Real estate firms seek for sources of capital

As credit for real estate market has continued to be tightened, real estate companies have had to use other mobilization channels, including issuing bonds and looking for foreign investors so as to reduce dependence on banks.

A real estate project carried out by Vietnamese firms in association with its Japanese partner in Binh Chanh District in Ho Chi Minh City. (Photo: SGGP)

A real estate project carried out by Vietnamese firms in association with its Japanese partner in Binh Chanh District in Ho Chi Minh City. (Photo: SGGP)

Since the beginning of this year, around seven listed construction and real estate firms have chosen bonds as capital mobilization channel for investment of their projects. Particularly, in the first and second quarters of this year, Dat Xanh Group JSC has planned to issue a maximum of 1,400 convertible bonds without collateral for less than 100 investors at a price equal to par value of VND1 billion per bond, equivalent to total value of VND1.4 trillion ($60.12 million). The bond term is expected to be due on the date of five years from the date of issuance and interest rate will not higher than 7 percent per annum. The firm revealed that it will use money collected from the bond issuance to develop its land fund, add to its floating capital and restructure its operating capital.

Similarly, Phat Dat Real Estate Development Corporation also has issued 2,000 one-year-term bonds with an interest rate of 14.45 percent per annum in the first two quarters of this year in order to raising VND200 billion ($8.58 million) for its Nhon Hoi project in Binh Dinh Province.

At the beginning of April this year, Hoang Quan Group announced the result of its private bond placements. Accordingly, after two placements, the company issued nearly a worth of VND190 billion of three-year-term bonds with an interest rate of 8.5 percent for the first year and an additional 0.5 percent for each following year. The firm plans to use VND120 billion collected in the first bond placement to invest in Paradise Plaza project in Khanh Hoa Province and VND300 billion collected in the second placement for social housing project in resettlement area in Tra Vinh Province.

Earlier, last year, there were several real estate firms, issuing bonds to mobilize capital to carry out their projects, such as Novaland Group issued VND1.5 trillion worth of corporate bonds and used assets of the company and the third party which is property rights of Dat Viet Development JSC to ensure the company’s obligations relating to bonds. TTC Land issued VND470 billion worth of nonconvertible bonds via private bond placement without covered warrants with a three-year term so as to expand the scale of financial activities and carry out investments in its programs and projects.
Besides bond issuance, some firms have structured capital source or cooperated with foreign investors to develop their projects. 

In its recent shareholders’ meeting, leaders of Nam Long Real Estate JSC said that development advantage of the company was stable capital structure independent of bank loans. Its cooperation with its Japanese partners has helped the company to actively develop its project as well as provide its customers with a competitive payment policy. This year, the company has prepared two to three projects to call for cooperation from Japanese partners. While several investors face financial pressure when developing in a larger scale, Nam Long, with its effective solution, has greater advantages when expanding operation to other provinces and economic zones.

Representative of Savill Vietnam said that foreign investors have been increasing pumping capital into real estate market and seeking for local firms which have potentials for development. This tendency is expected to continue to occur in the near future when foreign investors have seen development potentials of Vietnam’s real estate market in every segment. As a result, foreign investment capital will continue to be one of capital mobilization channel for real estate market in the future.

Mr. Le Hoang Chau, chairman of the Ho Chi Minh Real Estate Association, recommended that real estate firms should pay attention to the method of corporate bond issuance because bond issuance has gradually attracted investors thanks to higher interest rate in comparison with interest rate of savings of the same term, especially firms who have prestige and feasible business plans.

However, in order to successfully issue bonds, real estate companies have to ensure to properly use the capital raised from bond issuance and effectively carry out their projects so as to guarantee the interest of firms and investors.

Many firms also admitted that bond is an important source of capital for firms in medium and long terms. If bonds are successfully issued, firms will have more benefits than from bank loans because when borrowing money from banks, firms have to pay debt every year. Meanwhile, investing must follow the process and doing business takes time, especially when increasing tension on bank loans for medium and long terms has caused misery to many construction and real estate companies. The term of bonds is usually five to ten years so firms have space to develop their capital. However, a real estate expert said that it will be difficult for firms to issue bonds if they do not have close relations with banks. Moreover, the opportunities to issue bonds also favor firms which have already been listed on the stock market while several firms in this sector have not listed yet.

Not every firm is eligible to establish cooperation with foreign investors because foreign partners only set their eyes on firms with lucrative projects and available land fund. Therefore, in order to develop real estate market sustainably, Prime Minister has recently entrusted the Ministry of Finance to collaborate with relevant departments to study some financial institutions such as housing savings fund, real estate investment fund and real estate trust fund to mobilize capital source for real estate market sustainably, reducing dependence on capital mobilized from credit institutions.
According to the Ministry of Planning and Investment, in the first four months of this year, foreign investment capital hit a record in value of registered investment capital compared to the same period in the past four years. Accordingly, total newly-registered capital, additional capital, capital contribution and purchase of shares by foreign investors topped US$14.59 billion, up 81 percent over the same period last year. Real estate was the second most attractive sector with $1.1 billion, accounting for 7.5 percent of total foreign investment capital, up more than 36 percent compared to the same period last year.

By Minh Huy – Translated by Thuy Doan

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