» » Taking a Bath in Vietnam Real Estate

VNRE Ho Chi Minh City got a 68-story skyscraper, Vietnam’s tallest, when the downtown Bitexco Financial Tower was inaugurated in 2010. The building, boasting a helipad at the 50th floor, can be seen from almost every part of the city.

It hasn’t been a celebration for the owner, however. Nearly 18 months later half of the building’s office space is still empty and none of the six retail podiums is open. Annualized interest rates reached as high as 23% late last year, and there are plenty of rumors that the owner is trying to sell the building to pay off construction loans. But the company dismisses them. “Bitexco Financial Tower is our pride; we are not selling it,” says Vu Quang Hoi, chairman of Bitexco, a private Vietnamese company that’s invested in more than a dozen other real estate projects, plus infrastructure, energy and mining. “This is a difficult time for businesses, but it is precisely why we need to continue to invest more.”

Not everyone has the same spirit. There are 20 socalled golden sites in the city--prime spots slated for development--but only two projects have been completed and two are under construction; 16 sites are still vacant. Rent for grade-A office space has dropped nearly 50% since 2009. High inflation, high interest rates and the dong’s devaluation have created what CB Richard Ellis Vietnam calls in a January report “a residential nightmare” as property developers boosted their marketing budgets threefold but can sell less than one-third of what they build. Some of the top companies, both private and state-owned enterprises, are also the biggest debtors, and while none of them has declared bankruptcy, it is tough for them to continue investing with the cost of capital so high. There is a saying in Vietnam these days: “It is time to pick up dead bodies on the market.”

But where are the dead bodies? Another joke goes: “There are no distressed assets in Vietnam.” Vietnamese tycoons keep their dire financial situation private, doing deals quietly as people with cash snap up unfinished office buildings, apartment complexes and other projects at rock-bottom prices. For now, though, most such assets are being taken over by banks. Don Lam, chief executive of VinaCapital, a fundmanagement company, says it is working with at least one major bank, going through the list of bad debtors in real estate to revive unfinished projects. If it works, the model, called a “club deal,” will allow new investors to take on the old debt, on the condition that interest rates be fixed for two years.

With more companies struggling, merger and acquisition activity sprouted last year, and more deals are on the way in 2012. The Vietnam Stock Index, which dropped 29% in 2011, is up 31% so far this year, driven by takeover activity.

Meanwhile, the State Bank of Vietnam is forcing more than ten commercial banks to restructure because of liquidity problems caused by a large number of non - performing loans. Dang Van Thanh, the founder of Saigon Commercial Bank, who in 2010 was among the country’s richest people in terms of public shareholdings, is losing control of the bank.

Another high-stakes player, Pham Nhat Vuong, chairman of Vingroup, finds himself sitting on the tiger’s back. His group of companies is investing in at least four major property development projects across the country. But in December it reported a cash flow of only $220 million, which analysts say is not enough to cover liabilities of $1 billion. His Vincom division has had to sell two office towers in Hanoi and Ho Chi Minh City. Now it is hoping to raise between $150 million and $300 million overseas, most likely in Singapore.

Others are seizing oppor - tunities. Masan Group, which has interests in banking, mining and consumer goods, is on a quest to expand. With more than $600 million in cash on hand, it last year acquired 51% of Vinacafe, a maker of instant coffee and other consumer products.

Reported by Lan Anh Nguyen
Photo: Hoang Dinh Nam / AFP / Getty Images
Source: Forbes

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