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Banking & Finance

Singaporean wealth fund eyes 7% of Vietcombank

Released at: 07:09, 09/08/2016

Singaporean wealth fund eyes 7% of Vietcombank

Discussions ongoing over purchase by sovereign fund GIC Private Limited.

by Duy Anh

Singaporean sovereign wealth fund GIC Private Limited is currently negotiating with Vietcombank over securing a stake of at least 7 per cent, according to Reuters.

Vietcombank will issue new shares to GIC should the deal go through, which will be at a discount to market prices. Full details are yet to be disclosed.

Vietcombank had no comment to make to VET.

With a 7 per cent holding GIC would become the third-largest investor in the bank. Its main shareholder, the State Bank of Vietnam (SBV), will make the final decision on the purchase.

Vietcombank was fully-owned by the State until it underwent equitization in 2007, following which it has two major shareholders: the SBV, with 77.11 per cent, and Japan’s Mizuho Corporate Bank Ltd, with 15 per cent.

If this deal proceeds it will be GIC’s second investment in Vietnam this year, following its investment in the Masan Group. In March GIC bought additional shares to increase its holding to more than 5 per cent in Vietnam’s leading food producer. The value of the deal has been estimated at around $100 million.

GIC also has holdings in FPT Corporation, The PAN Group, and Vinasun Corporation in Vietnam.

It was reported in April that Vietcombank would issue bonus shares to existing shareholders to increase its charter capital, together with private offerings to foreign investors.

The bank is expected to issue additional shares equivalent to a 10 per cent stake to foreign investors, which at current market prices would be worth $600 million.

The first half of 2016 saw strong credit growth and lower provisions for bad debts at Vietcombank, with net profit jumping an estimated 39 per cent compared to the same period last year, to VND3.4 trillion ($153.4 million).

Service activities earned it net income of VND1.01 trillion ($45.29 million) while forex trading earned VND1.03 trillion ($46.19 million).

As at June 30, Vietcombank’s bad debts stood at VND7.42 trillion ($332.78 million), 5 per cent higher than on December 31, 2015. Short-term outstanding credit in the first half was VND247.51 trillion ($11.1 billion), 7.5 per cent higher than on December 31, while long-term outstanding credit reached VND129.95 trillion ($5.82 billion), an increase of 15 per cent against December 31.

On July 7 Moody’s gave the bank a rating of B1 in its baseline credit assessment (BCA), which is the highest among Vietnamese banks and reflects its above peer financial fundamentals on a standalone basis. Moody’s Investors Service said that Vietcombank’s retail business will grow due to a strong funding franchise and client base.

On August 2 the SBV approved Vietcombank’s proposal to increase its charter capital from VND26.65 trillion ($1.19 billion) to VND35.97 trillion ($1.61 billion) by issuing bonus shares at a ratio of 0.35:1 to existing shareholders.

According to Moody’ latest report on Vietcombank on August 3, the bank’s capital raising plan has an upside risk that could raise its Tier 1 ratio from a projected 7.7 per cent to 10.1 per cent by end-2016, compared with a reported 8.5 per cent in the first quarter of 2016. Moody’s also pointed out that the modest capitalization of the bank is a key weakness. It is maintaining its loan growth rate close to the industry average, which helps avoid pressure from capital consumption.

The credit ratings agency also noted that Vietcombank’s links to the government provides benefits to the bank. “The bank’s strong linkages to the government, even after its commercialization in 2007, are, on balance, advantageous to the bank,” according to the report. Moody also believes that Vietcombank’s liquidity is better than its peers, which strengthens its credit profile. “The bank will continue to benefit from its strong deposit franchise and its role in the national payment system,” its analysts wrote. Moody’s therefore expects the bank to shift its credit to smaller borrowers to better benefit from its liquidity position.

System-wide bad debts in Vietnam were down from 17.2 per cent in 2012 to 2.55 per cent in 2015, according to the General Statistic Office (GSO). The reform of the banking sector continues to face difficulties, however, with complex cross-holdings while foreign investors are limited by a cap of 30 per cent on foreign ownership.

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