Trade deficit to keep pressure on dong

by Thien Ly

The pressure on the dong will remain high for the rest of the year because of the rising trade gap, dollar loans falling due, and foreign companies repatriating profits home.

Already there are signs of this pressure: While banks have kept the exchange rate unchanged, the dollar rate on the unofficial market increased by VND20 to VND19,220 a dollar on July 27.

According to the General Statistics Office, exports in July were worth an estimated US$5.8 billion and imports, $6.95 billion.

The situation is expected to continue in the coming months, with large volumes of imports becoming imminent as companies begin to prepare for festivals including Tet, which usually falls early in the new year.

Nguyen Thi Ngoc Van, deputy general director of the Dong A Joint Stock Commercial Bank, said the end of the year usually sees high demand for dollars.

The HCM City Securities Corporation said since many companies'dollar loans would fall due in the third quarter, they would need large quantities of the greenback to repay banks.

The second half of the year is also the time when many foreign companies operating here send their profits back to their parent companies.

With demand rising in many quarters, there will be sustained pressure on the currency, and the dong is likely to weaken against the dollar, according to Le Duc Thuy, chairman of the National Financial Supervision Commission.

Dam Bich Thuy, CEO of ANZ Viet Nam, said the difference between dong and dollar lending rates was still high at 7 and 8 per cent, which encourages enterprises to borrow the latter.

According to the central bank, foreign-currency loans outstanding at banks rose 27 per cent in the first half but dong loans were up by only 4.6 per cent.

Convertible

Convertible bonds are becoming popular with companies seeking to raise funds but the equity dilution they cause has not yet disconcerted investors while in the absence of rating agencies, the safety of the bonds themselves are open to question.

A convertible bond enables the holder to convert it into common stock at an agreed time and price.

The Song Da Group issued bonds worth VND1.5 trillion ($79 million) and the Electricity of Viet Nam Group, VND2 trillion, both bearing floating interest rates.

Some companies have also issued non-convertible bonds but they are paying high interest rates – Vincom Joint Stock Company issued VND1 trillion ($52.6 million) worth bonds with a coupon of 16 per cent while the Hoa Phat Group raised VND800 billion by issuing three-year bonds at a rate of 14.5 per cent for the first year and a floating rate thereafter.

Analysts point out that many enterprises prefer convertible bonds since they are cheaper than both interest-bearing bonds and bank loans.

The Na Ri Joint Stock Company discovered that raising the capital in traditional ways was three times more expensive and so this year it decided to issue convertible bonds worth VND350 billion ($18.4 million) with an initial coupon of just 8 per cent.

Hoang Anh Gia Lai Group has also chosen to go the way of convertible bonds to raise capital and is completing formalities to issue bonds worth VND1.1 trillion ($57.8 million) to Singapore-based Temasek Holdings. So far this year enterprises have issued a cumulative VND20 trillion ($1billion) in bonds, most of them convertible and bought by their shareholders and strategic partners. An ANZ Viet Nam executive says the question is what kind of bond should investors buy to ensure profit and safety.

Homeward

Software firms who shifted their focus to the domestic market during the global economic recession last year have achieved strong growth.

The industry posted revenues of $600 million last year, with the domestic market accounting for $255 million.

Outsourcing for international ICT companies was worth only $130 million, or half the domestic revenue. The rest came from digital content, education and integrated system services. The software outsourcing segment has slowed down considerably in the last three years, with annual growth falling from 40 per cent to 25 per cent.

It has been caused by the global economic meltdown which saw orders from traditional markets like Japan and the US dry up.

Housing

Overseas Vietnamese, or Viet
Kieu, will be allowed to invest in property after new land regulations take effect on Sunday.

Ethnic Vietnamese holding foreign passports must first prove their Vietnamese origin and also fulfill one of the following conditions:

* They should be direct investors

* They should be recognised as having made contributions to the country

* They should be cultural activists

* They should be scientists or other highly-skilled people

*They should be married to Vietnamese citizens

Those not falling in the above group will only be allowed to buy one house or apartment. If they get another property as a gift, they will have to sell it off. If caught violating the regulation, they will no longer be allowed to own housing. Unlike earlier regulations, the new rules are unambiguous and favourable to Viet Kieu.

There are around 4 million ethnic Vietnamese living in 100 countries and territories who sent remittances worth US$6.8 million to Viet Nam last year.

The new regulations are also expected to help revive the somnolent real estate market. — VNS