In May, FinanceAsia named the winners of its annual Country Awards for Achievement. Last month, winners were given ther awards at our annual awards dinner in Hong Kong. Today, we conclude presenting the rationale for our decisions with a look at Vietnam.
Best Bank: Vietcombank
There was one clear winner for this award and that was the Joint Stock Commercial Bank for Foreign Trade of Vietnam, or Vietcombank for short.
It is not Vietnam’s largest bank. That accolade goes to Vietnam Joint Stock Commercial Bank for Investment & Development (BIDV), which reported assets of $44.2 billion at the end of 2016 compared with Vietcombank’s $34.6 billion. But financial analysts agree that Vietcombank has the best asset quality profile. And that is the best marker of all in a country where the banking system has spent the past few years undergoing balance sheet repair.
Vietcombank remains the only bank to have completed the write-down of debt at Vietnam Asset Management Company (VAMC). The state-owned bad debt agency transferred NPLs from the banks in return for zero coupon bonds, but the impairment risk remained with the banks.
Vietcombank’s exit gives it a stable platform to expand at a time when GDP growth remains high. Much of the rest of the Vietnamese banking system is constrained by capital shortages, which have been exacerbated by the country’s foreign shareholding limits.
However, Vietcombank has a higher capital adequacy ratio (CAR) than the sector average and strengthened this further in 2016 by executing a share issue and bond deal that added VND6 trillion ($264 million) to its tier 1 capital. So at the end of the year, the bank reported an overall CAR of 11.13% compared with 11.04% the year before.
Vietcombank is also further ahead than Vietinbank in transitioning to Basel II. It says it has been in compliance with the standard principles since 2016 and targets applying the advanced principles in 2018. The bank’s strength means that it consistently trades at a higher price to book value than listed peers. In mid-June this stood at 2.9 times compared with Vietinbank’s 1.4 times.
Other standout metrics include a 1.51% NPL ratio, down from 1.84% in 2015, and a return on equity that rose to 14.25% from 11.8% over the same period.
Strong credit growth underlines the Vietnam banking sector’s urgent need for capital. And Vietcombank reported an 18.9% uptick in loans during 2016. The bank is targeting consumer loans and this portion grew 52% year-on-year. Overall, personal loans account for 25% of the overall loan bank, up from 20% in 2015.
To service them it is also still expanding its branch and transaction office network. These rose by five and 25, respectively, in 2016 to bring the overall totals to 101 and 395 across 50 cities and provinces.
Best Investment Bank, Best ECM House, Best Broker: Viet Capital
It is hard to dislodge Viet Capital from the Best Investment Bank award as it has a unique position in Vietnam’s capital market, spanning both domestic and international investors. Its philosophy, it says, is to build long-standing relationships with clients and this has been rewarded with positions on most IPOs and secondary market deals.
In 2016, Viet Capital generated $39 million in revenue and $15 million in net profit, plus an industry-leading return on equity of 35% compared with the 5% to 16% ratio that its peers normally command. The future also looks very promising. Economic growth has been picking up since 2013 and the government looks set to finally embark on a wider ranging privatisation programme that will see ECM activity pickup still further.
In 2016, the group was involved in one of the market’s biggest M&A deals in recent years: the $1.1 billion sale of a majority stake in Big C retail chain to Thailand’s Central Group. Viet Capital acted as a sell-side co-advisor.
It also acted as a buy-side advisor on Fraser & Neave’s $500 million acquisition of 78.3 million shares in Vinamilk, the country’s largest listed stock.
Its final major M&A deal was the $550 million acquisition of Lafarge Holcim Vietnam by Thailand’s Siam City Cement. Viet Capital acted as financial advisor to LafargeHolcim’s joint-venture partner, Vietnam Cement Industry Corp (Vicem). It valued the assets so it could consider whether to take up its first right-of-refusal rights and worked with the government authorities on the approval process.
Where IPOs are concerned, Viet Cap is the dominant force domestically. It was also the only domestic bookrunner for the country’s standout deal of the year: the $170 million IPO for VietJet, the country’s leading private sector airline.
This deal set a number of precedents, which market participants are fervently hoping the government will take on board as it prepares to list more of its state-owned entities. In particular, the deal was conducted using a bookbuilding method rather than Dutch auction and the IPO price was fixed below the maximum possible level.
That was revolutionary in a country where the government remains extremely fearful of letting the market set the price. Since listing, the stock has traded up about 50%, providing a windfall for the funds, which are returning to a market that burnt them badly in the middle noughties but has been on a tear again since 2013.
The securities house also conducted a number of other $100 million-plus deals in a market where sizeable offerings are still rare. This includes a $137 million equitisation, IPO and UpCOM registration for Vietnam Meat Industries (Vissan) and a $120 million private placement for the Novaland Group. Similar to its strategy with VietJet, the securities house organised international roadshows for Novaland to broaden the deal’s investor base. This led to a 2.5 times oversubscription ratio and top-of-the range pricing.
Its final main deal of the year was a $42.6 million IPO for Binh Duong Water Supply Sewerage Environment Company (Biwase) When it came to the award of Best Broker, FinanceAsia asked a number of Vietnam-based fund managers and their unanimous feedback was that Viet Capital was best both for its execution abilities and the strength of its research. The securities house has consistently been a top-three player in terms of flows too, recording a 30% market share in 2016.
Best DCM House: BIDV
There are three entities, which have made a mark in Vietnam’s debt capital markets: Vietcombank, which won our award for best bank; Techcom Securities, a subsidiary of Vietnam Technological and Commercial Joint Stock Bank, in which HSBC owns a 20% stake; and Joint Stock Bank for Investment and Development (BIDV). There are no proper league tables to measure which of these three has executed the most deals and local bankers say the reality is that volumes are pretty evenly split between them.
BIDV is Vietnam’s biggest bank by assets and it has long prided itself on its pace-setting role in local debt markets. We decided to give it the award this year because it has completed deals across the whole gamut of issuers – banks, public and private sector corporates.
There were, for example, only two bond issues by a state-owned entity in 2016 and BIDV led both. The $66.71 million-equivalent deals were both for Investment and Industrial Development Corp (Becamex).
Local bankers say they were a tricky sell because the real estate developer was using the funds for debt restructuring rather than expansion, so was less attractive to investors.
Even harder to sell was a $44.4 million-equivalent deal for Xuan Mai Investment and Construction. It had high debt ratios and was not well known among the commercial banks that buy the majority of local bond deals. BIDV got round this with an interesting structure that releases the proceeds to the group in three tranches, giving investors greater comfort about the group’s payback abilities.
Such was its success that the deal even attracted some secondary market activity, which is almost unheard of in the Vietnam market. The bank estimates that around $9 million of the bonds have changed hands since it was first distributed.
Local bankers say a big portion of DCM issuance comes from the commercial banking sector and here BIDV raised the equivalent of about $130 million from two bond deals of its own.
BIDV bankers say the market is now growing fairly fast, with issuance totalling $4.5 billion in 2016, up 50% compared with the year before. And they believe this is just the beginning of a steep issuance curve in coming years.
A lot on hinges on the government but it issued two decrees in 2016, which bode well for the market. The first was to set up a domestic rating agency, which can help investigate a borrower’s credit fundamentals. The second was to set up a national pension fund that can bring more institutional money to the market.
Best International Bank, Best International Investment Bank: HSBC
HSBC has had a fairly consistent hold on the award for best foreign bank even over the last difficult few years, when it shed a number of depositors under its new anti-money-laundering guidelines and streamlined its loan book.
The whole Vietnamese banking system has been under some stress as well with non-performing loans still peaking. However, HSBC started to turn its business around in early 2016 and is now back firing on all cylinders again. As a result, revenues and profitability have bounced back. The former rose 1% during the 2016 financial year, while net profit was up 54% over the same period to $64.42 million. This makes HSBC the country’s most profitable foreign bank.
Loan growth was also strong; a reflection of the situation across the banking sector as a whole, with credit growth driving GDP growth. HSBC recorded a 16% increase in its net loan book to $1.4 billion in 2016, according to S&P Global Market Intelligence data. Deposits, on the other hand, were still trending down as the bank continued to shed accounts. This ratio fell 3% to $2.46 billion.
Other metrics that improved include return on assets, which rose to 1.19% from 1.08%, and its NPL ratio, which dropped to 1.84% from 2.89% between 2015 and 2016.
The bank’s strategy is to deepen its relationship with its core clients. It serves about 500 multinationals and an increasing number of domestic private sector entities against a backdrop in which the private sector now accounts for a bigger share of economic output than the public sector.
Typical of the type of client HSBC backs is FPT Group, Vietnam’s largest IT group. The bank has provided more than $150 million to support FPT’s business expansion, including a $50 million offshore trade facilities booked in Hong Kong for its distribution business and $25 million trade facilities for its telecom business.
On the retail side, HSBC remains the country’s biggest credit card issuer by wallet share (15%) and is second to Vietcombank in terms of number of cards issued.
The bank believes one reason for its success is the recent internal merger that has created a unified wholesale banking platform. In 2016, this business within Vietnam booked $2.5 billion across M&A, ECA and syndicated loans, a sizeable amount for the country.
One deal, which FinanceAsia flagged during our 2015 awards but had not yet closed, was the $1.1 billion sale of the Big C retail group in Vietnam to Thailand’s Central Group. The deal closed in April 2016 after a four-month timeframe. This was extremely accelerated by the standards of Vietnam, where documentation and government approvals can take months. HSBC was the sell side advisor for what also ranked as Vietnam’s largest-ever retail transaction.
According to Dealogic data, HSBC ranked first in the M&A league tables during 2016 with over half the market. The bank’s own data highlights six deals with a combined value of $3.8 billion.
Its second-biggest deal was the $542 million acquisition of a 65% stake in LarfargeHolcim’s Vietnam operations by Siam City Cement. HSBC acted as exclusive financial advisor to the Thai company. Like many of its country’s peers, Siam City sees neighbouring Vietnam as a natural extension to its operations and a doorway to capture its strong growth.
On the loan financing side, HSBC also led the country’s largest-ever domestic currency transaction. This comprised a $180 million-equivalent three-and-a-half year club deal for Vietnamobile, a partially owned subsidiary of Hong Kong’s CK Hutchison Holdings.
A lucrative source of business for foreign banks are the North Asian manufacturing companies that have outsourced business to Vietnam where labour costs are lower.
One such deal during 2016 was a $400 million Korean ECA facility in relation to LG Display’s phase I organic light-emitting diode (OLED) plant. It marked the group’s first ECA-supported financing arrangement. Another major deal was an ECA-backed financing for a 1,200 WM thermal power plant in Vietnam. This $330 million transaction also had Korean ECA backing.