Securities law to usher in new asset class

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VietnamNet English - 41 month(s) ago 1 readings

Securities law to usher in new asset class

VietNamNet Bridge - Conditions are expected to turn favourable for the growth of Viet Nam's securities market this year, especially due to the amended securities law that will take effect in July.

The law is expected to allow companies to apply a new mode of raising capital that is very similar to convertible bonds.

They can negotiate with investors and accept investment in cash or assets. Unlike convertible bonds, they do not have to have made profits the previous year for this contract. At the expiry of the contract, the company can either convert the invested amount into equity or repay the investor in cash.

The Ministry of Finance has yet to provide guidelines for its implementation.

Industry insiders say the price for conversion should be clearly regulated and it should be made mandatory for companies to get prior approval from shareholders before entering into such a deal, failing which it will be open to by abused by influential shareholders.

For instance, if a company is allowed to enter into a contract without shareholder approval or without spelling out the price, major shareholders can manipulate the price to benefit their cronies.

Deputy Minister of Finance Tran Xuan Ha has promised his ministry will amend various securities regulations this year.

The ministry also plans to reorganise the operations of the Ha Noi and HCM City stock exchanges and the bond market to facilitate investment and attract more foreign funds.

Its Circular 226, to take effect in April, will require securities and fund management companies to make monthly reports on their financial status to the State Securities

Commission, which will enable different levels of inspection based on risks and even suspension of operations.

The State Securities Commission is expected soon to report to the ministry on changes to depository regulations, multiple trading accounts held by investors, and the buying and selling of a security within a session.

A large number of companies are expected to list this year, and with increased listing requirements with regard to size and disclosure, the market is set to become more attractive to investors.

Reviving the property market

The Ministry of Construction has suggested several measures to revive the property market.

It calls for reducing capital gains tax on sales of houses or apartments to prevent evasion. At the same time, it wants a higher tax rate in case a property is sold within a year or two of purchase. For real-estate developers, it suggests cutting value-added tax and income tax on developers of housing projects for low-income buyers, workers at industrial parks and university students.

But it wants higher taxes on people owning more than one property, with a progressive tax imposed on their properties.

In other recommendations, it says around half the money collected as land-use rights should be used for supporting people whose farmlands are acquired for public works find new livelihoods.

It wants regulations on disseminating information about housing revised to ensure that those wishing to buy housing have sufficient access to information about the projects.

The current lack of access to such information abets speculation.

It says the opinions of residents affected by a project should be solicited at all stages, from calling for investment to construction and management.

All property transactions should be done through banks to reduce risk and enable tax collection, it says.

Besides, they should be encouraged to be done via property trading floors by offering tax breaks, it says.

However, it wants the floors themselves – around 700 of which have mushroomed since the Law on Real Estate Business took effect in 2009 – to be more carefully overseen.

A recent inspection of 60 of them in the capital resulted in fines for 25 for violations like selling properties that do not meet requirements. For instance, apartments can only be sold when their foundations are finished.

Banks set sights high

Commercial banks have announced their targets for this year, though in many cases they have yet to receive shareholder approval.

They are mostly higher than last year's figures despite the fact that economists fear 2011 will remain a hard year.

Long An Province-based TRUSTBank expects that its profits almost double from last year's VND600 billion (US$28.6 million). It also plans to enlarge charter capital by 40 per cent to VND5 trillion ($238.3 million) and its network by almost a third to 130 branches and transaction offices.

Ha Noi-based Military Bank's deputy general director Cao Thi Thuy Nga, while refusing to divulge details, said her bank targeted a general growth rate of 30 to 40 per cent.

Its pre-tax profit last year reached VND2.1 trillion ($100.1 million).

She said with the impacts of the global economic crisis expected to continue for several more years, Viet Nam's economic instability and stricter capital adequacy norms, banks would find it hard to achieve their ambitious targets.

But she also said: "We know there will be difficulties but there are always opportunities for those who know how to grasp them."

Viet Nam Export Import Commercial Bank's (Eximbank) general director Truong Van Phuoc said the bank hoped to increase pre-tax profits by 26 per cent to VND3 trillion

($143 million) this year though the exact number would be decided at the coming shareholders' meeting.

Last year was tough for the banking industry due to several factors like high interest rates and volatility in forex rates, but most banks managed to achieve profit growth of around 30 per cent.

Huynh The Du, a lecturer for the Fullbright Economic Programme in Viet Nam, said several factors benefited banks – like the large gap between official and unofficial foreign exchange rates which the banks exploited to extract a fee from customers buying the greenback.

Another was the cap imposed on deposit rat.her than lending interest rates which meant businesses had to accept whatever the banks offered them.

Source: VNS

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