Explainer: Vietnam's real estate woes: how much worse can they get?
27/10/2023 05:46
(Updates Vinhomes share price; paragraph 6)
HANOI, Oct 26 (Reuters) - A rough year for Vietnam's
real estate sector has seen developers miss interest payments on
debt, amid a credit crunch spurred by ill-timed government
measures, although spillover risk has been limited.
The sector was the worst performer last month on the falling
Ho Chi Minh City stock exchange .VNI , with a drop of nearly
16% on the month, says key Vietnam investor Dragon Capital.
That capped two years of turmoil in developers' shares that
spread last year to corporate bonds, hitting project development
and leaving ghost blocks of high-end property.
WHICH DEVELOPERS ARE IN TROUBLE?
No Va Land NVL.HM is the largest listed developer to face
problems, with its shares down more than 80% in a year, after
missing interest payment deadlines on domestic and foreign bonds
that triggered a standoff with some international creditors.
Shares of the largest listed developer, Vinhomes VHM.HM ,
part of the country's biggest conglomerate, Vingroup VIC.HM ,
fell 6.2% on Friday to their lowest since March, following an
issue of new convertible bonds to refinance obligations.
Other non-listed companies who defaulted recently include
Hung Thinh Corp, a major developer in southern Vietnam, and Van
Thinh Phat, whose chairwoman was arrested in a graft crackdown
last year, according to VISRating, which is partly owned by
Moody's.
Buildings stand empty with interiors unfinished in developer
Sun Group's "Mediterranean town" on the southern island of Phu
Quoc, while the skeletons of incomplete high-rises flank shiny
towers in Hanoi built by another developer, Sunshine.
And the pressure is mounting, with real-estate bonds of
about $6 billion set to mature each this year and the next,
nearly three times more than in 2022.
HOW LIKELY ARE SPILLOVER RISKS?
In September, the Asian Development Bank warned of potential
spillover into banking from irregularities in corporate bonds
and real estate markets, although troubled bonds made up just a
small portion of total bank credit.
Jean Xavier of S&P Global said there was "no risk of massive
contagion", but warned about a slowdown in key consumer sectors
and the negative impact on areas closely linked to real estate,
such as construction and building products.
WHICH BANKS ARE MOST EXPOSED?
The banking system's exposure to the property sector amounts
to about 25% of total loans, says S&P Global, mostly through
mortgages, which are not viewed as risky, however, thanks to
robust employment.
Corporate bond holdings are about 3% of banks' total loans,
said S&P Global, which estimated between a third and a half were
related to property.
The banks most exposed to the sector are Southeast Asia Bank
SSB.HM , Maritime Bank MSB.HM , Asia Commercial Bank ACB.HM ,
Vietnam Prosperity Bank (VP Bank) VPB.HM and Sacombank
STB.HM , 2022 data cited by VISRating shows.
Of these, only VP Bank ranks among the biggest lenders.
HOW DID THE TURMOIL START?
Analysts blame the worst troubles on a long-running graft
campaign that authorities stepped up at the end of last year.
They see the Oct. 2022 arrest over financial fraud of Truong
My Lan, chairwoman of Van Thinh Phat Holdings Group, as a
turning-point after which confidence dropped.
The arrest followed tougher rules on transparency and
private placement of corporate bonds adopted that September, and
coinciding with an economic slowdown, so that authorities were
forced to suspend them a few months later, as the market froze.
Bond issuance drew to a halt and bank loans fell, spurring
the government to repeatedly urge lenders to boost credit.
IS VIETNAM A NEW CHINA?
While ill-timed government measures, companies' high debt
and oversupply are responsible for the sectors' woes in both
countries, conditions are different in Vietnam.
Its long-term prospects are more positive, said S&P's Xavier
Jean, as a younger population and an expanding middle-class are
set to keep demand for property high.
Vietnam has a less acute situation of oversupply and
speculation than China, he added, while real estate's
contribution to its economy is also smaller.
($1=24,606 dong)
(Reporting by Francesco Guarascio @fraguarascio and Phuong
Nguyen; Editing by Anne Marie Roantree and Clarence Fernandez)
((Francesco.Guarascio@thomsonreuters.com;))