Vietnam Property Fund Net Asset Value and September 2012 Update (3775O)
October 10 2012 - 6:15AM
UK Regulatory
TIDMVPF
RNS Number : 3775O
Vietnam Property Fund
10 October 2012
Vietnam Property Fund Limited
"VPF" or "the Company"
NAV and September 2012 Update
Fund NAV Performance
The NAV per share closed at US$ 0.744 on 28 September 2012.
Investment Climate
In September, the consumer price index ("CPI") came in at 2.2%
month-on-month ("m/m"), the highest monthly increase since May 2011
and higher than the historical monthly average inflation in
September. As a result CPI year-on-yea ("y/y") rose from 5% in
August to 6.5% in September. The increase was mainly driven by a
spike in healthcare and education while food and foodstuffs
modestly increased by only 0.1%. Healthcare (5.6% of the CPI
basket) rose 17% as the Ministry of Health approved price increases
for healthcare services and medicine in early August. Education
(5.7% of the CPI basket) rose 10.5% partially due to the
liberalisation of educational fees and partially due to the
seasonal effect. Excluding the impact of these two categories, CPI
m/m would have increased by 0.6% m/m in September. With the
exception of the gasoline price hike, which pushed the
transportation category up by 3.8%, all other categories continued
to decelerate, suggesting that aggregate demand remains weak. In
the coming months the biggest risks to inflation are anticipated to
come from healthcare and food and we therefore decided to raise our
2012 inflation forecast from 6.1% to 7.6% to reflect this risk.
In Q3 quarterly GDP growth increased to 5.35% y/y, up from 4.0%
in Q1 and 4.7% in Q2. The increase was lower than expected,
resulting in a nine month GDP growth of 4.73%, which was well below
the revised Government target of 5.2%-5.5% and lower than the 5.8%
during the same period last year. The key reason was the
construction and manufacturing sector which slowed from 5.9% y/y to
4.4% y/y, which is in line with our expectation as Vietnam is still
at the beginning of its deleveraging and restructuring process.
Effective interest rates are expected to stay high and continue to
impede consumption and investment demand unless meaningful progress
is made in the restructuring of the banking system and bad debts.
The fiscal deficit for the first none months has already reached
87% of the Government's full year target. This was largely due to
state revenues being only VND498trn or 67% of the full year target
whilst by comparison state expenditures were in line with plan with
VND643trn or 71% of full year target. It is therefore very likely
that the full year fiscal deficit will be higher than the 4.8%
target, thereby limiting the room for fiscal policy stimulus in the
foreseeable future. We maintain our GDP growth forecast of 5% for
2012 and 5.5% for 2013.
Moody's downgraded Vietnam's sovereign credit rating one notch
to B2 with stable outlook. It was the first change in Moody's
assessment of Vietnam risk since 2010. S&P on the other hand
raised its Banking Industry Country Risk Assessment for Vietnam
from Group 10 to Group 9 on the view of reduced risks of economic
imbalances. Although we share Moody's concern regarding slower
medium term growth, we believe the Government remains committed to
restructuring the economy and restoring confidence in the
system.
Investment Update
Challenging times continue in the property sector in Vietnam
with continued funding problems dogging the majority of projects in
the office, residential, retail and hotel sectors. It is surprising
that so many developers have not attempted to finish office,
serviced apartment, hotel and retail projects which, by their very
nature, cannot become income producing until the building is
completed. No one will rent a half finished building. It is
understandable that some residential-for-sale projects have
struggled for funding as it is necessary to rely to some extent on
pre-sales or 'off plan' sales to fund part of the construction
budget but with rental property it is unforgivable in our belief
not to secure funding. This does, however, provide opportunity for
those with cash, management expertise and development experience.
Cashflow is everything in the current development cycle and with so
few development projects with sufficient funding it leaves the few
players left in the market with a great opportunity to exploit gaps
that are appearing. Take the office market for example. With so
many new office projects stalled and the existing stock being taken
up due to realistic rental pricing, there is not much Grade A or B+
space left unoccupied. Therefore any new projects that can come to
market in the next six to twelve months will reap the benefits
with, albeit modest, rental growth. At VPF we have partnered with
an experienced, successful developer in Vietnam and are currently
looking at a number of pipeline deals with this developer.
We believe the malaise in the property sector is unlikely to
lift in the next six or even twelve months. Whilst this is not good
news for some it will finally provide better opportunities for
those, such as VPF, who have remained patient and vigilant of
market conditions. The first phase of reform in Vietnam has led to
the taming of some of the more wild macroeconomic factors such as
inflation, interest rates and an unstable currency. The next phase
is underway which will tackle the banking sector and inefficiencies
within the State Owned Enterprises. This has not been an easy
business and has led to some well-publicized problems at the
highest political and business levels but the eventual medium-term
outcome should be positive. It is our view that once the banking
sector realizes that the only way out of the potentially deep
non-performing loan hole in the property sector is to accept some
sort of a haircut on their loan book we will then start to see more
forced sales of what could be good quality projects given the right
funding and development expertise. We do not expect to see a market
recovery in time to save these developers; however, this should in
turn provide the distress that is required to get the market moving
again. We are ready and waiting.
For further information including the full September Monthly
Report please visit - www.vietnampropertyfund.com or contact:
Enquiries:
Rachel Hill
Dragon Capital Markets (Europe) Limited | Tel: +44 79 71 214 852
Tom Sheldon
Seymour Pierce Limited (Nominated Adviser and Broker) | Tel: +44 20 7107 8000
This information is provided by RNS
The company news service from the London Stock Exchange
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