Vietnam - Vietnamese firms plan to boost outbound investment

Overseas investment becomes the current trend of a series of big groups and commercial banks in Vietnam. In the competitive context of domestic market, many Vietnamese companies are going towards Laos and Cambodia.

Pioneering groups

These neighbouring markets of Vietnam have a quite rapid growth rate compared with other regional countries thanks to the plentiful reserve of natural resources and high potential of tourism and services. In Cambodia, its GDP growth is quite stable at 4.7% a year with the population of 14.2 million as the annual average consumer price increase is around 5% only.

According to World Bank, the income per capita of Laos and Cambodia stays at $706 and $805 per person per year, lower 35-40% than that of Vietnam, reflecting the low living standard and cost of people.

Hoang Anh Gia Lai JSC (HAG) is one of Vietnamese firms pioneering in investing in Laos and Cambodia after being aware of mineral and cheap labour resources in these countries. From the real estate business, HAG has shifted to focus on rubber plantation. The company plans to reach total rubber plantation area of 100,000 hectares by 2014 including Vietnam, Laos and Cambodia. Latest news said that HAG planted new area of 35,741 hectares of rubber in 2011 and will start to take rubber latex in Laos from July 2012.

In field of mining, HAG is seeking license to operate in mining in Laos and Cambodia. The proportion of production revenue of HAG has increased to account for 41% of total 2011 revenue against 19% of the year earlier, which replaced the real estate trading session that is facing a lot of difficulties.

Furthermore, HAG will invest $200 million to build a complex of hotel, trade centre and apartments in Myanmar. Whether is this “new blue ocean” of HAG because Myanmar is quite separated with the world, 0.1% of its population use internet, no ATM, mobile simcard at $1,000 per unit?

…followed by commercial banks

Overseas investment trend is also followed by Hoa Phat Group (HPG), Viettel, Sacombank, Agribank, BIDV, Military Bank. It is evitable because there is a credit relation between enterprises and commercial banks, when enterprises are boosting outbound investment, commercial banks also will follow to supervise credit as well as develop network advantages of the pioneers.

In addition, there is also the strategic shareholder relation between groups and commercial banks so sharing investment experience and developing overseas customers’ network is very necessary. For example, Viettel, who10% stake of Military Bank, pioneered in providing mobile telecommunication services in Laos and Cambodia whereby the entry of MBB in two countries took place smoothly based on taking advantages of its strategic shareholder Viettel.

For Vietnamese banks, investing in two neighboring nations is the first step to head off opportunities to boost traditional banking services as well as interbank, foreign currencies.

Raising deposits in foreign currencies in Laos and Cambodia is not tightened as in Vietnam, becoming the favorable condition for pioneers. In Vietnam, USD deposit rate of Sacombank and other lenders is ruled under the ceiling level of 2% a year for all terms. However, in Cambodia branches of Sacombank, BIDV or MBB, the interest rate curve re-emerged, ranging between 2% and 5% a year applied on terms of 1 month to 1 year. Meanwhile, US dollar lending rate in Vietnam is common at 7-9% a year, thus commercial banks still are able to earn the marginal rate of at least 2%.

Data of Cambodian Ministry of Tourism indicated that the country welcomed over 2.5 million arrivals of tourists and reached the total revenue of $1.78 billion from the sector. This revenue was equal to only 40% of respective figure in Vietnam but listing prices and payment in USD is popular in daily life of Cambodia people, making favorable conditions for banking services related to foreign currencies.

Caution

Outbound investment is always attached with risks of the investment recipients such as politic stability, macro economy, legislative and financial system. According to experts, the issue that should be cautious and considered as investing overseas is the power of domestic currencies. 

For instance, Japanese yen appreciated against other currencies such as USD, Thai bath so this is the advantage for Japanese companies to expand production in Thailand and Malaysia to catch opportunities of purchasing cheaper assets and enjoying lower labour cost.

Meanwhile, VND weakened against Japanese yen due to the VND interest rate in Vietnam at over 14% per annum and rising trade deficit. Hence, Vietnamese firms as going abroad will have to suffer forex rate risks.

Doing business in field of services in foreign countries require the deep awareness of local culture. ANZ Bank was very wise as naming its outlet ANZ Royal in Cambodia with a view to increase the trust of people in their brand name.

Similarly, Viettel established a wholly foreign invested telecom firm in Laos but did not use the familiar brand name. Their network in Laos was named METfone. “MET” sounds “friend” in Khmer language, which is closer to local customers.

The competition between Vietnamese companies and international rivals also is concerned. The presence of giants namely ANZ, Maybank, Bank of China, Bank of India made the fiercer competition. Only four banks like ACLEDA Bank, Canadian Bank, Campubank and ANZ Royal occupied up to 64% of total assets, 72% of total outstanding loans and 70% of deposits in Cambodia. Later comers will have to suffer heavy pressure from four big rivals.

VietBiz24

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