At the end of 2006, a foreign invested financial company in HCM City was hired to investigate the Vegas Club project run by the US based Magnum Company in the central city of Da Nang.

In fact, Vegas Club was licenced in 2003 with the registered capital of $12mil. The US investor had just implemented a half of the project due to financial difficulties. It was later clear why the investigation of Vegas Club had been conducted: an investor wanted to buy the project. The investor was announced to be Saudi Arabian Prince Alwaleed bin Tatal.

Hotel projects very hot

Prince Alwaleed bin Tatal’s company made an official announcement on February 1, 2007 that the company would inject $65mil in the project called Raffles Resort, covering an area of 15 ha in Son Tra peninsular in Da Nang, which the US investor initially planned to develop. The price of the assignment deal and the conditions have been decided by the two parties, but they respect the commitments written down in the investment licence granted by Vietnamese authorities.

Recently, corporate assignment in Vietnam among foreign investors has become popular. In March, VinaLand, the real estate investment fund which has successfully raised $400mil more to be injected in Vietnam, has spent $16.5mil to get 52% of shares of Omni Saigon Hotel.

Don Lam, Director of VinaCapital, which is managing VinaLand, said that the company was negotiating to buy several other hotels. “We focus on tourism and hotels, fields that are witnessing high growth rates in Vietnam,” he said, adding that the two priority factors for VinaCapital when considering projects was the prices and locations of hotels. HCM City and Hanoi are preferable.

Prior to the Omni deal, VinaLand made two successful assignment deals. In 2005, it spent $30mil to buy 70% of shares of Sofitel Metropole Hanoi.

Since mid 2006, the clients staying at Hilton Hanoi may be surprised when realising that a brochure about VinaCapital can be found in every room. It is because VinaLand has become the new owner of the hotel, which is located adjacent to the city’s Opera House. The fund has spent $43mil to get 70% of the hotel’s shares from German and Austrian investors.

With the deals to buy back operational projects in Vietnam, investors can shorten the time it takes to penetrate Vietnam’s market. They do not have to spend time to follow the formalities to get permission from state authorities for new projects; therefore they do not waste time and miss business opportunities.

In 1998, after the Asian financial crisis ended, Dragon Capital successfully bought the capital contribution of the Thai investor in the Hanoi Lake View project at a soft price. The building was restructured to turn into the high-grade apartments for leasing and they now can bring a considerable profit to the investor.

Definitive purchase not preferred, why?

According to Le Anh Minh, Finance Director of Dragon Capital, despite visible benefit, it is still not a tendency of assigning parts or whole companies, because of unclear legal framework.

Huynh Nu Kieu Phuong, Finance Director of Grant Thornton, a financial consultancy company, said that foreign investors did not only seek to buy real estate projects, but also retail companies in order to penetrate Vietnam’s distribution network. However, as Mrs Phuong pointed out, there are two problems they are facing 1. unclear legal framework and 2. the Vietnamese side only wants to sell parts of companies because they want the technology transfer from foreign investors, while the foreign side always wants to buy companies in whole, or at least get 51% of total shares to get the right for management.

To date, no deal, in which foreign investors buy 100% of Vietnamese owned companies in a whole (the value is more than $10mil), has been reported.

Moreover, according to Mrs Phuong, foreign investors cannot see the transparency in Vietnamese companies they need. Before making decisions to buy Vietnamese companies, foreign investors always ask to have financial reports to be audited.

Buying companies still be a good choice

Despite the said obstacles, buying companies proves to be a good choice that foreign investors will not ignore.

Returning to the hotel market, Saigon Bank, which is running the Riverside hotel on Ton Duc Thang street in HCM City, has received a lot of real estate investors over the last several years, who come to ask the bank to sell Riverside.

Saigon Bank bought the hotel at VND36bil ($2.25mil) several years ago. Saigon Bank’s Director General Tran Thi Viet Anh has refused any proposal to buy the hotel from the bank, though a partner offered to pay VND200bil ($12.5mil).

In the stock market, a foreign institution is trying to collect Saigon Hotel’s shares (SGH). The investor tries to buy as many shares as possible, no matter the prices go down or up.

The hotel, which is located on Dong Du street in district 1 in the centre of HCM City, reportedly has the capital of VND18bil ($1.12mil). It is understandable why SGH prices once exceeded the VND100,000/share level, though the hotel does not make big profit (the dividend is 6%).

A foreign investor said that once the foreign institution gets enough shares to get the controlling stakes, it would rebuild the hotel, and the price of the hotel would be much higher.

Source: TBKTSG