VietNamNet Bridge – Why are the Vietnamese debts so attractive to foreigners? The answer is that 70 percent of the debts have been mortgaged by real estate products.

IFC, an arm of the World Bank, has expressed its will to get involved in the Vietnam’s process of dealing with bad debts. The institution can provide loans, buy debts and act as the intermediaries that connect foreign investors and the Vietnamese debt market.

TPG Growth LLC, Standard Chartered Bank has also said they are willing to buy Vietnamese debts. John Sheehan, a former senior executive of Lehman Brothers, also said a lot of foreign investors have got ready to spend money to buy debts.

The names of the professional institutions have brought a high hope to the Vietnam’s process of debt settlement. The stories of South Korea and Thailand about dealing with the finance crisis in 1997-1998 showed that foreign resources played a very important role in the debt settlement. It was estimated that 60 percent of the bad debts of the two countries was bought by foreign investors.

Trading bad debts proves to be a very attractive business. Lone Star Funds, established in 1995, for example, has become well known as a fund which specializes in buying bad assets during the crises in Canada, the US and Western Europe.

In Asia, the fund has poured money into the investment deals in Japan, South Korea, Indonesia and Taiwan, when the Japanese real estate bubble burst in early 1990s or the Asia crisis 1997-1998. The investment fund’s capital has reached $38 billion.

Analysts believe that Vietnamese debts are attractive in the eyes of foreign investors thanks to the attractiveness of real estate products. A high percentage of Vietnamese bad debts, possibly at 70 percent as stated by the Prime Minister Nguyen Tan Dung in late 2012, has been mortgaged with real estate.

The Vietnamese real estate market has cooled for a long time, which has made the real estate products’ prices decrease sharply. This brings the golden opportunities to the investors with powerful financial capability to jump into the market.

They can either buy the debts to obtain the real estate products and then transfer to the third parties, or funnel capital to continue the half finished products, and then sell the products when the market recovers.

There are a lot of half finished real estate projects for foreigners to invest in. A big office building project on Dien Bien Phu road in HCM City reportedly has been frozen since mid 2012. If the project is the collateral for a bank’s debt, foreign investors can acquire it at a low price. When the real estate market recovers, they can sell it for profit.

How about the price of the debt? According to Capital Services Group, as for the bad debts mortgaged with real estate, the best buy price would be 30 cent for every US dollar, a level attractive to buyers. In other words, the best buy price is 30 percent of the bad debts’ value.

The Vietnamese real estate market is hoped to warm up in the near future, as the policy makers have been trying to encourage foreign investment into the sector. The Ministry of Construction has proposed to allow foreigners to buy houses in Vietnam.

According to The Standard of Hong Kong, more and more Asian investors eye Vietnam, hoping they can make good profit there. The real estate price in Vietnam is more attractive than in other regional countries.

NCDT