While bank loan interest rates have become unbearable for many enterprises, and difficulties have existed that hinder enterprises to access capital from other channels, Vietnamese enterprises have not prepared well enough to call for capital on the international market – experts said at the Vietnam CFO Summit 2001, organized by Vietnam Report and VietNamNet on June 10.
Businesses relying on banks as the only capital source
The quick survey which was conducted right at the annual Vietnam CFO Summit 2011, showed that 32 percent of polled businesses capital loans remain the main capital source for them. As such, of the three main capital mobilization cannels – bond market, stock market and bank loans – businesses still prefer borrowing money from banks, despite the sky high interest rates.
The high bank loan interest rates are really the big challenge for businesses’ financing, according to Tom Herron, a senior executive of Ernst & Young Vietnam.
Vu Dinh Phuc, Chief Accountant of Vilexim, said that the high interest rates and the fluctuating exchange rate are the biggest problems for enterprises now, because of which his company can only “make little profit”.
Quach Manh Hao, Deputy General Director of Thang Long Securities Company, said that when commercial banks tighten credit, this will lead to two scenarios: 1) businesses cannot access bank loans and 2) good businesses do not want to borrow money from banks. Especially, the stock market, which has become lackluster, has been no longer an effective capital mobilization channel for businesses.
In principle, businesses can seek capital through another channel – merger and acquisition (M&A).
“There are many investors who are interested in M&A. They want to purchase stakes of many enterprises. A lot of investors are seeking investment opportunities,” said Tom Herron from Ernst & Young. If the financial policies keep stable, many M&A deals will be seen in the fourth quarter of 2011, and the first two quarters of 2012.
Also according to the executive, the upcoming second half of the year will be the difficult time for the capital market, because there are many existing problems that need to be settled. Investors still need to wait to have clearer vision about the investment environment before making investment decisions.
Seeking capital from foreign sources – why not?
The information in mid May 2011, that Hoang Anh Gia Lai group successfully found 90 million dollars worth of capital from issuing bonds on the international market stirred up the public.
The corporate bonds will become matured in five years, while the interest rate has been fixed at 9.875 percent. Credit Suisse acted as the only guarantee for the bond issuance.
The success of Hoang Anh Gia Lai on the international debt market could be seen as the “medicine” that encourages other Vietnamese enterprises to go seeking capital on the international market.
Le Hoang Lan, Deputy General Director of the Saigon Investment Group, said that it is always a long and tough period to prepare to access foreign capital sources.
“It is businesses which make themselves think that the capital is lacking on the market. In fact, the capital remains profuse,” Lan said.
According to Lan, there are two groups of foreign investors: The first group includes the ones who purchase bonds, but do not join the management work. Meanwhile, the second group includes the ones who “live together” with enterprises and join the board of directors of enterprises. The latter investors always expect the high transparency from enterprises.
Hao from Thang Long Securities Company agrees that transparency is the thing that foreign investors, who want to have long term investment of 7-10 years, expect to see most. The unclear management at many enterprises cannot give confidence among foreign investors.
According to Nguyen Thuy Duong from KPMG, foreign investors have three big concerns when making investment in Vietnam. First, the regularly changing policies make them puzzled. Second, it’s easy to get in the Vietnamese market, but it’s difficult to get out. Third, Vietnamese enterprises lack long term business strategies. – Vietnamnet