13 minute read
Luong Vo Ta
During more than one year, we are absolute in compliance with the guidance of Government to limit the spread of the virus. STAY SAFE EVERYDAY is our working orientation throughout the pandemic. Thanks to that, there was not a single effected case of Covid-19 in Vinh Hung JSC and our company still operates normally.
- LUONG VO TA,
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General Director,
Vinh Hung JSC, Vietnam
Established in 2006, Vinh Hung Trading, Consulting and Construction Joint Stock Company (Vinh Hung JSC) has become a leader in supplying products and technological solutions for transportation and industrial construction.
Vinh Hung sale’s network spreads throughout the country with the Head office based in Ha Noi, the Branch located in Ho Chi Minh city and the Representative office located in Da Nang. The company has played an important role in creating competitive advantages of Vinh Hung brand name, contributing to ensuring sustainable development of the Company on three fields: “Trading, Manufacturing, and Construction” .
An interview with Mr. Luong Vo Ta - General Director of Vinh Hung JSC about how the enterprise approaches to Asian markets, especially to India during the Covid-19 pandemic and the opportunities along with challenges of Vinh Hung when expanding exports to these markets.
Can you share with our readers how Covid-19 situation updates is in Vietnam?
As of April 1st , 2021, there have been 2.603 total infections of coronavirus in Vietnam. At the moment, Vietnam has recorded 35 deaths related to the pandemic so far. Vietnam never had a national lockdown and we try to localize the lockdown and limit the area, as small as possible. In 2020, Vietnamese Government estimates showed economy growing 2.9% and set to grow 6.6% in 2021. Although this is the slowest rate in more than 30 years, it still proves Vietnam to be a rare winner from the Covid-19 pandemic. Sharing long border with China, Vietnam has appeared the first infected case since late January 2020. Right from that time, we has taken very drastic measures that most other countries had only implemented from March-April 2020 to against Covid-19 such as: • Closing the border, banning flights from China • Testing and the mass, centralized quarantine of tens of thousands of people. • Strengthening the propaganda to prevent epidemics • Compulsory wearing masks in public places, spraying bacteria frequently, etc.
That is how we successfully contained Covid-19 and fulfilled the government's dual goals of controlling the epidemic while maintaining economic growth
How has Covid -19 affected Vietnamese enterprises?
Like businesses in the world, Vietnamese enterprises were negative affected by the pandemic. When the first outbreak happened, enterprises were very confused, many factories closed, consumption decreased, and foreign investment decreased suddenly. Especially, Vietnam has a very high ratio of exports and imports to GDP (198%) so its economy depends a lot on the international market. As a results, we were affected strongly when the pandemic broke out around the world.
However, after efforts as mentioned above, Vietnam proclaimed success in containing the coronavirus and positioned itself as a safe place to do business, and capitalized on demand from international manufacturers looking to diversify their supply chains away from China. Exporters have more chances to expanding to global market while manufacturers in the world are stagnant because of the pandemic.
These factors have helped Vietnamese businesses in general and our company in particular to quickly recover and made the macro economy of Vietnam an impressive growth in 2020 and the first quarter of 2021.
What is the secret of Vinh Hung JSC to overcome the difficulties caused by the Covid-19 pandemic?
The first and foremost reason as I mentioned above was Vietnam’s Covid-19 response success. Besides, the government implements a policy of "dual goals" to promote economic development where transport infrastructure is a priority sector. In 2020, a series of key national projects were invested and focused mainly on the Eastern cluster of the North-South Expressway and the North-South High-Speed Railway (HSR), Long Thanh International Airport Project, Terminal T3 Project in Tan Son Nhat International Airport. This policy has exploded the demand for our company's products.
On the company side, we thoroughly implement 5 main strategies:
• Compliance with the guidance of the Ministry of
Health to limit the spread of the virus. Thanks to that, there was not a single case of Covid-19 in our company and our company still operates normally. • Applying technologies to reduce face-to-face interaction and increase productivity. • Investing in modern machinery and equipment to increase the manufacturing capacity. Besides, the production management and quality control systems are standardized in accordance with international standards. In 2020, we was certified with ISO 3834 and
EN1090-2 (Exclusive class 3). • Increasing the quality of technical and sales team to capture opportunities in the booming development of the domestic market. • In addition to exploiting traditional markets such as the
Philippines, Brunei, and Indonesia which are currently working with major partners from Spain, Korea, we promote to explore new markets such as India,
Singapore, Thailand, etc. I evaluate these countries as potential markets with high demand in the coming time.
What is your assessment of the opportunities and challenges of the Indian market for Vinh Hung JSC?
India is the 5th largest economy, 7th largest area, and the largest population in the world. This country is also the most dynamic economy in the world in recent years. According to our research information, the Indian government is investing great resources to the development of transport infrastructure.
According to statistics, the average import-export turnover between Vietnam - India in 2020 reached about 1 billion USD per month on average. The number shows that Vietnam – India have become important economic partners of each other, two-way trade turnover has grown strongly and sustainably. Currently, India is one of the 10 largest trading partners of Vietnam, and Vietnam is one of India's leading trade partners in ASEAN region. In addition, that India has also cut import duty and anti-dumping duty on some iron and steel products from Vietnam creates favorable conditions for Vinh Hung to bring products into this country.
However, the differences in culture and business environments between Vietnam and India is the most difficult challenge for us. Moreover, there should be an effort to develop cooperation in Covid-19 time when we can not visit each others or have directly interaction.
How has Vinh Hung JSC approach Indian market recently?
Working with our India partners, we can see that India has very high demand on the quality of goods. Providing high quality products is a core value that our company bring to each customer. When approaching Indian market, Vinh Hung JSC already has experience working with large international corporations in Vietnam as well as in the Philippines, Indonesia, Brunei. In each area, we listen, adapt and renovate – so we can successfully improve productivity and performance regionally. Besides, our products are in accordance with international standard certification such as ISO 9001-2015, ISO3834, EN1090-2 so I believe we can meet the distinct standards such as IRC standards set by the Govt. of India.
In addition, Vietnam has local strengths that not many countries have such as cheap high-skilled labor, convenient maritime transportation with low cost and strong foundation in mechanical engineering. Therefore, we confidently provide products with affordable price but international insights in competition with suppliers from China, Korea and European countries.
The Role of Development Financial Institutions in Infrastr ucture Development
Gulzar Natarajan IAS & MD, AP State Finance Corporation
AWorld Bank survey defines a development bank as ‘a bank or financial institution with at least 30 per cent State-owned equity that has been given an explicit legal mandate to reach socioeconomic goals in a region, sector or particular market segment’. It uses the terms Development Bank and Development Financial Institution interchangeably.
According to UNCTAD, Development Banks are needed to bridge finance from end-savers to development projects. Such bridging should be done by Development Banks at all levels national, regional and international – in order to provide the financing needed in the developing world. Development Banks can thus be key players for development by providing long-term financing directly from their own funding sources, by tapping into new sources and by leveraging additional resources, including private, through the co-financing of projects with other partners.
In brief, Development Financial Institutions also designated as Development Banks are often equated with the institutions which supply the capital to meet economic development objectives.
These institutions are meant to provide long term finance to agriculture, industries, trade, transport, and basic infrastructure.
A DFI provides financing for development activities at less than strictly commercial terms. It delivers this through technical assistance grants, structured loans, different types of guarantees and credit enhancement and sometimes even equity.
It is interesting that in the discussions on development banking, no distinction is made between the bank and nonbank development finance institution. The terms Development Financial Institution and Infrastructure Finance Institution and National Development Bank and Development Financial Institution are often used interchangeably. But, these are essentially different types of institutions, with different purposes.
The distinction in case of development and infrastructure financing institutions concerns their respective financing purposes. Infrastructure is only one of the development sectors. Also, there are important differences between lending for industrial and infrastructure purposes. For a start, unlike the shorter-term working capital requirements of the industry, infrastructure requires long-term capital. Further, the risk-returns profile of infrastructure compared to industrial lending are very different. The risks, especially with construction, are much higher than with many other sectors.
A Development Financial Institution (DFI) is an institution that provides long-term finance for development. The National Development Bank is a type of DFI. As the name suggests, it is a deposit-taking bank. In contrast, a majority of DFIs are non-deposit taking institutions.
The strength and resilience of banks arise from their access to information (about their customers) and their cash-flow patterns. The provision of short-term working capital sits well with their strengths. In contrast, the provision of longterm capital expenditure does not. Banks are therefore well placed to provide working capital finance, but face assetliability mismatches when making long-term loans to infrastructure projects.
There are three different institutional forms for a DFI. First, deposit-taking wholesale banks. Second, non-deposit taking financial institutions. Finally, there are the offbalance-sheet entities like infrastructure funds. The RBI defines a non-deposit accepting, non-banking finance company, called Infrastructure Finance Company (IFCNBFC). A minimum of 75 per cent of its assets should be in infrastructure loans, and it should have a minimum Net Owned Funds of INR 3 bn.
The wholesale banks could meet long-term financing requirements. Non-deposit taking institutions, with appropriate capital sources, are well placed to provide longterm capital. Off-balance sheet entities, while more likely to enjoy an arms-length relationship with their owners, could also create principal-agent related governance challenges. They could also be vulnerable to accumulating unsustainable leverage.
DFIs can be either wholly or partially owned by the government. A few have majority private ownership. The shareholding pattern is largely determined by the nature of the activities being financed, and their associated riskreturns profile.
Fully government-owned DFIs are risk-tolerant and are more likely to offer patient capital to invest in emerging technologies and infrastructure sectors. They would also be willing to accept less than commercial returns and offer debt at concessional terms. Further, such an entity will be able to ensure credit flows even in a downturn, thereby serving as an automatic economic stabilizer. Their objective function seeks to maximise development objectives, even at the cost of returns.
However, ownership introduces issues of governance. Governments usually do not maintain arms-length relationships with the management of organizations that they fully own. And DFIs that are majority privatelyowned struggle to reconcile their pursuit of development objectives with shareholder preference for profit maximization.
There are two broad categories of incorporation and associated regulation in the case of financial institutions. There are institutional and instrument-based regulations. This can also overlap, with the institution itself having one regulator and a separate regulator for specific instruments offered by that institution.
There are some DFIs which are established directly by the statute. The statute prescribes the regulator for the institution. Currently, NABARD, NHB, SIDBI, and EXIM Bank are the only four statutory DFIs. The Reserve Bank of India regulates them under the Banking Regulation Act 1949.
The remaining are incorporated as non-banking financial corporations (NBFCs) under the Indian Companies Act 1956. Depending on the nature of their activities, they register with different types of regulatory agencies. The RBI, SEBI, NHB, IRDA, and Registrar of Companies are all regulators for different kinds of NBFCs.
In the context of financial market instruments, pooled investment funds not covered under the Securities and Exchanges Board of India (SEBI) (Mutual Funds) Regulations 1996, are regulated under the SEBI (Alternative Investment Funds) Regulations 2012. They include private equity, venture capital, hedge funds,
infrastructure funds, etc.
Examples of instrumental regulation are the Infrastructure Debt Funds registered with the Securities and Exchanges Board of India while the issuing institution, the India Infrastructure Finance Corporation Limited (IIFCL) is institutionally under the regulation of the RBI and the National Infrastructure Investment Fund (NIIF) which is an Alternative Investment Fund regulated by SEBI.
Complicating matters, sometimes DFIs can be both a market maker in terms of refinancing or even direct lending, and also be regulating and supervising institution. In India, the National Housing Bank (NHB) does both refinancings of housing finance companies (HFCs) as well as their regulation and supervision.
The funds for lending can come from either the government or the market. In this context, it is important to keep in mind that DFIs can serve their purpose of being catalytic if they have access to relatively cheap sources of financing.
So concessional or semi-guaranteed public debt, low-cost deposits, institutional savings, and government transfers are perhaps the most appropriate forms of capital for lending.
In the pre-liberalization era, the RBI printed money and refinanced DFIs. However, post-liberalization, DFIs have had to raise money from the market through bond offerings in the capital market and through private placements. DFIs also benefit from permissions to issue tax-free bonds.
The long gestation of infrastructure projects means that they require long-term capital. Such capital is typically supplied by pension and provident funds, insurers, postoffice savings, and other long-term savings sources. The DFIs could even float sector-specific funds that would attract investors. They also access long-term credit from multilateral development institutions.
Further, these funds can also come from either internal or external sources. Recently established institutions like the NIIF have sought to raise capital from sovereign wealth funds, pension funds, and insurers. For external financing to be sustainable, the expenditures or revenues, ideally both, have to be in foreign currency. This would help avoid currency mismatches that happen when revenues of the foreign currency financed investment are in the local currency. Infrastructure projects, with local currency revenues, are therefore best financed by local currency debt.
DFIs can have a specific sectoral or broad focus. The specific sector ones typically cover infrastructure, core industries, small and medium enterprises, agriculture, and exports. Broadly focused ones tend to cover some or all of these sectors. Each of these activities has its unique financing requirements – use of funds, the tenor of funding, amounts involved, etc. The nature of these activities also determines the source of funding for these DFIs themselves.
DFIs can both take equity in the project or provide debt. Equity investments by DFIs could de-risk investments for private investors besides lowering the cost of capital of privately raised debt. On a related note, they can also be under-writers for equity raising.
The refinance role is most often a very stable source of income and invariably this part of the DFI balance sheet that could also off-set the losses on the direct lending side. Most often, the positive glow of profitability on DFI balance sheets can be traced to the dominance of refinancing activities and lending to captive government borrowers.
The long gestation of infrastructure projects means that they require long-term capital. Such capital is typically supplied by pension and provident funds, insurers, post-office savings, and other long-term savings sources. The DFIs could even float sectorspecific funds that would attract investors. They also access longterm credit from multilateral development institutions.
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