Over the last few months,the financial market has seen at least five banks express theirintention to acquire finance companies, including two that have amajority of their stock owned by the Government.

TheHDBank is one of the banks participating in the new trend. In August,it announced that it had obtained approval in principle from the centralbank to acquire 100 percent equity in Societe Generale Viet Finance(SGVF), one of the largest foreign-owned consumer finance companies inVietnam.

If the deal is finalised, SGVF will become asubsidiary of HDBank. The transaction, the first one of its kind, willpave the way for other institutions in Vietnam to make acquisitions toform financial and banking groups that will eventually reduce the numberof financial institutions in the market, one of the restructuringtargets announced earlier by the central bank.

Bankshad shown their desire to purchase finance companies a few years ago,but the need became clearer when several State-owned corporations wereurged to withdraw from non-core investments. Many finance companies aresubsidiaries of these corporations.

Meanwhile, manybanks have idle capital on hand that is enough to partly or entirely buythe finance companies and push up their activities relating to consumercredit.

Consumer credit is basically borrowingsused to purchase non-investment goods or services that are consumed andwhose value depreciates quickly.

Analysts note thatwhile consumer loans have interest rates much higher than the banks'normal loans, they also carry higher risks of non-repayment.

An official with a Ho Chi Minh City-based commercial bank which isconsidering buying a finance company, said that activities relating toconsumer credit at banks were not different from that of the financecompanies. The interest rate for consumer credit at the banks may climbto 30, 40 and even 50 percent per year for short-term loans, he said.

"In spite of the fact that the rates for banks'consumer credit do not contravene current regulations and are similar tothat of finance companies, it is not easy to publicise these on thebanks' lists of interest rates or nosily advertised in promotioncampaigns. Such actions could cause misunderstandings that affect thelenders' common operations. Meanwhile, the finance companies can carryout consumer credit activities without facing a similar situation," hesaid.

The high interest rates make consumer credit,and the finance companies that offer it, attractive to banks becausethey can make significant contributions to the banks' profit earnings ata time when credit given to industries is continuously going down.

Having a finance company would also make it easier for banks to carryout several other activities like purchasing stocks in enterprises andother credit institutions, investing in projects under contract, oracting as an agency to issue bonds, stocks and other valuable papers forenterprises.

Aviation still has potential

Huge investment and high input costs have caused several privatecarriers to close their operations in Vietnam, and those still operatingare failing to make profit.

On March 1 this year,Air Mekong, the carrier belonging to Ha Long Investment and Development,or BIM Group, announced it was grounding all its flights.

Indochina Airlines closed operations in December 2010 after incurringlosses of 400 billion VND (19 million USD) in less than a year ofbecoming operational.

In December 2011, the CivilAviation Administration of Vietnam withdrew the business licence of TraiThien Air Cargo. The private airline was established in June 2008 with aregistered capital of 500 billion VND (about 25 million USD), butfailed to start operations.

It would not besurprising that in such a situation, other private carriers would bewary about venturing into the domestic aviation market. However, thisdoes not appear to be the case.

The Thien MinhTourism JSC (TMG) recently announced that it has bought an 89 percentstake in Hai Au Airlines, a private Vietnamese airline. TMG said onOctober 14 that it would start operating the airline next year with aregistered capital of 60 billion VND (2.84 million USD).

TMG leaders said they would buy two seaplanes that would be put intooperation in April 2014. The 12-seat seaplanes would be used forsightseeing over Ha Long Bay and provide air taxi and other services ondemand, they said.

Earlier, on September 25,VietJetAir signed a Memorandum of Understanding with France's Airbus forbuying up to 92 A320 aircraft and plans to lease eight more from thirdparty lessors. The total deal is worth about 9.1 billion USD.

In order to pay for the 100 Airbuses, VietJetAir will have to seekcapital from different sources including export credit financing,commercial loans from foreign banks or make IPOs (initial publicoffering) within 18 to 36 months.

One of the reasonsthat has encouraged VietJetAir to undertake such an ambitiousinvestment plan is the positive results that the carrier has obtainedsince it was put into operation in December, 2011.

This year alone, VietjetAir increased its market share from 16 percentin the second quarter to 20 percent by late August, behind only thenational flag carrier Vietnam Airlines.

Such movesby private airlines could significantly alter the face of the domesticaviation market currently dominated by Vietnam Airlines.

In fact, in addition to intensifying investment into developing theirfleets, private airlines have also outlined strategies to furtherpenetrate the domestic aviation market that is expected to grow by 12and 15 percent by the year-end.

One importantobjective of such strategies is to strengthen and exploit close tiesbetween the aviation industry and the tourism sector. The privatecarriers plan to set up close co-operative relationships with travelagents and tourism companies. This makes good business sense, given thatbetween 70 and 80 percent of people are using flights for tourismpurposes, according to the Business Times.

TMG'sdecision to enter the aviation industry at this time makes even moresense because it is well placed to fully tap the tourism advantage. Ithas 10 hotel chains in Vietnam, Laos and Cambodia with 250,000 customersa year.

VietJetAir, meanwhile, has announced moretourism stimulus programmes under which the company has or will signstrategic co-operation agreements with travel enterprises and promotedomestic tourism activities while actively cutting the price of its airtickets.

Analysts say that such diverse businessstrategies are bound to create more opportunities for private carriersto strengthen their market presence and provide competitive services forcustomers.

Feasibility suspect

It is generally agreed that success of investments is not assured inthe current business climate, but many enterprises are planning toincrease their registered capital by issuing shares late this year orearly next year.

The Domesco Medical Import-ExportJoint Stock Company, for instance, is preparing to issue additionalshares in January, 2014. The company wants to increase its charteredcapital for expanding its production line and distribution network.

Meanwhile, the Rang Dong Plastics Joint Stock Company is collectingshareholders' written opinion on issuing new shares to increase itsprescribed capital.

At a recent meeting of the VietAn Joint Stock Company, shareholders agreed with a plan to increase itscharter capital from 279.6 billion VND to 433.38 billion VND. The shareissue is expected to take place later this year. The plan is to issue13.98 million shares with a face value of 5,000 VND each.

Many other companies, including the MDF VRG - Quang Tri Joint StockCompany, the Nghe An Petroleum Cement Joint Stock Company and the TanPhu Plastics Joint Stock Company have announced similar plans toincrease their legal capital.

While the companiesseem determined to increase their charter capital by issuing shares,analysts are not sure about the feasibility of their plans.

It is not an easy time to sell shares now, given that the share pricesof some companies on transaction floors are even lower than their facevalue. For instance, the face value of the shares of a company whichdoes not want to be named, is 10,000 VND each, but its rate on thetransaction floor is less than 5,000 VND.

🐠 Inaddition, analysts note, the performance of the securities market is notvery stable now, and this could affect the companies' capitalmobilisation plans.-VNA