A series of banks have jumped into a new field, making highways, as they believe that they can get fat profit with the projects. However, experts have warned that there are latent high risks with jobs in unfamiliar fields.
Banks playing in the transport field
The first bank which decided to inject money in transport infrastructure items was the Bank for Investment and Development of Vietnam BIDV. An alliance headed by BIDV, comprising giants, namely Vinashin (shipbuilder), VNPT (telecommunications), PetroVietnam (oil and gas), Bitexco (real estate developer), Song Da Corporation (construction), has set up the HCM City-Long Thanh-Dau Giay Joint Stock Company, which aims to compete directly with the Vietnam Express Corporation (VEC).
With its advantage in financial capability, BIDV suggested the investment capital for the first phase of the project (to be built under the mode of BOT) at VND9,800bil ($612.5mil), which will be arranged by BIDV and outside sources. The alliance has suggested not using state budget sourced capital; the time needed to recover capital is 16 years.
Meanwhile, VEC, the direct rival of BIDV and its alliance, suggested borrowing money from ADB and JBIC (the loans are worth VND9,890.62bil or $618.16mil), and the time needed for recovering capital is 25 years. As JBIC and ADB accepted to provide loans, the government has agreed to allow VEC to act as the investor of the project.
However, BIDV did not give up the game. On August 22, 2007, Tran Bac Ha, Director General of BIDV, said that the Prime Minister had agreed to assign domestic investors, headed by BIDV, to build the HCM City-Trung Luong-My Thuan-Can Tho highway, capitalised at $1.8bil.
In order to arrange capital for the project, BIDB plans to mobilise money from the public (50%), including foreign investment funds, and international bond issuance ($500mil). The project is hoped to kick off in April 2008.
Meanwhile, the Vietnam Development Bank VDB has also completed the project on developing the Hanoi-Hai Phong express way. Prior to that, the Ministry of Transport assigned the Bien Dong Project Management Unit (PMU) to carry out the project; however, as the PMU was thirsty for capital, the project got stuck on paper. As a result, VDB has jumped onto the bandwagon to replace the PMU. The alliance, headed by VDB, consisting of Vietcombank, Bitexco and Ha Long Canned Food Development Company Ltd, has established a joint stock company with the chartered capital of VND5tril to be in charge of the project. VDB makes 51% of total capital (VND2,250bil), Vietcombank 31% (VND1,550bil), while Bitexco and BIM, 9% each (VND50bil).
Risks latent with the bankers who make roads
Experts have warned about the high risks bankers face when they decide to do things which are not in their areas of expertise.
Nguyen Quang A, a banking expert, says that banks see big profit when developing expressway projects as they can develop industrial zones and real estate works along the highways. Besides, they can get profit from other services like leasing offices, apartments, resorts and from billboards and transport fees.
However, other experts said that high profit is always associated with high risks. That explains why only state-owned banks try to get involved in highway projects, while joint stock banks remain outsiders.
According to the experts, the risks may come from the long time needed to recover investment capital. While banks only have short-term capital, they need long-term (several tens of years) capital for the project.
The banks may well understand that they will have to face the slow pace of site clearance for the projects, which has become a popular problem with transport projects.
The director of a joint stock bank also said that too many risks existed with the projects, and he could not brave the danger of injecting several billion dong in projects which would only allow him to get capital back many years later.
Mr A also said that banking was a sensitive business field, and the collapse of one bank would cause the domino effect, i.e. the collapse of the banking system as a whole. He has urged the State Bank of Vietnam to prevent banks from bogging themselves down in building highways.
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