US embassy cable - 05HANOI2221

UNCLAS HANOI 002221 
 
SIPDIS 
 
STATE PASS USTR FOR EBRYAN 
STATE ALSO PASS USAID ANE 
TREASURY FOR OASIA 
USDOC FOR 4431/MAC/IFP/OKSA/HPPHO 
BANGKOK FOR USAID 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: EFIN, VM, FINREF 
SUBJECT: STATUS OF VIETCOMBANK EQUITIZATION 
 
1.  This cable contains sensitive information and should not 
be placed on the internet. 
2. (SBU) Officials at Vietnam's largest State-owned 
commercial bank (SOCB), Vietcombank, intend to finish 
"equitizing" (i.e. issuing shares) by the end of 2006, and 
may even have listed on the Ho Chi Minh City stock 
exchange by that time. Although the State Bank Governor 
has already approved Vietcombank's equitization plan, the 
final decision rests with the Prime Minister.  The Prime 
Minister has already agreed to allow the bank to hire a 
foreign consultant to value its assets and a foreign 
underwriting firm to handle the transaction as well as 
possibly seeking a foreign strategic partner.  The MOF and 
SBV will have to select the foreign consultant.  While 
officials will not name a target date, press reports say 
that valuation will begin in December 2005.  Vietcombank 
officials expect the Government is likely to keep from 60 
to 70 percent of equity initially, but to gradually reduce 
this to 51 percent for at least three to five years after 
the IPO.  Vietcombank officials also do not expect the 
Government to relax its 30 percent cap on foreign 
investment in financial firms, nor its 10 percent cap on 
individual foreign holdings in the near future. 
3. (SBU) Vietcombank's planned equitization is one element 
of a larger restructuring process that began in 2000.  The 
World Bank and the Dutch Government have been providing 
technical assistance to help Vietcombank value and settle 
its bad debt.  In 2000-2001, Vietcombank settled a large 
proportion of its non-performing loans, either by seizing 
collateral or writing off bad debt.  The bank reported an 
initial USD 300 million in non-performing loans before the 
restructuring, but this total is based on Vietnamese 
accounting standards, which are more lenient than 
international standards. The restructuring effort has been 
slow, but Vietcombank officials hope the move toward 
equitization will help jump-start much needed internal 
reforms.  They also hope to expand the bank's services to 
include insurance, fund management and investment banking. 
4. (SBU) Vietcombank continues to make plans to raise 
capital with the clear intention of selling its shares to 
the public in the future.  To generate capital before its 
anticipated initial public offering (IPO), Vietcombank's 
General Director has announced plans to issue 5 to 7-year 
convertible bonds in September. Currently, Vietcombank's 
equity capital is estimated at VND 7 to 8 trillion (about 
USD 433 to 506 million).  The VND 2.5-3 trillion (about USD 
158 million to 198 million) bond sale will be open to the 
Vietnamese public, but not to foreigners. Vietcombank's 
capital adequacy ratio is about five percent, whereas the 
international standard is eight percent.  Bank officials 
expect capital adequacy to increase to between six and seven 
percent after selling the convertible bonds, and then to 
eight to ten percent after the IPO.  According to press 
reports, Vietcombank recorded the highest growth rate among 
domestic banks during the first half of 2005, reaching VND 
1,297 billion (about USD 82 million) in pre-tax profits, up 
41 per cent from the same period last year and accounting 
for 18 per cent of the total profit made by Vietnamese 
credit institutions. The first SOCB to enter the ATM market, 
Vietcombank now has some 400 machines nationwide. 
5. (SBU) Comment: Despite many overtures about going 
public, preparation for Vietcombank's equitization has 
been a slow process that still hinges on the Prime 
Minister's approval.  Disagreements among various 
ministries about whether to issue preferential bonds, as 
well as a reluctance to adopt international accounting 
standards, have repeatedly led to delays.  The 
Government's stated willingness to allow foreign 
consultants to value Vietcombank's assets is a positive 
sign.  However, to attract private foreign and domestic 
investors, Vietcombank will need to disclose much more 
financial information during the equitization process than 
it or any other Vietnamese bank has so far. End Comment. 
MARINE