From: vinsight@netcom.com (Chan T. Vninsight)
Subject: The Problem of Financing In Vietnam
Originator: daemon@media.mit.edu
Reply-To: vinsight@netcom.com
Organization: N/A
Date: Mon, 13 Apr 1992 07:18:30 GMT


THE PROBLEM OF FINANCING IN VIETNAM
(The MANAGER of Bangkok, Dec. 1991.)

Despite the fact that its new investment laws inspire little confidence,
foreign companies, eager to cash in on Vietnam's burgeoning market
economy have flocked to the country, where they have been signing
contracts left, right and center. By July this year, 294 projects had
been agreed upon, requiring total investment of US$2.1 billion.

Yet, when it actually comes down to the nitty-gritty of raising money
for these projects, financiers find the going tough. A German investor
in Singapore cannot find an insurance company to back his investment. An
investment banker in Hong Kong has given up in despair after Vietnam's
central bank failed to guarantee the loans for his Ho Chi Minh City
hotel project. The hard luck stories are as numerous and varied as the
new license applications themselves, and the bottom line is all too
often the same: lots of ideas, lots of interest, but when the time comes
to get a project rolling there is no cash to be found. How is it, then,
that a handful of foreign companies have found the cash to finance their
projects?

For a start, most of the actual investment committed to Vietnam so far
has been small scale and, typically, investors have had to dig into
their pockets and pay for the projects upfront. A case in point is the
Australian telecommunication company, OTC, which doled out US$50 million
for its buy-operate-transfer contract last year.

There is little or no recourse to domestic banks in Vietnam for project
financing. The country's banks, which are still in their infancy, have
scant foreign currency reserves. They have mainly been engaged in trade
financing or in arranging the odd letter of credit, but they lack
experience in the area where investors say they need it most: project
financing, where security lies in the revenue generated by the project
itself. "The local banks have no money; even if they had, their
experience of nearly two decades has not afforded them the education of
modern banking and finance techniques," sniffs a casehardened
investment banker in Hong Kong.

Some short-term financing for projects lasting up to one year has taken
place, but with the U.S. tightening the screws on dollar transfers to
Vietnam, banker and investors are having to juggle different currency
accounts to get project funds into the country and, once in, they face
the risk of not being able to get them back out. "Once your dollars or
yen or whatever are transferred to Vietcom-bank, your join a long queue
of people trying to get them out for their own projects," one finance
executive explains. "It's not that they've vanished, they've simply been
reallocated to the guy ahead of you in the queue and you have to wait."

On the whole, foreign banks have been reluctant to take on medium to
long-term financing. The biggest obstacles to financing deals, they
assert, are the political risks, the lack of foreign currency
circulating in Vietnam, and the U.S. embargo, which is prohibiting
dollar transfers and blocking soft loans from the World Bank and the
International Monetary Fund.

Although many foreign investors claim that the loan guarantees are
necessary and represent a commitment on the part of the Vietnamese, most
foreign bankers say that the guarantees are not worth the paper they are
printed on.
-- 
Vietnam Insight (vinsight@netcom.com)
Chan Tran, editor