Limited loan availability coupled with high lending rates from domestic banks has meant more Vietnamese businesses are not knocking at the doors of foreign banks for their capital needs.
On September 16 in Hanoi, Standard Chartered Bank and Vinacomin signed a syndicated loan contract worth US$58 million to meet the domestic group’s investment demand. US$20 million is provided by Standard Chartered as lead manager, US$20 million by Cathay United Bank, US$10 million by Malayan Banking Berhad and US$8 million by the Bank of China. Standard Chartered said it expects the contract would be the first successful case of extending such syndicated finance in the future.
According to lenders and Vinacomin as well, the loan duration is seven-years which is widely recognised as an impressive achievement under current syndicated loan market conditions when most deals are being done with a terms of five years or less. In addition, although the market still has many difficulties, the syndicated loan was registered with the lending limit of exceeding 16% as compared with Vinacomin’s request. Moreover, the average lending rate of the loan is about 6% per annum, lower 1.5-2% pa against domestic banks’.
Doan Van Kien, chair of Vinacomin stated that his group’s demand for investment capital is very high, mainly long-term capital. So far, Vinacomin has sought capital from both local and foreign banks. However, he also admitted, if arranging capital for big contracts, local banks’ lending capacity is very limited with similarly complex terms as compared with foreign banks. Borrowing huge capital, we are forced to do business with foreign banks although the group has good credit relationship with many local lenders.
Explaining further, he said if calculating US dollar deposit rates, Vietnamese banks’ lending rate could be no less than 7% pa while foreign banks’ cost for capital mobilisation is much lower. According to Ashok Sud, Chief Executive Officer of Standard Chartered Bank in Vietnam, Laos and Cambodia, in long-term (next 5-10 years), Vietnam will have to find international finance institutions to raise capital. Many Vietnamese firms can attract foreign capital, the deal between Vinacomin and SC is a typical example.
Usually, it takes 2-3 months for a business to prepare and gain a loan contract, including preparation of financials, negotiations with banks and they [enterprises] can spend up to 4-5 months to wait for these banks’ final decisions. However, in comparison with domestic lenders, foreign banks can arrange larger loans with longer grace period and lower interest rate.
However, not all enterprises can access foreign banks’ loan. Borrowers must be large sized companies such as a group, corporation, or joint stock giants such as telco FPT or Hoa Phat Group with good financial targets, no history of bad debts, and they must undergo international auditing or credit rating. Just Vinacomin, which now plans to issue US$300 million bonds overseas in the second quarter of 2009, also has to hire Standard & Poors for credit worthiness appraisal.
But foreign loans must have prior approval from the State Bank of Vietnam and the finance ministry as well because Vietnam has rules on limiting national debt. It is very hard to undergo the proceedings.
As announced, Vincom Joint Stock Co plans to issue US$200 million in intentional bonds aiming at Singaporean inventors but there has not had any particular offering plan.