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Vietnam Business Review

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Vol 23, June 28th 2017

BUSINESS REVIEW VIETNAM

Giant Vingroup to invest $4b in Hanoi metro

http://asia.nikkei.com/Business/AC/Vingroup-to-invest-4bn-in-Hanoi-metro



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INSIDE THIS ISSUE

HIGHLIGHTS

Vingroup to invest $4bn in Hanoi metro

Family businesses make significant contribution to GDP

ECONOMY

HCM City grows 7.76% in H1-2017

Japan allows chicken import from Vietnam

BANKING & FINANCE

Banks circumventing rules on real estate loans

Ocean Bank finds new foreign owner

Vietnam remains in MSCI Frontier Markets Index

INVESTMENT

FDI in Hanoi lifts city to new highs

Investment abroad for eventual settlement abroad: new trend for the rich

ENTERPRISES

Taxi firms release apps to compete with Uber and Grab

E-commerce logistics industry faces harsh competition

IPO to look out for: VN Rubber Group's mega-land bank

MARKET & PRICES

Foreign fast food chains show underwhelming performance in Vietnam

High-end toy market is booming

Affordable homes lead HCM City realty market



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ECONOMY

HCM City grows 7.76% in H1-2017

VNA - HCMC gross regional domestic product (GRDP) increases 7.76% in the first 6 months of 2017, the highest

rate recorded for the same period in the past two years.

Japan allows chicken import from Vietnam

VOV - Japan officially agreed to import processed chicken from Vietnam as of June 22, according to the

Animal Health Department under the Ministry of Agriculture and Rural Development.

The first consignment of 300 tons of processed chicken breasts of Koyu & Unitek Ltd Company in Dong Nai

province will be shipped to Japan in the coming time.

This is the first time Vietnamese poultry products have been exported to one of the most demanding markets

in the world as a result of the Animal Health Department‘s efforts to support Koyu & Unitek Company to build

a closed production chain to meet food safety requirements set by Japan.

After double-checking the production and processing chain of Koyu & Unitek Company, the Japanese

Animal Quarantine Service experts assured that company is qualified to export its poultry products to Japan.

Earlier in March 2017, the company inaugurated a plant equipped with Japanese technology facilities to

facilitate its processed chicken exports to the market.

The Department will continue to support the Company in making procedures for processed chicken exports

to the EU and some other markets in the time to come.



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BANKING & FINANCE

Banks circumventing rules on real estate loans

VNS - Relevant authorities should further monitor

consumer lending as real estate loans were hidden in

consumer loans, experts told Viet Nam Television.

According to State Bank of Viet Nam (SBV) Governor

Nguyen Thi Hong, outstanding loans in the real estate

area have slowed down compared with 2016, thanks

to the resolute instruction of SBV‘s governor to credit

institutions on controlling credit risks, ensuring balance

of capital, maintaining ratio of using short-term funds

for medium- and long-term lending and controlling

credit in risky areas such as real estate and build-

operate-transfer transport projects.

Not only has the real estate credit growth declined, the proportion of real estate loans in the total

outstanding loans of the entire banking system has also fallen to just over 8 per cent, the SBV reported.

However, a recent report from the National Financial Supervisory Commission (NFSC) showed that consumer

lending by the end of May rose by some 29.7 per cent against the end of 2016, of which home repair loans

and home purchase loans accounted for 52.8 per cent of the total consumer loans compared with 49 per

cent at the end of 2016.

Consumer loans currently account for some 12 per cent of total outstanding loans of the entire banking

system, therefore, if one includes real estate consumer loans, the proportion of real estate lending would

reach some 14 per cent instead of 8 per cent as reported, the NFSC found.

It means that real estate loans were hidden in consumer loans as commercial banks continued to circumvent

rules on real estate lending.

In its previous report, the NFSC also gave a similar statement and warned that the sharp consumer credit

growth, of which some 50 per cent focused on the real estate area, showed that the form of real estate

lending was shifting and needed to be monitored and assessed.

Currently, there is no legal regulation on classifying home repair loans and home purchase loans as consumer

loans or real estate loans.

Representatives from commercial banks said they currently classify home repair loans and home purchase

loans as consumer lending so that lending is not restricted. Meanwhile, real estate lending is restricted

according to Circular 06, which came into effect in January this year.

Experts said considering home repair loans and home purchase loans as consumer lending but not real

estate lending is unadvisable as it can lead to an incorrect real estate credit growth ratio. This wrong

reflection can cause difficulties for State management in the real estate industry.

State Bank of Viet Nam (SBV) Deputy Governor

Nguyen Thi Hong.



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If lending is not controlled well, with home purchase loans not based on real demand but for speculation, the

country will suffer from a real estate bubble and the economy will be unstable, experts said.

Ocean Bank finds new foreign owner

VIR - A source of VIR revealed that the zero VND

Ocean Commercial Joint Stock Bank (Ocean Bank)

has been sold to a foreign bank in Asia.

Although the buyers identity was undisclosed, the

private source confirmed that the two sides are

finishing the paper works.

One Member Limited Liability Global Petroleum Bank

(GPBank ), another zero VND bank, may be sold to a

consortium of a foreign financial institution and an

investment and real estate development company.

The last zero VND bank, Vietnam Construction Bank (CBBank), is said to be implementing its restructuring plan

before merging with a domestic bank.

Besides, DongA Joint Stock Commercial Bank (DongA Bank) is said to be merging with Ho Chi Minh City

Housing Development Bank (HDBank).

At a press conference at the beginning of 2017, Nguyen Van Hung, deputy chief inspector of the State Bank

of Vietnam‘s Inspection and Supervision Agency, said that there would be solutions to address the five weak

commercial banks, including three banks acquired by SBV for zero VND (CBBank, Ocean Bank, GPBank),

DongA Bank, and Saigon Joint Stock Commercial Bank (Sacombank).

―Although these banks‘ operating activities have been improved to avoid the collapse of the whole banking

system, they need a complete overhaul,‖ Hung said.

Between the end of 2015 and October 2016, the bad debts of the three zero VND commercial banks

declined by about 8 per cent. Of the total, the bad debts of Ocean Bank and GPBank significantly

decreased. GPBank and CBBank‘s outstanding loan balance for enterprises and individuals decreased

dramatically. In addition, CBBank‘s deposits even increased between the end of 2015 and November 2016

by nearly 14 per cent.

At the 2017 conference on implementing plans for Ocean Bank, Do Thanh Son, chairman of Ocean Bank,

said that in 2015 and 2016 the bank continuously reported profit, which partially covered its losses

accumulated in the past.

In 2017, Ocean Bank targets to receive more than VND30 trillion ($1.2 billion) in deposits and to report an

outstanding loan balance of nearly VND18 trillion ($720 million).

In February 2017, Ha Van Tham, former chairman of Ocean Bank, and 47 other former leaders and

employees of the bank were tried for charges including breaching the regulations on loans of credit



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institutions, abusing their positions and power while on duty, and intentionally acting against the state‘s laws

on economic management, causing serious financial loss in the period before 2014.

The Ocean Bank case is one of the six biggest economic crimes that the Central Anti-Corruption Steering

Committee was asked to bring to trial. In the trial, Tham admitted to misconduct and said his actions were

caused by a need to complete his quota and avoid being dismissed. He asked the court to reduce the legal

responsibilities of his accomplices because they were forced to adapt to the difficult circumstances at the

time.

According to the indictment of the People‘s Procuracy, Ha Van Tham, as Ocean Bank‘s chairman at the time,

directed his employees to approve Pham Cong Danh‘s borrowings. Pham Cong Danh was the former

chairman of Vietnam Construction Joint Stock Commercial Bank. He took up significant loans from Ocean

Bank through Trung Dung Company without meeting the bank‘s prescribed requirements and did not submit

collateral. By lending to Danh, Ha Van Tham violated lending procedures, causing a loss of VND350 billion

($14 million) for Ocean Bank.

Besides, Nguyen Xuan Son, who was the bank‘s general director and the representative of Vietnam National

Oil and Gas Group (PetroVietnam) capital contribution to the bank, had worked with Tham to illegally pay

interest outside deposit contracts to customers, which caused a loss of nearly VND69 billion ($2.8 million) to

the bank.

A wide range of employees involved committed extremely serious violations in lending, mobilising deposits,

and paying customers higher interest rates than the ceiling regulated by the central bank.

In total, through their rampage of violations, Ha Van Tham and his employees caused a loss of nearly VND2

trillion ($80 million) to the bank, affecting the central bank‘s monetary market management policy and

hindering the implementation of the state‘s monetary policy.

Vietnam remains in MSCI Frontier Markets Index

VNA - Vietnam remained in the MSCI Frontier Markets Index after the US investment research firm completed

its 2017 market classification review recently.

Vietnam‘s securities market will not be included in the MSCI review list for a potential reclassification to

Emerging Markets status.In its statement, MSCI announced it would include 222 China A Large Cap stocks in

its Emerging Markets Index and ACWI Index in June 2018.

MSCI also announced it would launch consultations on the potential inclusion of the MSCI Saudi Arabia Index

and MSCI Argentina Index in its Emerging Markets Index.

The decision on Vietnam had been forecast by several local brokerage firms. They said the Vietnamese

market has not met some qualitative requirements set by the MSCI regarding foreign investors‘ concerns

about local investment conditions.

According to Viet Dragon Securities Co (VDSC), there are three major criteria that MSCI takes into

consideration when putting it into the review list for reclassification.

The brokerage firm said that Vietnam had not met expectations on market openness to foreign investment.



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In June 2015, the Government issued a new policy allowing foreign investors to increase their ownership in

local companies to 100 percent. However, this has not had a far-reaching impact as a significant number of

listed companies are operating in sectors that are not open, like national security and defence, real estate,

information communication technology and banking.

Since the decision took effect, only 19 listed

companies have lifted the bar for foreign

ownership, and that is a very small number

compared to 700 shares being traded in the

securities market.

In addition, foreign investors are still having

problems converting dong-based accounts into

foreign currency accounts, and the country has

not completed its market infrastructure to meet

demands of foreign investors, VDSC said

Nguyen Quang Thuan, general director of market research firm StoxPlus, said other factors in MSCI‘s decision

included parity between foreign and domestic investors, information disclosure in English and insecure

settlement and clearing mechanism for securities trading.

Vu Chi Dung, Director of International Cooperation Department of the State Securities Commission, told the

business news website vneconomy.vn that upgrading Vietnam‘s market from the frontier status to emerging

status will take a long time and lot of efforts from both market regulators and members to upgrade the

market.

In general, quantitative assessment is not a big issue for Vietnam as the country has had seven stocks that

meet requirements, including dairy producer Vinamilk (VNM), property developer Vingroup (VIC) and

Vietcombank (VCB), and there are more to come in the future, he said.

On the other hand, qualitative assessment is a biggest challenge for Vietnam as it is based on the feedback

of foreign institutional investors, Dung said, adding that applying new policies is not enough to ensure MSCI

will raise the status of Vietnam‘s securities market.

Regarding the issue of information disclosure in English, he said some companies actually do not have English

reports on their business performances, but this is a problem that foreign investors face in other regional

markets like Japan and Indonesia, where English is not an official language

Things have improved for foreign investors as they are now able to find English-written reports and policies on

the websites of the State Securities Commission, local exchanges and the Vietnam Securities Depository, he

said.

In addition, the Finance Ministry and market regulators have released some policies to encourage local

companies to publish information in English, helping foreign investors get easier access to both business and

market conditions.



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INVESTMENT

FDI in Hanoi lifts city to new highs

VIR - With its great economic and geographic

potential, Hanoi has increasingly become more

critical to the investment strategy of foreign

investors, many of whom are planning large-scale

operations in the city.

Shigenobu Nagamori, chairman and CEO of

Japan‘s industrial group Nidec, recently

announced that his firm is planning to build

factories in Hanoi in mid-2018.

The factories will lay a firm groundwork for Nidec to

turn Vietnam into an export hub like China and

Thailand. It is expected that Nidec will invest about $500 million into Vietnam by 2022.

After becoming operational, the factories will have a monthly capacity of 10 million electric motors, used for

air conditioners and home appliances, and 100,000 reducers for use in robotics. Nidec also aims to triple its

sales in Vietnam to about US$2.72 billion.

Meanwhile, in Tokyo in early June, another Japanese firm, Aeon, officially received an investment certificate

for its second commercial centre in Hanoi, after its first shopping mall in Long Bien district opened in

November 2015.

The new centre, worth US$200 million, will be built in Hanoi‘s Ha Dong district, on roughly 200,000 square

metres of land. It will be Aeon‘s fourth mega-mall project in Vietnam.

Aeon will co-operate with locally-owned BIM Group to complete the project, which is slated to begin this

year and see completion by late 2019. Upon completion, it will be one of the biggest commercial centres in

Vietnam.

This Aeon project is one of the most significant projects that will contribute to helping the city reach its goal of

attracting US$3.5 billion worth of foreign direct investment (FDI) this year, up from US$3.12 billion last year.

More robust FDI flow anticipated

FDI flow into Hanoi came to a halt at one point a decade ago. That was because, according to city leaders,

after Ha Tay province was merged with Hanoi in 2008, time was needed for the city to consider and approve

planning schemes.

The situation has changed now. Last year, the city lured US$3.12 billion in FDI volume, up 2.9-fold compared to

2015, and 2.2 times more than the projection. It came second behind Ho Chi Minh City, which attracted

US$3.42 billion.

In the first six months of this year, the city attracted US$1.1 billion. The figure is expected to increase sharply in

the coming time, as a number of large-scale FDI projects now await investment certificates.



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According to the Hanoi Department of Planning and Investment‘s Foreign Economic Relations, a string of

foreign investors have been working with the city‘s authorities on their projects.

These projects include the US$200 million Ta Thanh Oai waste treatment plant; a US$95.1 million project to

build bus stops; a US$1 billion project to build an eco-urban area in Quoc Oai district, proposed by the

Republic of Korea‘s Lotte Group; and a US$6 billion project to build the city‘s Lang-Hoa Lac satellite urban

area.

In addition, Hanoi authorities said the city is scaling up efforts to improve the local investment climate, making

it more appealing to domestic and foreign investors.

A raft of measures have been mentioned, such as smoothing land access and land fund use, enlarging

space for investment and business activities, improving management efficiency, accelerating administrative

reforms, and boosting investment promotion efficiency.

Significantly, Prime Minister Nguyen Xuan Phuc has just enacted a decree allowing the application of a

specific investment incentive regime at the city‘s Hoa Lac Hi-Tech Park.

Investment projects based in the park will receive the highest regulated investment incentives. The park is also

encouraged to apply a ―one-stop shop‖ mechanism in tackling investment procedures and giving priority to

land fund allocation for building worker housing blocks.

After nearly two decades at a development standstill, Hoa Lac Hi-Tech Park is now seeing opportunities to

accelerate investment. This also provides a good chance for the city to attract investment into high-tech

fields or investment from multinationals, a priority investment orientation set by Hanoi for many years now.

In addition to prioritising high-tech projects and investment projects from multinationals, the city also

stimulates investment into projects involving supporting industry development, biotechnology,

environmentally-friendly technologies, information technology, agricultural development, safe food, and

large-scale infrastructure.

Attracting investment into these projects also means the city will target facilitating investments under the

public-private partnership (PPP) model. In the first half of this year, Hanoi attracted 24 projects in the PPP

format, valued at more than VND32 trillion (US$1.45 billion), which is a shift expected to create strong waves

of investment into the city in the coming time.

The city will also focus on attracting FDI from many foreign sources, especially high-tech projects from

Japanese, South Korean, Singaporean, Australian, American, and European investors.

An FDI magnet

According to the Ministry of Planning and Investment, as of May 20, Hanoi has attracted 4,157 valid FDI

projects registered at almost US$26.3 billion, making the city the fourth-largest investment destination in the

country, after Ho Chi Minh City (US$44.56 billion), Binh Duong province (US$28.5 billion), and Ba Ria-Vung Tau

province (US$27.25 billion).

Hanoi has also been Vietnam‘s second-largest awardee in terms of number of FDI projects, second only to Ho

Chi Minh City (at 6,954).



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Foreign direct investment flow into Hanoi is shifting into the service field, matching the development trend of

one of the country‘s growth engines.

Hanoi attracted an influx of FDI into this field through a string of projects last year. The projects of Japanese

retail giant Aeon Group in Hanoi‘s Long Bien and Ha Dong districts are typical examples.

Other projects include a US$210 million computerised lottery project called Vietlott, a US$208 million capital

injection for local mobile network operator Vietnamobile, and a US$134 million project of Vietnam Public

Bank.

According to the Korea Chamber of Commerce in Vietnam (KorCham), Hanoi is a good location for Korean

investors in commercial centres and property projects.

―Some investors are working with the city‘s authorities on big projects to build commercial centres in Hanoi,‖ a

KorCham representative told VIR. He added that specifics were unavailable at the time due to competition-

related reasons.

Lotte Group is expected to invest at least US$300 million in building and operating the Ciputra Hanoi Mall in

Hanoi, after it purchased the project from locally-owned Nam Thang Long Urban Development. The

200,000sq.m development is located in the US$2 billion Ciputra Hanoi property project.

In another case, the US$420 million multi-functional entertainment complex and horse racing track in Soc Son

district is expected to be implemented by a joint venture between Hanoi Tourism Corporation and the

Republic of Korea‘s Global Consultant Network Co., Ltd.

The city‘s success in securing a US$300 million research and development project from South Korean tech

giant Samsung Group is also notable, as a sign that bigger things are coming to this political, economic, and

intellectual centre.

Earlier this year Coca-Cola Vietnam increased the investment capital on its Hanoi plant by US$319.8 million,

raising the total registered capital to US$580.9 million.

Coca-Cola Vietnam will increase its production scale and annual capacity to 790 million litres by 2024 and

1.2 billion litres by 2030. The company began its investment in Hanoi in 1994, with its first project launched in

Thuong Tin district.

Why Hanoi?

According to surveyed firms, there are many

reasons why Hanoi is becoming a hotspot for

investors.

The city has developed a synchronous

infrastructure network, industrial parks, and

export processing zones, and Noi Bai

International Airport is just 20 kilometres from the

city centre.

Meanwhile, the northern ports of Haiphong and



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Cai Lan, which handle nearly 50% of Vietnam‘s cargo transportation, are only 120 kilometres from Hanoi,

which is the transport hub of the north with a cohesive system of railways, waterways, and roads.

Beside its young workforce, Hanoi boasts hundreds of institutes for scientific research, and over 50 universities

and colleges, which are capable of accrediting 800,000 graduates annually.

In addition, government headquarters, diplomatic missions, and international organisations such as the

United Nations and the EU are all located in Hanoi, providing investors with a sound communications network

for information and experience sharing.

Administrative reform has also been a major focus in Hanoi, with regards to the promotion, management,

and implementation of FDI projects. The ―one-stop shop‖ mechanism is evidence of the commitment city

agencies have in regard to creating a clear and transparent environment for investment.

Investment abroad for eventual settlement abroad: new trend for the rich

VNN - Many Vietnamese invest overseas to seek

opportunities to settle down in developed countries.

In recent years, the phrase ‗making investment for settlement‘

or ‗businessmen‘s settlement‘ has become more popular in

Vietnam. This allows Vietnamese investors to transfer capital

to other countries for investments and set up business

facilities there. They can then ask for permanent residence

status.

A survey of Vietnam‘s top 500 businesses (the 500 largest businesses) conducted by Vietnam Report showed

that 45 percent of businesses want to invest overseas in the next five years, mostly in the US, Australia,

Canada, India, Thailand and China.

Businesses want to make outward investment to expand the markets, approach high technologies and

improve their competitiveness. Many investors target associated benefits, including the right to live, travel

and obtain citizenship in the destination countries.

Huong, a real estate investor, said at a workshop held on June 14 by AIMS Singapore, an immigration

consultancy firm, said she is seeking an investment project in Australia, not necessarily in the real estate sector,

hoping that this will pave the way for her two daughters to study at Australian state-owned schools, free of

charge.

Other businessmen, who asked to be anonymous, said after tens of years of doing business, they have saved

a large amount of money and want to settle in a suitable country to prepare for their son‘s study overseas.

A WB report shows that Vietnam is one of the 10 countries with the highest migration rates in Asia-Pacific,

about 100,000 people each year

The US and Australia are two of the most interested markets for Vietnamese, though the countries set very

strict requirements, including high investment capital.



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ENTERPRISES

Taxi firms release apps to compete with Uber and Grab

Dtinews - Many taxi firms have quickly

built and released mobile apps and

software to improve their services and

compete with Uber and Grab.

The firms have complained about

supposed unfair competition with Uber

and Grab. Vinasun said the average

wage for drivers had dropped and

many drivers had already quit.

The firms demanded authorities apply

measures to ensure fairer competition

such as forcing Uber and Grab drivers

to use taxi badges.

Meanwhile, some firms have started to upgrade their technology to attract customers such as Thanh Cong in

Hanoi that released a mobile app similar to Uber and Grab. Thanh Cong also allows customers to call for taxis

from Facebook.

They announced a fleet of cars without taxi badges like Uber to carry customers on routes that ban taxis.

Thanh Cong said the management charge their drivers need to pay was only half of what Uber and Grab

were collecting.

Other taxi firms have also employed measures to compete in the growing market. Mai Linh, Vinasun and Taxi

Group also released apps with similar purposes and functions. SAPA Thale Holding then released their own

Uber-like app called APPP Passengers.

The Ho Chi Minh City Taxi Association previously claimed that traditional taxi firms were being threatened as

more personal cars were now in use by Uber and Grab than traditional taxi fleets. It asked the government to

reconsider the open policy towards app-based taxi firms.

"More worryingly, taxi firms have to bear various kinds of taxes including the VAT and corporate income tax.

But the Grab and Uber's taxes are only 4-5% of the traditional firms'," the association claimed in a written

document.

Ha Huy Quang, deputy director of Hanoi Department of Transport accused Uber and Grab of not following

the traffic planning and being opaque in tax duties.

E-commerce logistics industry faces harsh competition

VNS - The rapid growth of freight forwarders in Viet Nam has put pressure on e-commerce businesses to seek

new avenues for development.

Uber and Grab taxis pose tough competition for traditional firms



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Figures from the Ministry of Industry and Trade show that by 2022 e-commerce sales turnover will grow by 150

per cent annually, to US$10 billion per year, thanks to the popularity of smartphones and Facebook.

The e-commerce logistics industry has been

active in establishing rapid delivery services,

most of which have been founded by

students.

Nguyen Thanh Binh, a third-year student at

HCM City Foreign Trade University,

established a website with an interface for

rapid delivery 24 hours a day, seven days a

week.

Binh is a member of a trade association for

online businesses.

―Our business does not require high investment. What we need are motorbikes, handphones, good health,

serious and punctual working attitude and good communication skills,‖ he said.

However, since 2015, his business has been facing harsh competition as hundreds of freight forwarders (cargo

agents) have been established in the country.

To survive the competition, Binh has had to lower his prices and deliver cargo at any time of the day.

Tran Cong Tham, who delivers cargo, said he can earn from VND150,000 to VND200,000 per day for 10

deliveries.

Alexandre Danly, CEO of Lazada Viet Nam, said the company has seen robust growth.

Its website, which has one million products from 5,000 suppliers, has had 30 million page views per month.

The firm receives an order every two seconds, with 70 per cent of them coming from mobile phones, he said.

E-commerce is now popular in urban as well as rural areas.

In addition to well-known cargo agents such as VNPost, Viettel Post, Tin Thanh Kerry, giaohangnhanh,

giaohangso1 and shipchung, new delivery services have opened recently, including GrabExpress Giao Hang,

Sship and Sapo.

Facebook is also considered a popular tool for e-commerce in Viet Nam.

Experts warn that e-commerce firms will face harsh competition when newcomers join the market in the near

future.

Trends

Offering fast delivery services is the trend of the future, but it remains a big challenge for cargo agents who

face human resource shortages.

A recent survey conducted by Temando Pty Ltd, which operates a multi-carrier shipping platform for e-

commerce, shows that 80 per cent of online customers want their goods to be delivered on the same day,

while 61 per cent want even delivery within one to three hours.



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CEO of Lazada Viet Nam, Alexandre Dardy, said the company has prepared its development plans,

focussing on quick delivery services, especially within one day.

Cargo agents are also targeting the same time frame, aiming to become delivery partners for Lazada.

Luong Duy Hoai, CEO of Giaohangnhanh.vn, said that cargo delivery and COD (cash on delivery) services

remain the domain of professional cargo agents.

He said online companies want high quality cargo delivery services at low costs.

His company provides around 10,000 cargo delivery services and collects about VND2 billion of COD per day.

The figures show that after nearly four years in operation, e-commerce firms have become more professional,

as delivery speed has become the decisive factor among competitors.

IPO to look out for: VN Rubber Group's mega-land bank

VIR - With a massive land fund, Vietnam Rubber

Group (VRG) is a name many investors pay close

attention to. However, due to its huge capitalisation,

VRG has yet to select a strategic investor, although

there are only a few days until its initial public

offering (IPO).

Too high a bar for potential investors

On July 1, VRG will offer a 25% stake during its IPO,

expecting to earn approximately VND10 trillion

(US$440 million). VRG is also selling 3% of its

preferred shares to its employees

According to economists, there are only a few agricultural companies which have available funds with the

total worth of VND5-10 trillion.

Therefore, seeking a strategic investor or a foreign investor in this sector is a challenge for VRG. Although the

rubber industry has recovered, the price of rubber latex is still uncertain.

Tran Ngoc Thuan, general director of VRG, said that although there are many interested investors, the

company‘s capitalisation is so big that it is difficult to find strategic investors.

―Every year, VRG publishes information about its activities as well as its development strategy and plans for

investors. We have also set the criteria for selecting strategic shareholders, with the most important criterion

being that investors must have real financial capacity. However, due to the huge capitalisation, finding a

strategic shareholder proved impossible within only one-two years.‖

According to a source of VIR, VRG submitted its selection of investors to the Ministry of Agriculture and Rural

Development (MARD) for approval.

Ha Cong Tuan, Deputy Minister cum head of Business Management Innovation at MARD, said that the

ministry was especially concerned with VRG‘s IPO. MARD even called for support from the government to

give advice for this case, especially for selecting strategic investors.



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MARKET & PRICES

Foreign fast food chains show underwhelming performance in Vietnam

VIR - Most foreign fast food chains in Vietnam have

failed to realise their initial expansion plans made

upon entering the market. Recently, some have

suggested that international brands have failed to

defeat local Vietnamese food stalls.

Experts say there are several challenges: intense

competition from the increasing number of domestic

and foreign food companies, high prices (a burger

goes for "four times a bowl of Pho"), and the fact that

hamburgers and French fries are just not for

Vietnamese people.

Below are some major chains and their progress in

Vietnam compared to other markets in Asia.

Burger King

Burger King has closed five restaurants in Ho Chi Minh

City, Hanoi, and Danang in recent years, citing sub-optimal location, according to news reports, despite an

ambitious $40-million investment plan upon its entry in 2012.

At the time, Burger King expected to open 60 restaurants nationwide, as consumers were excited to try the

famous hamburger from the west. However, five years later, the fast food chain has only reached a quarter

of this target with 15 restaurants: seven in Hanoi and eight in Ho Chi Minh City.

The reasons Burger King missed its original goal, according to experts, could be tough competition, high

operating costs, and a misunderstanding of Vietnamese taste buds.

"In the short term, hamburgers cannot become a popular choice for Vietnamese consumers," said Nguyen

Manh Tu, business development director of Blue Kite Food and Beverage Services Company Limited, which

has the franchise rights to Burger King in Vietnam, in an exchange with the broadcaster VTV.

Such an initial drawback would require fast food chains to adjust their menus or strategies. In the case of

Burger King, after re-negotiating the franchising terms to reduce the projected store count to 15 and refining

its menu, its sales has increased by 50 per cent each year for the last two years, according to VTV. Good

customer service and the quality of ingredients, with beef imported from Australia, will continue to be Burger

King's advantage in the eyes of Vietnamese customers.

Tu added that the future of Burger King will depend largely on the restructuring of Restaurant Brands

International, the multinational company that owns several fast food brands, including Burger King.

Other markets in Southeast Asia have welcomed Burger King long before Vietnam. It entered Malaysia in

1997 and now has more than 50 Burger King restaurants in the country. In the Philippines, Burger King was



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acquired by local fast food giant Jollibee Foods Corporation, which in 2011 bought a 54-per cent stake in BK

Titans Inc., the holder of franchise rights to Burger King in the Philippines.

McDonald's

Originally from the United States, the golden arch logo of McDonald's is now recognisable everywhere in the

world.

In 1992, McDonald's opened its largest restaurant in the world at the time in Beijing, and 40,000 customers

came to taste a bite of American culture on the first day of business, according to James Watson's book

"Golden Arches East: McDonald's in East Asia."

Four years later, by the end of 1996, McDonald's had 29 outlets in Beijing, according to Associated Press.

Generally perceived by Chinese consumers as a symbol of status and western modernity, McDonald's grew

rapidly in China, a country where its well-trained staff and clean restaurants were a novelty in the 1990s,

according to the New York Times.

Ten years on, in 2006, McDonald's had 784 restaurants in China, opening 75 new restaurants a year on

average, according to company data. The company also had more than 150 restaurants in Hong Kong

during this period, and at one point served half a million fast food fans per day, according to BBC News.

(Hong Kong's population was 7.3 million in 2015.)

Fast forward five years to 2011, and the fast-food chain had 1,464 outlets in China, meaning it opened 136

new outlets each year during the five-year period.

Today, there are more than 2,400 restaurants in mainland China, according to the New York Times. However,

McDonald's will sell 80 per cent of its businesses in China and Hong Kong to the state-owned conglomerate

Citic and private equity firm Carlyle Group, granting these firms franchise rights. This is part of McDonald's

newfound plan to turn 95 per cent of its restaurants into franchises, thereby saving money and passing the

hefty cost of modernising the stores on to franchisees, analysts said.

Last year, McDonald's also sold the franchise rights to its restaurants in Malaysia and Singapore to Saudi

Arabian Lionhorn Private Limited, according to Reuters.

With a network of 262 restaurants, McDonald's recorded a year-on-year revenue growth of 16 per cent in

2016 in Malaysia and is looking to repeat this with a double digit growth in revenue and profit this year,

according to the company website.

Meanwhile, almost four decades after entering Singapore in 1979, McDonald's 120 restaurants claims to serve

1.2 million customers each week. (The island had a population of 5.5 million as of 2015.)

Another country in the region where McDonald's has a long history is the Philippines. The first McDonald's

restaurant opened in 1981 in central Manila. More than 36 years later, the Philippines is one of its biggest

markets in Asia in terms of store count, only behind China, Japan, and Taiwan, according to company data.

The company has always reported double-digit annual growth in revenue in the past 10 years, and in 2016

sales increased by 14 per cent. It opened 45 new outlets last year and is targeting 45 more this year.

In Vietnam, McDonald's is seen to be growing slowly. Three years ago, as customers queued up to try the first

Vietnamese restaurant in Ho Chi Minh City, McDonald's planned to open 100 restaurants within the decade



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(average 10 new restaurants each year). However, the chain now has only 15 restaurants, falling rather short

of the target, according to Zing.vn news website.

Jollibee

Jollibee is the Philippines's home-grown fast-food chain. Filipino-Chinese founder Tony Tan Caktiong started

Jollibee selling ice cream in 1978, but eventually shifted to hamburgers to meet market demand. After many

years of competing with McDonald's, Jollibee's more than 2,000 restaurants controlled 18 per cent of the

Metro Manila market, compared to the 10 per cent of McDonald's, according to Forbes Asia's 2013 data.

In a few sentences, Tan explained this feat to Forbes Asia, saying "We found that they excelled over us in all

aspects—except taste. It suited Americans, but not really Filipinos. Ours (food) tends to be sweeter, spicier,

and more salty. We were lucky as it was not easy for them to change their product because of their global

image."

Jollibee also wanted to become a global player, as there are large Filipino diasporas in many countries

longing for the familiar taste of their hometown food. The company entered the US in the 1980s and Saudi

Arabia, Qatar, and the United Arab Emirates in 2008, according to Forbes Asia. New locations were planned

in countries, such as Britain, Italy, and Canada, according to Business Insider.

In addition to developing its own brand, the company also bought already-popular brands and works to

improve them. For example, in China, Jollibee bought the noodle and rice chain Yonghe King in 2014, the

congee brand Hong Zhuang Yuan back in 2008, and the beef noodle chain San Pin Wang in 2012, according

to Forbes Asia.

Jollibee bought Burger King's 23 restaurants in the Philippines in 2011. More recently, it also purchased 40 per

cent of American burger chain Smashburger and made plans to open at least 1,400 Dunkin' Donuts locations

in China in the next 20 years.

Jollibee Foods is now the biggest restaurant chain in Asia, boasting about 3,290 outlets worldwide under

various brands, according to the Philippine Daily Inquirer.

In Vietnam, Jollibee opened its first restaurant in 1996 and now boasts 80 outlets nationwide. Jollibee is

successful among foreign brands on the Vietnamese fast food market. It has been growing rapidly in recent

years, with two thirds of its restaurants having been opened in the last five years, according to numbers from

dantri.com.vn. The company began granting franchise rights in late 2015.

At the end of 2016, Jollibee Foods went into a joint venture with Viet Thai International to create SuperFoods

Group, thereby gaining ownership of several other brands, such as Highlands Coffee, Pho 24, and Hard Rock

Café.

Jollibee is expected to take the company public via an Initial Public Offering in 2019, an indication of

Jollibee's success as well as ambition to imitate its success in other countries: buying and growing major local

brands.

Thanks to this strategy, Highlands Coffee doubled the number of coffee shops from 60 in 2014 to 130 in 2016,

according to news site Soha.

Subway



17


Claiming to be a healthier alternative, Subway is a little bit different. Entering Vietnam six years ago, the

world's biggest fast food brand has set a goal of 50 restaurants in Vietnam by 2015. However, at present,

there are only six of them in Ho Chi Minh City, as previously reported by VIR.

―Like other fast food brands, Subway entered Vietnam late. Initially, we had to adjust our strategies to fit the

culture as well as market trends. It takes time for us to adapt to the differences in the Vietnamese market to

get the desired foothold here,‖ Mark Mason McGrath, general director of Subway Vietnam, explained to VIR

in February.

In Southeast Asia, Subway has opened 200 restaurants in Singapore, 100 in Thailand, and 40 in the Philippines.

However, Subway has not reached its expected goals in Vietnam.

Pressure to conform

In conclusion, most fast food brands entered Vietnam with big promises, probably due to their success in

other markets, such as the Philippines, Malaysia or China. However, several brands, such as McDonald's,

Burger King or Subway, set foot in Vietnam much later than other markets, which seemed to be a big

disadvantage, while chains that opened long before, such as Jollibee, Lotteria, and KFC, seem to be doing

better.

News reports and expert opinion seem to agree that foreign fast food chains have not been able to win the

heart of Vietnamese consumers because they lack that local taste that could entice them to return time and

again. There are signs of change, such as rice being added to the menu (the rice and fried chicken

combination is unheard of in the west) or Jollibee beginning to use traditional Vietnamese fish sauce to

marinate its fried chicken, as the company announced recently.

According to Jollibee's data, 90 per cent of customers liked the fried chicken seasoned with fish sauce and

would eat it again. Such an adjustment is something other fast food chains should take notice of.

High-end toy market is booming

VNN - The market for children‘s goods exceeded the $5 billion threshold last year, in which toys and clothes

made up one-third of the market value, according to N Kids.

The appearance of high-end toy products, mostly displayed at supermarkets or toy chains, has remapped

the domestic toy market.

Viet Tinh Anh with My Kingdom chain, Phuong Nga with ToyLand, Goldenkids with Funny Land and K&K, Con

Cung (Pet) with ToyCity have become well-known names, though they appeared on the market only several

years ago.

Luu Anh Tien, founder of Con Cung JSC, which runs concung.com and ToyCity, said the high-end toy market

has entered a boom period because of the increase in demand, especially in large cities.

―It is possible that the scale of the toy chains such as My Kingdom, ToyCity and ToyLand in three to five years

will be 3-4 times higher larger than now,‖ Tien said.



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Vietnamese consumers have become more demanding and want safe products with clear origin instead of

low-cost products from China and Malaysia. With improved income, owning high-quality safe products is now

within reach.

My Kingdom run by Viet Tinh Anh is expected to be

one of the largest toy chains in the market. The

enterprise with charter capital of VND26.5 billion is

now developing a chain of 200 shops located in

many provinces and cities, half of which are in Hanoi

and HCMC.

My Kingdom focuses on distributing assembly toys

made by LEGO, Siku and Moxie Girlz simulating super-

heroes of DC Comics, Marvel and other famous

portraits. The products are priced between hundreds

of thousands and tens of millions of dong.

According to Virac, a market analysis firm, the revenue of My Kingdom in 2015 was VND480 billion, increasing

by 50 percent over 2014 (VND323 billion). However, the profit increased more slightly, by 11 percent, from

VND28.6 billion to VND31.8 billion.

The lower profit growth rate than revenue growth rate is attributed to the fact that investors are trying to

expand their networks, increasing business costs.

Not only My Kingdom, but other toy chains are also sacrificing profits for network expansion.

With smaller scale, Funny Land chain belonging to Golden Kids now has 29 shops throughout the country,

including 15 in HCMC and 7 in Hanoi.

Like My Kingdom, though its revenue in 2015 was high at VND60 billion, the profit was modest, just VND2 billion,

which means a profit margin of less than 4 percent.

The same thing happened with Phuong Nga Toys. It revenue was VND115 billion in 2015, a two-fold increase

over 2014, but the profit was VND600 million only. In the year before, the chain even took a loss of VND1

billion.

Affordable homes lead HCM City realty market

SGT - The affordable home segment has made up the largest proportion of the housing market this year,

according to a report of the HCMC Real Estate Association.

Residential blocks under construction in HCMC. The affordable home segment has made up the largest

proportion of the housing market this year

The association cited the HCMC Construction Department as saying that social homes account for 68.7% of

all units put up for sale in January-June.

The department has approved 32 housing projects with 16,506 units to mobilize VND30.59 trillion from

homebuyers. The high-end segment has 5,164 units, accounting for 31.3% of the total.



19


Besides, there are 5,136 medium-end condo units (31.1%), and 6,206 low-cost units (37.6%). As such,

affordable homes make up the largest proportion, 68.7%.

The association said this is a positive sign as investors have restructured their product portfolios to meet the

demand for small and medium-sized apartments of middle and low income urbanites.

However, the number of mid-end apartments on sale has declined by a staggering 42.1% compared to the

same period last year. As a result, large investors specializing in the segment have not sold any products so far.

The number of newly-established enterprises in the real estate sector has increased sharply, representing one-

third of the total.

The report also said growth in capital mobilization had risen by 6.5% in the first half of the year, up from 5% in

the year-earlier period, with an average interest rate of 4.8% for social housing units.

However, the central bank‘s Circular 06/2016/TT-NHNN raises the risk weight of loans for the real estate sector

to 200% and tightens credit for the sector within two years, thus forcing property developers to look for other

sources of capital.

Social housing supply remains short despite strong demand, according to the association‘s chairman Le

Hoang Chau.



20


HIGHLIGHTS

Vingroup to invest $4bn in Hanoi metro

Nikkei - Leading property

developer Vingroup signed a memorandum

of understanding on Sunday for part of the

Hanoi metro system worth 100 trillion dong

(over $4 billion).

As part of the capital's overall development

plan for 2030, Hanoi has is building an

integrated metro system with elevated and

underground sections. Eight routes will be

spread over 318km at an estimated cost of $40 billion.

In an effort to alleviate serious traffic congestion, Hanoi is particularly keen to use private-public partnerships

(PPPs) for basic public infrastructure. Last year, the city administration announced plans to raise 150 trillion

dong for four of the metro routes in the 2016-2020 period.

The invitation to private to speed matters up follows heavy losses incurred by state enterprises in an already

stretched economy. Local and foreign capital must be found as international donors cut back support for

Vietnam, where incomes have been rising steadily.

Vingroup will be the first private company to invest in a public transport system in Vietnam, where only state-

owned enterprises have operated previously.

Earlier in the year, local media reported that three Vietnamese construction and real estate conglomerates --

Vingroup, and the Xuan Thanh and Lung Lo groups -- had pitched for the rail projects. Vingroup came

through with a proven record on more than 10 major real estate projects in Hanoi.

Of the eight routes planned, construction has already begun on four but with slower than expected progress

due to ballooning costs. The first two routes -- the Cat Lin-Ha Dong and Nhon-Hanoi Station lines -- are being

funded using official development assistance and contractors from China and South Korea. The rescheduled

opening dates for the two lines are 2018 and 2021 -- two and four years behind schedule respectively.

The Hanoi metro will be Vingroup's largest infrastructure investment to date. Following shareholder approval in

April, the company is targeting 39% revenue growth this year to reach 80 trillion dong, with net profit down

15% to 3 trillion dong.

http://asia.nikkei.com/Company/06Y8NH-E



21


Family businesses make significant contribution to GDP VNS — Around 100 large household

businesses in the country are contributing

to a quarter of the country‘s gross

domestic product (GDP), the Việ t Nam

Chamber of Commerce and Industry

(VCCI) said.

A large section of the private sector

comprises family businesses, and their

contribution demonstrates their pioneering

role in boosting the post-crisis economic

recovery, and nurtures the entrepreneurial

spirit, playing an important role in the

development of Việ t Nam‘s economy, Vũ Tiế n Lộ c, chairman of VCCI, told the Voice of Việ t Nam (VOV)

online newspaper.

Speaking at a meeting on ―The Professionalisation of Household Businesses‖ on Saturday, Lộc said "family-

owned enterprises are an important component that promotes the development of the private sector,

helping form private economic groups that lead in many sectors and make a valuable contribution to the

nation‘s GDP".

―The advantage of Vietnamese household businesses is the trustworthiness and intimacy between family

members, but it poses the challenge of balancing this relationship with the principles of corporate

governance,‖ Lộc said.

In order to become even more successful, household businesses must work to change their mindsets, improve

corporate governance and focus on strengthening human resources management.

Growing into some of the world‘s largest and most reputable corporations is an important task for both the

economy and the household businesses. To achieve it, there must be professional solutions to enhance the

competitiveness of these types of businesses, Lộc said



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