STATUS OF VIETCOMBANK EQUITIZATION

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