and they had shown interest.

Market observers said the fact that multiple commercial apartments have been put up for rent had piled pressure on the home rental market, leading to an increased competition for tenants.

Cushman & Wakefield’s research shows HCMC currently has around 3,300 serviced apartments, half of them in the central business districts, and most of them managed by foreign companies such as Sedona, the Ascott, IHG and Norfolk Group.

However, supply in this segment will be bigger than in the still-dormant commercial apartment segment. As a result, many investors are looking to lease out their apartments.

The average monthly rent for a grade-A apartment is VND637,000 (US$31) per square meter, and the rate for a grade-B one is some VND470,000 (US$23) a square meter.

Cushman & Wakefield forecast serviced apartments and apartments for rent would continue to compete in rents, which would send rents down this year.

While focusing on the major projects, CB Richard Ellis Vietnam (CBRE) will engage in the townhouse segment as it sees the demand for business premises rising.

Laszlo Fulop, associate director of retail services at CBRE, said his firm would focus on the commercial streets this year. Instead of waiting for supplies from large-scale commercial centers, local and foreign retailers are looking for spaces for short-term rent.

“We’ve found that customers still eye street-front shops even when they can rent retail spaces in commercial centers,” Fulop said, adding there are many reasons for this trend, such as easy access, lower rent and above all, a wide range of choices.

Prime sites at the corners of two-way or busy streets like Le Loi, Nguyen Hue, Dong Khoi and Nguyen Duc Canh are always targeted by food chains such as Domino’s, Burger King, KFC, Lotteria, Tous Les Jours, Coffee Bean & Tea Leaf, Texas Chicken, Popeye and Pizza Hut, he said.

According to CBRE, when renting a street-front shop, tenants usually spend some money upgrading the house and this sum is deducted from the rent. CBRE has a department specializing in supporting tenants during construction and installation.

Fulop said customers should look for opportunities in infrastructure development projects in the future, such as metro lines, road interchanges, key residential areas, offices and educational centers.

The development of metro lines will drastically change the picture of the retail market in HCMC in terms of shopping habits and retail areas. The higher number of pedestrians will offer more chances for certain commercial streets.

VN, Laos, Cambodia cross-border traffic enabled

Commercial and non-commercial vehicles from Vietnam, Laos and Cambodia will be allowed to travel across the borders of one another under a memorandum signed by the transport ministers of the three countries in Champasack, Laos last week.

This was informed by Phan Thi Thu Hien, deputy director of he Department of Transport and Legislation under the Directorate for Roads of Vietnam.

Cross-border traffic will create favorable conditions for passenger and goods transport among the three countries, especially goods transport from Laos and Cambodia through the seaports in the central and southern regions of Vietnam.

The memorandum consists of 15 articles, specifying the scope of application, transit routes and border gates, passenger transport on fixed routes and necessary papers for cross-border traffic.

Minister of Transport Dinh La Thang last week had a meeting with the Laotian Minister of Transportation and the Thai Minister of Transport in Pakse City, Champasack to discuss the extension of the transport route from Laem Chabang Port in Thailand to Hanoi and Haiphong.

The three ministers agreed to set up a hotline to deal with the issues concerning transport among the three countries.

Non-oil tax revenues run short of target

The country’s State budget revenues last year met only 95% of the target if crude oil was not taken into account, said the General Department of Tax.

The budget revenues with crude oil included was 4.5% higher than last year’s estimate and rose 12.3% versus 2011.

This growth rate was lower than the target. However, speaking at a review conference in Hanoi last week, Nguyen Van Nam, general director of the General Department of Tax, said 2012 was a tough year, so what was done was already an achievement.

A report of the department showed that crude oil revenue was estimated at over VND140 trillion, 61% higher than last year’s target and up 27% against 2011.

Domestic revenue was expected at nearly VND468 trillion, 5% lower than target. If land use fee was taken out, the figure was VND422.5 trillion, 8% lower than the target and up 11% year-on-year.

Notably, revenues from the corporate sector failed to meet targets and posted modest growth rates compared to the same period of last year.

The State-owned business sector saw over VND144 trillion collected, or VND11 trillion lower than projected. The foreign-invested sector collected nearly VND83 trillion, or VND8 trillion lower than the target.

These figures suggested that local businesses struggled with hefty challenges last year.

Land use fee collections shot up to VND45 trillion against last year’s target of VND37 trillion.

Some six out of 14 kinds of incomings and tax met or surpassed last year’s targets while 48 out of 63 localities were expected to meet or beat their targets.

This year, the tax authority targets a budget collection of VND644.5 trillion, including VND99 trillion from crude oil and VND545.5 trillion from the domestic economy.

Already big, Japan’s investment figures to grow bigger

Japan’s foreign direct investment to Vietnam is expected to have a significant increase in the future as the two countries cement a strategic partnership.

Just 20 days after being re-elected as Japanese prime minister, Shinzo Abe paid a two-day official visit to Vietnam with the purpose of strengthening bilateral cooperation between the two countries. This was his first diplomatic visit overseas after being re-elected.

For Japanese investors, Abe’s visit underlines Vietnam is an important partner of Japan, which could open more opportunities for them to expand investment in this South East Asia nation.

“I believe this is the proof that Japan stands firm to regard Vietnam as a very important strategic partner. Japan and Vietnam have been cultivating good relation for decades in the past, and I believe this historical visit opens new era for two counties,” said Shimon Tokuyama, Mitsubishi Corporation’s senior vice president and general manager for Vietnam .

“I hope through the visit of Prime Minister Shinzo Abe, the investment environment, including Vietnamese domestic regulations, will keep improved for Japanese corporations, and the bilateral relationship will be much closer so that it will last into next generation to generation,” Tokuyama said.

Since Vietnam opened door to welcome foreign direct investment (FDI), Japan has always ranked among the largest investing countries in Vietnam. Total investment capital commitment of Japanese companies to Vietnam reached $29.14 billion till the end of last year, according to Vietnam’s Ministry of Planning and Investment. In 2012, Japanese FDI commitment to Vietnam was $5.13 billion, accounting for approximately 40 per cent of total FDI commitment to the country during the year.

Big Japanese companies include Nidec Corporation, Bridgestone Corporation, Fuji Xerox and Nippon Steel & Sumikin Metal. “Everyone can easily come up with the reasons why Japanese corporations are interested in Vietnam, like growing young population, high economic growth, competitive labor cost, diligent workers and high education level,” Tokuyama said.

Diplomatic stability, he added, was one of the most important factors when corporations consider investing abroad, especially for companies investing in infrastructure projects.

To improve investment climate in Vietnam, the Vietnamese and Japanese governments late last year agreed to push toward a fifth stage of an economic cooperation agreement. The agreement, known as the Vietnam-Japan Joint Initiative which started in April 2003, is an economic cooperation between the two governments to remove obstacles for Japanese investors operating in Vietnam.

Xerox set to copy success

In a move that bolsters Vietnam’s hi-tech production, Japan’s Fuji Xerox Company last week started developing its $113.5 million printer manufacturing facility in northern Haiphong port city’s Vietnam Singapore Industrial Park.

The construction came five months after Haiphong Municipal Economic Zones Management Authority granted the investment certificate to the project.

Fuji Xerox said that facility would become operational in November 2013 and it would employ 500 local workers.

The new facility covers 176,700 square metres, including 46,700 square metre building area of the plant, will produce digital colour multifunction devices and small-sized light-emitting diode (LED) printers, as well as components for these devices with the designed capacity of two million units per year.

With the establishment of the new facility, Fuji Xerox wants to increase the firm’s current manufacturing capacity and diversifying from its existing manufacturing sites in China to meet the needs of Asia-Pacific, Europe and the US.

Fuji Xerox said that it chose Vietnam as the location of its new manufacturing site because of the country’s steady progress towards industrialisation and the presence of other information equipment manufacturers in a concentrated manner. It also cited Vietnam’s extensive land transportation network connecting with China, Thailand and other ASEAN nations.

Like other firms located in VSIP Haiphong, Fuji Xerox’s project will enjoy tax preferential treatments. Specifically, it will enjoy corporate income tax (CIT) exemption for the first four years and then only pay 5 per cent CIT in the following nine years.

Founded in 1962 in Japan, Fuji Xerox is the world’s longest running joint venture between a Japanese and an American company to develop, produce and sell xerographic and document-related products and services in the Asia-Pacific region.

Banks call for room to fund giant projects

Vietnam-based bankers are suggesting that the State Bank should actively ease regulations on single-borrower limits to enable them to finance large foreign invested projects.

The Banking Working Group of Vietnam Business Forum warned that the limit was a barrier that prevented them from financing foreign investors’ large business expansion or projects in Vietnam.

According to the Law on Credit Institutions, which took effect from January 1 2011, a foreign bank branch and a locally incorporated bank cannot provide loan to a single borrower exceeding 15 per cent of its own equity.

Foreign banks and foreign bank branches are major lenders to foreign direct investment (FDI) projects in Vietnam. However, most foreign banks have relative small balance sheets in their Vietnamese branches and subsidiaries, even though their parent banks have capacity to finance significantly larger transactions than the Law on Credit Institutions allows onshore.

This means foreign investors will be difficult to find onshore funds for their big projects in Vietnam because of the 15 per cent lending limit, according to the Banking Working Group.

Taiwan’s Formosa Plastics Group, which is building $10 billion seaport and steel manufacturing complex in central Ha Tinh province, is an example. Three years ago, the investor raised concern over this lending limit to Vietnamese governmental agencies but the issue has not been addressed.

A source at Formosa said the firm was using its own capital for the project construction at present, but it needed to mobilise $3 billion from foreign banks outside Vietnam and $3 billion from foreign bank branches in Vietnam. “The lending limit is hindering this plan,” the source said.

Vinayak Herur, head of Institutional Banking of ANZ Vietnam and Greater Mekong, said prudential lending norms stipulated by all regulators “is an internationally accepted practice” that would ensure there were no concentrations towards single borrowers.

However he said in case of foreign banks that had fully owned subsidiaries or branch representation there could be consideration given to their overall global capital rather than just the local capital invested onshore in Vietnam.

“This could allow them to selectively increase exposure to foreign-invested enterprises that require onshore funding to develop projects in Vietnam,” said Herur. “Well-managed banks with robust risk assessment procedures and overall compliance with capital adequacy norms should be permitted to seek exceptional approval for higher limits for specific single borrowers.”

To address this challenge, the Banking Working Group proposed that the State Bank permit banks to exceed the single borrower limit where a third party bank guarantee or standby letter of credit cover this excess.

“A parent guarantee or standby letter of credit has been extensively used to transfer risk between banks in many countries, allowing prudent lending above the single borrower limit set by central banks,” the group stated in a note.

According to the group, this solution should enable corporate customers and larger infrastructure projects in Vietnam to access their required larger funding for business expansion.

“This solution will greatly help efficient financing of large businesses and projects whilst simultaneously ensuring prudential credit exposure by banks,” it stated.

FDI engine needs a big overhaul

If there were any doubters Marc Mealy, vice president of the US-ASEAN Business Council, last week offered a stark message to ram home the point.

“Vietnam’s attraction of foreign direct investment (FDI) is being impacted by regional countries like Indonesia, Myanmar, Thailand and the Philippines offering attractive investment incentives. To keep it as a good FDI spot, Vietnam needs to better its investment incentives for foreign investors soon,” he said.

“Vietnam’s macro-economy has also become unstable, discouraging more FDI from entering the country. There has been evidence that FDI from Vietnam is decreasing and to other regional countries it is increasing,” Mealy said.

Specifically, Thailand lured about $18 billion of registered FDI last year, up sharply from $8.5 billion in the previous year. Meanwhile, Myanmar’s registered FDI rose from $8 billion in 2011 to about $40 billion during last year’s first nine months. Indonesia’s reported registered FDI also climbed from $18.9 billion in 2011 to $21 billion last year, and it was expected to soar to $29 billion this year.

Meanwhile, Vietnam’s registered FDI reduced from $14.7 billion in 2011 to $13.1 billion last year.

According to statistics by a Hanoi-based US’ investment consultancy firm, Vietnam’s investment incentives for foreign investors remained less attractive than those of regional countries.

For example, for projects in economic zones, Vietnam offers corporate income tax (CIT) exemption for four years and 50 per cent reduction of payable tax amounts for nine subsequent years.

But in Thailand, CIT exemption lasts up to eight years plus a 15 per cent CIT incentive for another five years. Besides, Thailand also offers double deduction of transportation, power and water supply costs for foreign investors, and an additional 25 per cent deduction of infrastructure construction and installation costs.

Also in the Philippines, the CIT exemption lasts six years, with free import tax for raw materials, capital equipment, machineries and spare parts, and exemption from payment of any of all local government imposts, fees, licences or taxes.

Zaw Naing Thein, member of the Union of Myanmar Federation of Chamber of Commerce and Industry, told VIR that Myanmar’s government adopted its Law on Investment on November 11, 2012, offering many priorities and incentives for investors. For instance, land lease time will be lengthened, while time for investors to enjoy CIT is also prolonged from three to five years. Import tax exemptions will also be applied to imports of machine, equipment and raw materials used for the projects.

“Particularly, Myanmar’s government will not hold monopoly over almost all sectors and attract the private sector into the nation’s development. It is quite an attractive point to foreign investors,” Thein said.

Vietnam’s Minister of Planning and Investment (MPI) Bui Quang Vinh said amid the global turbulent economy, the competition in FDI attraction among Asian nations was “becoming tougher and tougher.”

At 2012’s year-end Consultative Group Meeting for Vietnam, Prime Minister Nguyen Tan Dung told the international community that: “With a view to luring more FDI, we will build Vietnam into an investment destination far more attractive than other regional nations.”

Vietnam targets to attract $13-$14 billion of registered FDI and $10.5-$11 billion of disbursed FDI this year, accoording to the MPI.

Quang Ninh electricity project meets milestone

AES-VCM Mong Duong Power Company Limited last week began the installation of the Unit 2 Steam Drum at its  Mong Duong 2 power plant in northern Quang Ninh province, suggesting the construction is nearly two-thirds complete.

The steam drum installation is an important milestone in determining the installation schedule of the boiler and subsequently the overall project schedule. On August 17, 2012 the company installed the Unit 1 Steam Drum.

The Mong Duong 2 power plant, capitalised at $1.9 billion, started construction in August 2011 and has achieved an overall progress to date of approximately 66 per cent, according to the company.

There are approximately 225 experts and 4,000 local Vietnamese people currently working at the site.

“We are extremely proud to witness the commencement of lifting the Unit 2 Steam Drum. We would like to express many thanks to all the dedicated and skillful workers for their dedication and efforts to achieve this significant milestone today. With safety as our first priority we are confident that we will meet all expectations for the project,” said AES country manager and managing director David Stone.

The Mong Duong 2 power plant is forecasted to enter into commercial operation for both units during the second half of 2015 and will generate 7.6 billion kilowatt hours of electricity a year. After 25 years of operation, the plant will be transferred to the Vietnamese government per the build-operate-transfer (BOT) contract.

AES-VCM Mong Duong Power Company Limited was formed by three shareholders from subsidiaries of the AES Corporation from the US (51 per cent), Posco Energy Corporation from Korea (30 per cent) and China Investment Corporation from China (19 per cent). The project’s EPC contractors include Doosan Heavy Industries Vietnam Co. Ltd. and its subsidiaries.

Mong Duong 2 is one of four underway BOT power project invested by foreign investors in Vietnam to date. Previously, a joint venture between Japanese Sumitomo Group and TEPCO Company and French EDF Energy gained licence for investing into Phu My 2.2 power plant and a consortium of Kyushu Electric and Sojitz Corporation, BP and SembCorp Utilities invested Phu My 3 power plant, both in southern Ba Ria Vung Tau province.

The other is Hai Duong thermal power plant in northern Hai Duong province, developed by Malaysia’s Jaks Resources Bhd with the total investment capital of $2.25 billion.

Vietnam’s power sector have significantly contributed to the country’s economic development and improvements of people’s living quality. However, there are still many problems such as delayed construction schedules of many power plants and power network projects nationwide in comparison to those specified in the national power development plans.

According to the national power development plan during 2011- 2020 with the outlook to 2030, approved by Prime Minister last year, electricity production and import will be about 330 – 362 billion kilowatt-hours in 2020 and about 695 – 834 billion kilowatt-hours in 2030.

Massive refinery is a big step closer

A range of deals were announced last week for the construction of Vietnam’s  second oil refinery and petrochemical complex, located in central Thanh Hoa province.

The Vietnamese government officially gave guarantees to push forward the long delayed construction of Nghi Son complex on January 15. The most important pact – the Government Guarantee and Undertaking Agreement (GGU)— was signed between the Ministry of Industry and Trade and Nghi Son Refinery and Petrochemical Complex Joint Venture Company (NSRP), the complex developer. In addition, a fuel product offtake agreement was signed by the complex developer and state-run PetroVietnam.

Going along with those, NSRP’s letter of award (LOA) for the engineering-procurement-construction contract was given to the group of contractors. A currency board arrangement and service agreement of fronting insurer were also signed.

At the event, Kuwait Petroleum International Company (KPI) was named as long-term crude oil provider for the complex.

PetroVietnam, the domestic partner in the joint venture would secure the complex’s refined oil products, while the petrochemical products would be bought by Japan’s Idemitsu Kosan.

Deputy Prime Minister Hoang Trung Hai said the Vietnamese government would continue creating favourable conditions to support this project so that it could be kept on schedule and become operational in the third quarter of 2016.

NSRP was established in 2008 between PetroVietnam with a 25.1 per cent stake, Kuwait Petroleum International (35.1 per cent) and Japan’s Idemitsu Kosan (35.1 per cent) and Mitsui Chemicals (4.7 per cent).

With the total updated investment capital of $9 billion, once completed the complex will have an annual capacity of 10 million tonnes of crude oil, or 200,000 barrels a day. It will produce liquefied petroleum gas (LPG), gasoline products A92, A95 and A98, jet fuel and diesel oil and is expected to meet 40 per cent of the domestic fuel demand.

FIEs lead way on capital use

Foreign-invested enterprises have reaped bigger profits than local ones due to their effective usage of capital, according to a pioneer Vietnamese ranking company.

Vietnam Report Joint Stock Company (VNR) last week reported that among Vietnam’s 500 biggest enterprises by revenue (VNR500) for 2012, foreign invested enterprises (FIEs) had a return on equity (ROE) ratio far higher than state-owned and private domestic enterprises thanks to their good use of capital.

Specifically, the FIEs’ ROE was 39.22 per cent, meaning that the FIEs could earn 0.39 unit of profit from using one unit of capital. Meanwhile, the respective ratios of state-owned enterprises (SOEs) and private domestic enterprises were 16.28 and 15.53 per cent, respectively.

“Because of FIEs’ good control of operational costs, their profit is also higher than domestic companies,” said a VNR press release.

Generally, according to the report, enterprises in VNR500 of 2012 performed relatively well. Their ROE ratio averages 20 per cent, meaning they raked in two units of profit from using 10 units of capital. VNR also noted that FIEs’ debt usage and management has also been better than other types of enterprises. Specifically, the total debt to total asset of FIEs was 0.5, lower than the 0.7 of SOEs and 0.8 of private domestic enterprises.

These figures meant that most of local enterprises were operating based on banks’ loans. And while the annual lending rate in 2011 mounted to 25 per cent, enterprises’ paying capacity would be reduced undoubtedly. This at the same time would affect enterprises’ borrowing costs and profits, said the report.

M&A bright image appears

Foreign direct investment inflows to Vietnam through the modes of cross-border mergers and acquisitions (M&A) and new “greenfield” investments are showing diverging trends, with M&A rising and greenfield projects in decline.

Foreign direct investment (FDI) toward launching entirely new businesses, or so-called “greenfield” investments, reached only $13.1 billion in term of new commitment and $10.5 billion in term of disbursement, down 15.3 per cent and 4.9 per cent respectively.

However, there have been an increase of FDI in the country through cross-border M&As during the year, according to the Ministry of Planning and Investment.

Official data is lacking in regard of the FDI sum entering Vietnam through cross-border M&As, but the transactions during the past years highlight the upward trend.

“In the past, Vietnam mostly received FDI through greenfield investments,” said Nguyen Mai, former vice chairman of State Committee on Cooperation and Investment which is now known as Ministry of Planning and Investment. “But we have seen more and more foreign companies invest in Vietnam by acquiring major stake of existing companies in the country. This is along with the trend of global FDI inflows.”

Mai, who is now the chairman of Vietnam Association of Foreign Invested Enterprises, said greenfield investment projects would continue serving as driver of FDI inflows to Vietnam in the future. But he stressed the cross-border M&A mode was become more and more important.

In a report mentioning the outlook of FDI inflows to Vietnam till 2020, the MPI noted that the cross-border M&As would significantly increase in the future as many state-owned companies were restructuring to divest from their non-core businesses. In addition, the current challenges of the economy will force lots of domestic companies to think about M&A transactions with foreign partners.

“In future, cross-border M&As will increase in various sectors including property, finance, infrastructure, telecommunication and manufacturing,” the MPI stated.

During the past year, many foreign companies expanded in the Vietnamese market by acquiring major stakes in Vietnam-based companies instead of establishing new facilities in the country.

For example, Thailand’s SCG a month ago announced that SCG Building Materials Company Limited, its wholly-owned subsidiary, had entered into a conditional shares purchase agreement with the existing shareholders of Prime Group to acquire the domestic company’s ceramic tiles plants and related assets in Vietnam.

Prime Group operates six ceramic tiles plants with the total capacity of 75 million square metres per year and is one of Vietnam’s leading domestic producers with a domestic market share of approximately 20 per cent.

Under the agreement, the Thai company will acquire 85 per cent of stakes in Prime Group at the cost of around $240 million. Following this acquisition, SCG will have a total ceramic tiles production capacity of 225 million square metres, of which 48 per cent is in Thailand, 33 per cent is in Vietnam, 14 per cent is in Indonesia, and 5 per cent is in the Philippines.

In October 2012, Suntory Holdings Limited, a global beverage and wellness company based in Japan, announced to acquire a 51 per cent stake in PepsiCo’s Vietnam beverage business. With the majority stake in PepsiCo’s Vietnam beverage business, Suntory controlled one of the biggest players in Vietnam’s growing beverage market.

Also in the beverage industry, Taiwan’s Uni-President last year acquired a 44 per cent stake at Vietnamese Tribeco, when this producer was in danger of bankruptcy, to become the controlling shareholder at the company.

In the latest cross-border transaction, Hong Kong-headquartered Kerry Logistics, a leading global logistics service provider, two weeks ago secured a majority stake in Vietnam’s Tin Thanh Express to offer integrated logistics services across the country.

Seeking growth, IDP puts the “Love’ in” new dairy products

IDP, one of Vietnam’s home-grown dairy products firms, last week launched Love’ in Farm brands with fresh dairy and yoghurt products, angling to expand its market share in the country.

The new products resulted from a programme titled “Viet Love’in Cow Farm” developed by IDP since 2009, which is aimed at developing milk cow breeding and protecting interests of Vietnamese farmers and consumers.

This programme, costing VND600 billion ($28.8 million), has two phases. The first phase that ended last year supported 2,500 farmers with 10,000 milk cows in Hanoi’s Ba Vi district.

“Love’ in Farm dairy brands and the programme “Viet Love’in Cow Farm” are long term and serious investments of IDP,” said Tran Bao Minh, managing director of IDP.

“This programme aims to meet the growing demand for high quality fresh milk in Vietnam, and also contributes to the development of the country’s husbandary sector in particular and the rural economy in general,” Minh said.

He added with the “tightened supervision,” this programme would help improve the quality of Vietnam’s fresh milk in the future.

Established in 2004, IDP now owns two processing facilities in Hanoi’s Chuong My and Ba Vi districts. During the past years, the producer has strengthened its foothold in Vietnam market with two fresh milk brands, BaVi and z’DOZI. By launching Love’ in Farm products, IDP expects to further expand its current market share of 5 per cent in the country.

According to IDP, the second phase of programme Viet Love’in Cow Farm will be expanded in other provinces including Vinh Phuc, Tuyen Quang, Lam Dong and Ba Ria-Vung Tau. By 2020, IDP expects to support farmers to raise around 50,000 cows that provide about 450-500 tonnes of milk each day.

Farmers joining the programme will receive financial supports for raising cows under the standards of IDP. In addition, the producer transfers farmers know-how for raising cows and protecting cows from diseases in order to ensure food security standards.

To ensure the quality of Love’ in Farm products, IDP is also cooperating with National Institute for Food Control (NIFC) to ensure that thier products are clean and safe to consumers. Accordingly, IDP will send Love’ in Farm products to NIFC every month for examine the quality.

FTAs to muscle up exports

Benefits from free trade agreements are expected to help Vietnam earn more money from its targeted export turnover for 2013, according to the Ministry of Industry and Trade.

At its recent meeting with localities, the ministry (MoIT) reported that the country’s total export turnover for the whole 2013 was projected to be $126.1 billion, higher than $114.6 billion last year and $124.3 billion earlier targeted for 2013 by the government in late November.

“Exports have been the most outstanding point in the country’s economic situation and this must continue being repeated in this year,” said Prime Minister Nguyen Tan Dung, who chaired the meeting.

Dung said the MoIT’s export turnover target for 2013 was feasible. But he said it could be higher if exporters take more advantage from the free trade agreements (FTAs) that Vietnam had inked with foreign partners like Japan, Chile, ASEAN and ASEAN+2 including China and South Korea.

According to the MoIT’s Export-Import Department, thanks to these FTAs and their preferential import tax rates, Vietnam’s export turnover to these markets last year strongly grew, with 30 per cent from ASEAN, 22 per cent from Japan and 58 per cent from South Korea.

Under the ASEAN-South Korea FTA, South Korea will by 2015 reduce 30 lines of import taxes for Vietnam’s key products like farm produce, chemicals, paper, steel, machinery and footwear. The tax rate for footwear will be decreased from 0.26 per cent in 2010 to zero per cent in 2015.

“These FTAs occupied $53.5 billion out of Vietnam’s total export turnover of $114.6 billion in 2012. After Vietnam inks an FTA with the EU in 2014, the export turnover from Vietnam’s FTAs would hold about $86 billion of the country’s total export turnover,” said the department’s director Phan Van Chinh.

“But many local exporters are still not aware of the advantages from FTAs. They should boost exports into these markets,” Dung said.

At present, Vietnam is negotiating bilateral FTAs with the EU, South Korea and the Tariff Union including Russia, Belarus and Kazakhstan. The country is also conducting negotiations of the Trans-Pacific Partnership Agreement’s (TPP) with other nine member states. It is expected that TPP would annually bring Vietnam an export turnover totaling $36 billion, equivalent to 15.5 per cent of gross domestic product by 2025, according to the MoIT.

Last year Vietnam for the first time since 1993 earned a trade surplus, totaling $284 million. Specifically, total export turnover reached $114.6 billion, up 18.3 per cent on-year and total import turnover touched $114.3 billion, up 7.1 per cent on-year.

However, the MoIT said in this year, the country might suffer from a trade deficit level of 8 per cent ($9.9 billion) of total export turnover. Shrinking local production in 2012 had reduced imports, contributing to a trade surplus. However, the local production had been recovering now, which would result in bigger importation of goods and materials.

The MoIT’s Minister Vu Huy Hoang said the MoIT would boost exports while closely controlling imports in 2013 in a bid to generate more jobs for local workers and ensure social security.

Specifically, he said, Vietnam would boost exportation of agro-forestry-aquatic products (expected $21.6 billion, up 3 per cent on-year), minerals ($12.2 billion, up 4 per cent on-year), and processing goods ($83.5 billion, up 12.8 per cent on-year).

Besides, Vietnam would strictly control importation of precious metals and stone, components for cars with nine seats at most and for motorbikes. Also the country would limit importation of consumer goods, completely built cars and motorbikes.

Firms to be slammed by power hike

Companies will be hit hard by a planned robust power tariff hike in 2013.

Hoang Quoc Vuong, chairman of state-run Electricity of Vietnam (EVN), said that there would be another 7.2 per cent increase in power prices this year.

EVN reported that the average power price for 2013 would be VND1,459 ($0.07) per kilowatt hour from 2012’s VND1,361 ($0.065) per kWh, which was up over 35 per cent against the previous year.

Vuong ascribed this year’s power price hike to “unfavourable conditions for EVN’s business and production” including expected shortages of water in hydropower plants’ reservoirs, which were tantamount to 1.43 billion kWh, due to weather reasons.

“Besides, there will be shortages of gas between July and September 2013 to operate thermal power plants providing electricity to the country’s southern region. Thus oil would be used to fuel those plants, whose total volume would be 1.8-2.4 billion kWh,” Vuong said. “In 2013, there will also be a hike in prices of coal and oil used for generating electricity. These factors will increase our power prices this year.”

EVN recorded the total revenue of VND143.42 billion ($6.89 billion) and VND6 trillion ($288.46 million) in profit in 2012. But, Vuong repeated that despite profit, “power prices will be increased due to increasing input costs.”

EVN’s new move has received complaints from enterprises and the public nationwide.

Nguyen Huu Su, general secretary of Hanoi Small- and Medium-sized Enterprises’ Association, told VIR such a 7 per cent increase would mean a “strong blow” to almost cash-strapped small- and medium-sized enterprises in Vietnam.

“The number of enterprises with bankruptcy and ceased operations in Hanoi in 2012 was innumerable due to sharp hikes in input production costs, including a 35 per cent hike in power prices,” Su said. “Enterprises have been exhausted over the past two years. The power tariff increase will result in rises in prices of a series of goods and services.”

For example, he said, electricity occupied 8 per cent of production costs for a steel maker. Manufacturing one tonne of steel would need 600kWh. And the 7 per cent electricity price hike would augment the steel price with an additional VND45,000 ($2.16) per tonne. If an enterprise monthly made 50,000 tonnes of steel, it had to pay additional VND2.25 billion ($108,180) for its electricity bill.

Doan Van Cuong, vice general director of Vicem Hoang Mai Cement Joint Stock Company said his company would have to pay additional VND15 billion ($721,150) for power bills to produce 1.5 million tonnes of cement in 2013 if the targeted power price hike was introduced by EVN.

Do Xuan Doanh, head of Trung ward in Hanoi’s Xuan Dinh commune, said his ward’s 7,000 households monthly had to pay about VND4 billion ($192,300) for power bills.

“Thus we will have to pay additional several hundreds of millions of dong due to the planned power price hike. This makes people’s lives become more difficult,” Doanh said.

Source: VEF/VNA/VNS/VOV/SGT/SGGP/Dantri/VIR

No comments yet... Be the first to leave a reply!