Organization of the study

Many economic changes have been introduced in Vietnam in the last ten years. The centrally planned economy dominated for more than 40 years, but had not helped improve the nation's welfare.

Introduction and Methodology

1.1 Introduction

1.1.1 General background

Many economic changes have been introduced in Vietnam in the last ten years.The centrally planned economy dominated for more than 40 years, but had not helpedimprove the nation's welfare Since 1986, certain economic reforms have beenlaunched and have put the economy in an encouraging position The market orientedeconomic model is increasingly accepted by Vietnamese citizens from different socialclasses

The changes in the economic structure have had a significant impact on theoperating environment of business which influences decisions on investment projectsdue to the presence of risk and uncertainty

Uncertainty and risk accompany many forms of investment They are inevitable andsometimes require complicated analysis before the decisions are made The return onprojects has to be carefully analyzed taking into considerations the risk characteristics

of the project

1.1.2 Objectives of the study

The overall objective of this study is:

To highlight the main traits in the operating environment of business in Vietnam, while focusing on financial aspects in analyzing risk and return in project financing.

To achieve this, the specific objectives are as follows.

1 Carry out a literature review with a view towards developing a conceptual modelfor risk and return as well as methods dealing with risk

2 Based on secondary data collected from various sources, prepare a brief on thesituation of project financing in Vietnam

3 Based on findings, compare theoretical procedures with real practice andattempt to develop a model for risk-return analyses in project financing

4 Draw conclusions and make recommendation

1.2 Methodology

The researcher aims first to conduct a review of the literature in order to highlightthe following issues:

v Project financing - Concept and definition

v Different kind of risks in project financing

v Methods of dealing with risk

An analytical framework for risk and return analyses will be presented to supportmethodology as guideline for next sections

The researcher also examined secondary data through in order to describe theoperating environment of business in Vietnam with respect to risks associated to andreturn on investment projects Some major points are named below

v Legal infrastructure and investment situation

v Banking systems and financial institutions (briefly)

v Project financing in the Vietnamese context

One of the main parts of this research is to study two cases typical for the housingbusiness, with the focus on private sector The direct interview is supported by a set ofquestions developed in form of a questionnaire The case studies rely mainly on thematerials collected on individual project

The first case study is conducted on the Service Apartments Development projectwhere the major capital contribution comes from foreign investors The second case willlook at an Office Building Development project, where the funds come only fromVietnamese investors

The author carried out the in-depth interviews concerning 2 projects in order to findout problems associated with project financing, regarding:

v Parties involved;

v Funding structure;

v Returns expected in relation to risk.

Interview of some financial institutions, concerning:

v Lending conditions;

v Interest rate priority and repayment terms;

v Risk and return considerations.

Based on (1) literature review, (2) secondary data about operating environment ofbusiness, (3) case studies on selected projects, and (4) personal interviews made withsome financial institutions, a model is proposed as a guideline for risk-return analyses

in project financing in Vietnam

µ The scope of the study

Secondary data which are used to highlight main traits of operating environment ofbusiness in Vietnam were collected in Vietnam

Data collection relating the financing of two hotel projects was carried out in Hanoicity

µ Organization of the study

This report begins with the introduction and objectives of the research study in

Chapter 1, then it presents the methodology for research planning and

implementation This chapter also presents the organization of the research report inform of organization chart

Reviewing literature is carried out in Chapter 2, which provides an overview on: (a)

Parties involved in project financing, (b) Different kinds of risks in project financing, and(c) Some methods dealing with risks

Some main traits of operating environment of business in Vietnam are highlighted in

Chapter 3 The basis for conducting this part is secondary data derived from journals,

magazines, reports and other sources

Two case studies are presented in Chapter 4 and Chapter 5 One is concerned

with service apartments project financed mainly by foreign investors The other is officebuilding project funded by local investors

Chapter 6 makes a comparison between theoretical and practical aspects

regarding project financing in Vietnamese context and attempts to develop a model forrisk and return analyses in project financing within operating environment of business inVietnam This chapter also suggests an breakdown structure of stages in projectlifecycle to be used in combination with the model

Conclusions and recommendations are made in Chapter 7, which also figures out

the limitation of this research study and provides some suggestions for furtherconsiderations in this topic

Appendices and references are listed at the end of the report.

µ Organization chart of the report

The organization of this report, summarized in the section above, is presented inform of organization chart (figure 1)

CASE STUDIES

CONCLUSIONS

AND RECOMMENDATION

CONCEPTUAL FRAMEWORK

Figure 1 - The Organization Chart of Research Study Report

Chapter 2 Literature Review Consideration of the risk and return

In project financing

2.1 Project financing - Concept and definition

2.1.1 Definition of project financing

"Project financing is a financing of a particular economic unit in which a lender is satisfied to look initially to the cash flows and earnings of that economic unit as the source of funds from which a loan will be repaid and to the assets of the economic unit as collateral for the loan" [Nevitt,1983]

2.1.2 Interested parties

Project sponsors They take equity risk in the project and normally have the

highest portion of profit or loss They are a group of companies and organizationswhich identify the market opportunities, then organize and negotiate with other parties

to appraise, invest, subcontract, operate and monitor the project [Nevitt,1983]

v First group: Corporations, Investment Banks

v Second group: Government agencies, The World Bank (WB), regionalDevelopment Bank (DB), Government Banks

Creditors They take debt risk in the project and have priority in claim against the

project in the case of default Creditors can be categorized as senior debtors andsubordinated debtors They include:

v Commercial banks,

v Institutional Investors,

v Public Investors

Supplier The profitability of the project is strongly influenced by the price of

feedstock for project Relevant uncertainties will be relieved if project gets a long-termsupply contract within certain price limits with supplier The project-supplier relationshipsecures mutual benefit since project is normally a big potential customer for thesupplier

Buyer For the project this is potential customer, whose promise to buy output of

the project can greatly enhance the credit of the project The project-buyer relationshipalso secure their mutual benefit because the buyer can be sure about the future supply

to itself

Contractors They could be construction contractors or operating contractors Their

ability to complete construction on time and the ability to operate the project effectivelyare two of the major concerns of creditors

Multilateral agencies are government agencies and international organizations

which provide their support to some large projects specially important for the economic development of a country The form of this support could be providing ofequity capital, guarantees, concessions, low interest loans, subsidies, and local service,roads, water, sewers, and police protection

social-2.1.3 The process of project financing

µ Preliminary feasibility study

The purpose of this stage is to determine whether the project has sufficient merit towarrant further expenditure of time and effort to bring it about Normally, independentengineering, legal and financial consulting firms are invited to conduct a preliminaryfeasibility study, since their judgments are considered subjective and could be easilyaccepted by both sponsors and lenders

A preliminary feasibility study will determine the objectives of the sponsors; reviewthe plan of the sponsors to see whether the project is both technically and financiallyfeasible; raise questions and issues which must be answered; and suggest alternativesways to accomplish the sponsors' objectives

µ Planning

In this stage, different scenarios for the financing will:

v be derived based on the preliminary feasibility study and assumptions aboutterm structure of interest rate, currency exchange risk, inflation risk, debt/equityratio, anticipated cash flow, completion risk, political risk, etc

v be tested and compared to get one optimum funding plan

µ Arranging the financing

An information memorandum is prepared and presented to prospective lenders withthe following:

v The sponsors and promoters of the project are identified

v Third party guarantors to the project (suppliers, buyers, contractors, etc.) areidentified

v Location of the project

v The estimate of construction cost

v The financial plan

v The proposed terms for financing (amounts, maturities, and timing)

µ Monitoring and administering the financing

Cost over-runs and completion delays are the major concerns while monitoring theproject during the construction period Debt must be taken down to match the financialplan and construction schedule, and estimates to completion must be prepared fromtime to time

Administration of the loan agreements when implementing financing plans involvesmonitoring the actual operating cost and economics against the financial plan andproduction goals (market, sales revenues)

2.1.4 Sources of funds

The main sources of funds are lenders and sponsors:

µ Commercial lenders include

v Investment management companies;

v Money market funds

µ Commercial sponsors are

v Companies requiring products or services;

v Companies supplying a product or material to the project;

v International agencies (WB, DB)

2.2 Different kinds of risk in project financing

Risks related to project financing can be identified separately during various phases

of project lifecycle (Table 2.1)

Table 2.1 Project financing risks during various phases of project lifecycle

Development phase Construction phase Operating phase

v Bid risk v Political risk v Political risk

v Credit risk v Exchange risk v Exchange risk

v Technological risk v Performance risk v Performance risk

v Market risk v Cost over-run risk v Cost over-run risk

v Completion risk v Liability risk

v Off-take risk

µ Development phase

Bid risk Because the lenders are not willing to participate in development phase,

sponsors have to provide equity If the project proposal does not get the approval forits implementation, the sponsors would loose the money spent in preparing the bid, this

is referred as bid risk Similarly, financial advisers would have to write off their costs ifproject proposal is not accepted [Nevitt,1983]

Credit risk This risk refers to sponsors' creditworthiness, which would be

supported by letters of credit from banks The questions of whether a credit risk or anequity risk is involved usually arises in connection with the adequacy of the underlyingequity investment in the project, and the risks assumed by the sponsors and thirdparties [Nevitt,1983]

Technological risk This risk is considered when a new technology is used in a

project Lenders always try to avoid financing a project using new and untestedtechnologies on a nonrecourse basis, unless the technological risks can be fullyabsorbed by some other parties The reason is that new technology would increase thecompletion risk, cost over-run risk and even the risk of failure of the project

Market risk This risk refers to the marketability of a product or service produced

from project operation, and must be considered at the beginning in form of marketsurvey and research Competing products, estimated price and volume of the product,future cash flows, and completion from suppliers closer to the markets, or with lessexpensive sources of raw materials, feedstocks or energy are involved in a carefulmarket study [Nevitt,1983]

µ Construction phase

Political risk refers to the occurrence of likelihood that a firm will suffer losses

because of political or macroeconomic developments (political risk has the samemeaning as country risk) This risk is difficult to ensure against, although there arevarious strategies to avoid it (such as joint agreement with a public partner)

Exchange risk The major concern for international investors is currency and

foreign exchange risk when cash inflows and cash outflows are realized in more thanone currency Potential losses may occur due to currency fluctuation

Performance risk Final responsibility for a project's performance lies with the

sponsors, who may provide performance guarantees [Nevitt,1983]

Cost over-run risk Cost over-run plagues many projects, and usually have a stand

by facility which is based on the guarantees from sponsors and the additional capitalfrom sponsors in the form of subordinated loans or through fixed price contractors

Completion risk involves both contractors and suppliers at construction phase To

achieve the completion of the project by a certain date, sponsors often provideperformance incentives and guarantees

µ Operating phase

Most of the risks at the operational phase can be covered through agreements withthe relevant parties Operating risks can be taken by the operating and maintenancecontractors through a performance guarantees; cost over-run by the sponsors throughfixed price contractors; off-take risk through take-or-pay agreements or advancepayments; and liability risk can be covered through insurance

Political risks can be classified into two group: extra-legal versus legal-governmentrisk and macro versus micro risk Since political risks refer to the probability ofoccurrence of the events (which will cause losses to the firm) in the non-market(political, economic, and social) environment of business, they are difficult to avoid

2.3 Methods of dealing with risk

2.3.1 Sensitivity analysis

" Sensitivity analysis is a risk analysis technique in which key variables are changed and the resulting changes in the net present value (NPV) and the rate

of return are observed." [Brigham,1992]

It is clear that many of the variables which determine a project's cash flows arebased on a probability distribution rather than being known with certainty If a key inputvariable, such as units sold, changes, the project's NPV will also change Sensitivityanalysis can indicate exactly how much the NPV will change in response to a givenchange in a input variable, other things held constant

The analysis technique begins with the so-called base case situation, which isdeveloped using the expected values for each input Then the table describing thedeviation from base level of considered variables will be developed The values used todevelop the table, including units sales, sales price, fixed cost, and variable cost, are

most likely, or base case, values, and the resulting project's NPV is called base caseNPV Deviation from base level is usually: -10%; +10%; -20%; +20%; etc All NPVs will

be used to construct the graphs The slopes of the lines in the graphs shows howsensitive NPV is to changes in each of the inputs

Sensitivity analysis is probably the most widely used risk analysis technique,however it has limitation due to not considering the range of likely values of keyvariables as reflected in their probability distributions

2.3.2 Scenario analysis (Probability analysis)

"Scenario analysis is a risk analysis technique in which "bad" and "good" sets of financial circumstances are compared with a most likely, or base case, situation." [Brigham,1992]

Scenario analysis considers both:

(1) the sensitivity of project's NPV to changes in key variables and

(2) the range of likely values of these variables as reflected in their probabilitydistributions

In scenario analysis, all of input variables are set for three cases:

(a) at their worst reasonably forecasted values (e.g worst case scenario);

(b) at their best reasonably forecasted values (e.g best case scenario); and

(c) at their most likely values (e.g base case)

The worst case variable values are used to obtain the worst case NPV and the bestcase variable values to obtain the best case NPV The expected NPV can the bedetermined based on estimate of the probabilities of occurrence of the three scenarios,the pi values, as follows

Expected NPV = p1(NPV1) + p2(NPV2) + p3(NPV3)Where: index "1" denotes worst case;

index "2" denotes base case;

index "3" denotes best case

The standard deviation of NPV (sNPV) and the coefficient of variation (CVNPV) aredetermined based on expected NPV and NPVi

Scenario analysis can provide good information about project's stand-alone risk.There is however, a limitation of this technique in that it only a few discrete outcomes(NPVs) are considered for the project, even though there really are an infinite number

of possibilities

2.3.3 Monte Carlo Simulation

"Monte Carlo Simulation is a risk analysis technique in which probable future events are simulated on a computer, generating estimated rates of return and risk indexes." [Brigham,1992]

To prepare a computer simulation, the probability distribution of each uncertaincash flow variable must be specified first Once this has been done, the simulationfollows the following steps:

1 The computer chooses at random a value for each uncertain variable based onthe variable's specified probability distribution

2 The value selected for each uncertain variable, along with values for fixedfactors such as the tax rate and depreciation charges, are then used by themodel to determine the net cash flows for each year, and these cash flows arethen used to determine the project's NPV in the first run

3 Steps 1 and 2 are repeated many time, say 500, resulting in 500 NPVs, whichmake up a probability distribution

The resulting NPV distribution is graphed to determine the expected NPV, sNPV, andCVNPV for any set of assumptions

The primary advantage of simulation is that it show the range of possible outcomesalong with their attached probabilities, rather than merely a point estimate of the NPV.However, this technique has not been widely used in industry One of the majorproblems is specifying the correlation among the uncertain cash flow variables

Experiments have shown that the individual's own utility function is likely to reflecthis/her own risk horizon based on the sum of money he/she is accustomed to deal withfor his/her firm An executive who often settles issues involving hundreds of thousands

of dollars is likely to have a linear function in the low hundreds of thousands, with thecurve flattening and dipping above and below the positive and negative ends of suchrange His superior, who deals in millions, usually has the same shaped function but hislinear range covers the low millions The chief executive of this multi-million dollar firmmay think of a two to one on gamble for plus or minus $10 million acceptable, butapplies much heavier weights against losses and gains above and below that mark

Utility theory applies mainly to the few relatively large projects which by definitionhave unique features Further, utility curves can be drawn up only for relatively simplegambling situations, and these fail to reflect the many complexities

2.3.5 Decision trees

"The decision trees is a network diagram approach to analyzing the value of information, particularly applicable to investments characterized by high uncertainty and requiring a sequence of related decisions to be made over a period of time" [Merrett,1976]

It is possible to take the decision with the information which already exists, but if thedecision maker can obtain more information, he/she may possibly to reduce the degree

of risk attaching to the decision such as project financing A problem is whether or not

to purchase information about the likely outcome of an investment proposal beforefinally committing to one course of action or another

It is clear that information is rarely free and available It generally costs both moneyand time to obtain There is unlikely to be certainty that after paying for the additionalinformation, it will reduce the risk So the decision maker is faced with an expensivedelay resulting in an uncertain decrease in uncertainty This delay will only beenjustified if it causes him/her to change the decision he/she was going to make anywayinto a better one

It is possible to display the complexities of such a decision with an information flowdiagram - the so-called decision tree(s) This diagram is applicable to investmentscharacterized by high uncertainty and requiring a sequence of interrelated decisions to

be made over a certain period of time The more complex the chain, the more essentialbecomes the use of such technique

The concept of the network diagram is also used where the sequential decisionswhich are mapped out do not necessarily involve the purchase of further information.This display technique helps to outline the options open to a decision maker and thelikely logical action to take at each decision point

An extension of the decision tree approach to include continuous probabilitydistribution is a further refinement well worth considering for major projects of acomplex nature

If a decision tree is used as a master plan in outline for the control of the analysis of

a complex problem, it can be well worth the trouble of its construction Also its role as avisual aid to the explanation of a complex plan of action to top management justifies itsuse by the planer

2.3.6 Game theory

"Game theory is intended to provide a logical framework for the study of the strategies open to the decision maker in the face of total uncertainty Various

objectives can be still studied with an advantage even under these conditions, such as the minimization of the risk of loss, the maximization of the chance of gain, or the minimization of the regret the decision maker may suffer from having not chosen the outcome the turned out to be the best" [Merrett,1976]

Primarily, game theory is concerned with the conditions of limited information whichapply in game situations and is concerned to provide rules for decision taking insituations in which probability theory is not applicable due to absence of probabilisticinformation The principle of game theory can be explained in following example

An investor is faced with a number of possibilities A1, A2, A3, A4, A5, etc., andthere are a number of states of the world possible S1, S2, S3, S4, etc., whose affect oneach outcome, as measured by an NPV, can be calculated Where:

+ A1, A2, A3, A4, A5 are the alternatives as different sized hotels proposed tobuild;

+ S1, S2, S3, S4 are the different socio-economic situations when the hotels come

in service

These possibilities could be arranged in the form of a matrix (Table 2.2) There aresome criteria for selecting the size of the hotel: (1) Minimax, (2) Maximax, and (3)Minimization of the regret

Table 2.2 NPV under various situations (Ai,Si)

STATES OF THE WORLD Possibilitie

µ Minimization of the risk of loss (Minimax)

The investor should choose the "best" worst case Arraying the worst cases foreach alternative he gets A3 which is clearly the best choice on this criterion (Table 2.3)

Table 2.3 NPV in the "best" worst case

STATES OF THE WORLD Possibilitie

A2 150

µ Maximization of the chance of gain (Maximax)

Maximax means selecting the most favourable case among the best available ones

Table 2.4 NPV in the "best" best case

STATES OF THE WORLD Possibilitie

This would lead to the selection of A5, since the maximal NPV is 460

µ Minimization of the regret

The measure of this regret is defined for each entry in the matrix as the differencebetween that alternative and the best result for that same state of the world

Table 2.5 Differential NPV under each alternative (Ai)

Possibilities STATES OF THE WORLD

Table 2.6 The largest NPV difference under each alternative (Ai)

Possibilities STATES OF THE WORLD

It is possible to combine the game theory approach with limited use of subjectiveprobabilities and this may prove to be a more fruitful line of attack Suppose there aretwo states of the world:

s1 : probability of occurrence of depression period S1

s2 : probability of occurrence of boom period S2 (where: s2 = 1 - s1)

And there are two alternatives open to the investor: A1, and A2 He has calculatedthe outcomes possible under S1 and S2 and expressed as discounted cashflow (DCF)yield (or NPV's) Thus:

Table 2.7 Possible outcomes in various cases (DCF yield)

STATES OF THE WORLD Possibilities S1 S2

a1 = a2 Þ 5s1 + 15s2 = 6s1 + 12s2 Þ s1 = 3s2

Since the sum of the probabilities are equal to 1 (e.g s1 + s2 = 1), therefore:

s1 = 3/4 or 0.75 and s2 = 1/4 or 0.25

the expected outcome of both alternatives are:

a1 = a2 = (5 x 0.75) + (15 x 0.25) = 7.5 %

To choose between A1 and A2 the investor only has to decide whether, in his view,S2 has a greater or lesser chance of turning out to be the true state of the world than25% Now if he bets the chance of a boom is more than 25% likely, his problem issolved A1 must be the better alternative, because any increase in the multiplier 0.25 inthe calculation above will increase the expected value of A1 and reduce that of A2.The advantage of this technique is that it provides a statement of what theprobabilities have to be mark the logical break-even point between one choice of actionand another

2.4 Analytical framework for analyzing risk & return in project financing

Through the reviewing of literature, an analytical framework is suggested to be used

in analyzing the theoretical issues, possible application, and practical problemsassociated with the process of project financing (Figure 2)

METHODS DEALING WITH RISKS

CONCEPTUAL MODEL FOR RISK AND RETURN

CASE STUDY 1

(Foreign investment)

PERSONAL INTERVIEW (Financial Institutions)

CASE STUDY 2 (Domestic investment)

In contrary, foreign investors carefully study political, social and economic situation

to classify the country risks or any kinds of risk possibly related to their business inVietnam Generally, they are concerned with the country's legal infrastructure,especially laws on foreign investment and land They also cautiously study the bankingsystem, which has certain effects on the financing of their investment projects Thesepoints are reviewed to highlight some features of business environment

3.2 Situational description of operating environment of business in Vietnam

3.2.1 Legal infrastructure and foreign investment status

µ Legal Infrastructure

Many foreign investors found the overall framework for business transactions andrelations somewhat unclear However, they need to understand the country's legalinfrastructure, if they wish to benefit from their business General recognition is that thelegal framework for the commercial transactions and contractual relations, essential tothe effective functioning of the market system, is improving:

v A commercial code is being prepared, and expected to be passed in 1995;

v Legislation of contract law already exists;

v Company law for private firms has been enacted; and

v Bankruptcy law, passed on Dec 1993, was implemented since July 1994

Behind the task of preparing all these economic laws is larger and more difficult task

- the work of developing well-functioning institutions to implement the laws, includingbuilding up the legal profession [UNDP, 1993]

1 The word "public" was used to refer all State-owned enterprises under centrally planned economy

Legal Institutions:

Legal institutions at several levels are involved in the formulation, issuance, andimplementation of the laws necessary for the reform of the economic system These

include the National Assembly (NA), the country's legislature; the Standing

Committee (SC) of the National Assembly, which exercises the legislative powers

entrusted to it by the National Assembly; the Government (G), which is the highest executive organ; the Ministry of Justice (MOJ) and other ministries (M) and agencies

which are charged with the preparation of legislative and governmental acts; the

Courts (C); the State Economic Arbitration (SEA)2, which have bankruptcy powers

under the new legislation; and the Procuracy (P), which supervises the executive in its

implementation of laws

@ Draft Committee @ MOJ

@ Other ministries

Government

National Assembly

N.A Law Committee

N.A Standing Committee

Law proposing bodies (G,M,C) Law proposal

Figure 3.1 Legislative process

2 State Economic Arbitration was trasformed into Economic Courts since 1993

Legislative process:

Enactment of laws and ordinances The NA decides on a list of laws and

ordinances to be prepared for enactment at its two sessions in each year, as well asthose to be formulated for consideration the following year Legislative process for anylaw approval follows the procedure presented in figure 3.1

Issuance of government decrees and ministerial orders Government decrees

and ministerial orders are also prepared by the responsible ministries, and should bereviewed by the MOJ and Legal Department of the Office of the Government, amongothers

Implementation and Disputes Resolution:

Even if all the laws necessary for the market development are enacted promptly,their effect would be minimized if no mechanism existed for private parties to enforcetheir rights and for the government regulators to protect the public interest Since theCivil Code is still under preparation, the system for dispute resolution is not yetcomprehensive, but enforcement mechanism do exist Three main avenues forenforcement can be found currently: the court system, arbitration, and administrativeorders

Laws for Private Businesses:

While the formal recognition of broader private ownership came only in the 1992constitution, two important laws were enacted by the NA in December 1990 thatprovided the structure for legal entities outside state or collective ownership: the Law onPrivate Business and the Law on Companies These laws laid the groundwork forindividuals and legal entities to invest their resources in various kinds of economicactivity

Assurance of the laws These laws offered assurance to investors that private

investment was acceptable and encouraged For those who would then wish to invest,the two laws also provide similar protection for the business operated under them:

v A recognition of their long-term existence and development;

v Lawful generation of profits;

v Freedom to carry out business and make business decisions independently;and

v Protection of the right of the owners, such as to own means of production andinherit capital and assets

Type of enterprises These two laws and decrees implementing them created the

legal rules for the establishment, operation, and state regulation of three new forms ofenterprises:

v Private business (similar to sole proprietorship);

v Limited liability company,

v Shareholding company (at least seven shareholders)

Governmental role There are still extensive requirements for government approval

and intervention in establishing, operating and dissolving processes Under thisframework, a business registration is also required at the time of establishment orchanges in operations

Future development The increasing registrations for establishment of enterprises

has been reflecting the effect of this legal framework for private business andcompanies The acceleration in registrations can be partly attributed to the increase ineconomic arbitration offices, from 11 in 1991 to 36 in 1992 and to more than 50 in

1994 Of course, it is difficult to attribute these registrations entirely to the introduction

of a legal framework or to determine whether more enterprises would have beenestablished if the legal framework had been improved Certain improvement could beexpected to support a fuller development of the economy, such as the reduction ongovernment approval and intervention in the areas of establishment, permissible fields

of investment, and dissolution [UNDP, 1993]

Commercial framework:

Most relevant for the commercial legal framework are economic contracts Under

the Ordinance on Economic Contracts, economic contracts are only such agreementsentered into between two legal entities or between a legal entity and an individual withbusiness registration under the law This would include an individual registered as aprivate business under the Law on Private Business and any other types of individualshaving business registration In practice, the application of the Ordinance has beenexpanded to include contracts between individuals

Protection of Intellectual property rights is another aspect of commercial activity

which requires an effective legal framework in a market context The patent andtrademark protection was introduced under the Ordinance on the Protection ofIndustrial Property Rights, and copyright protection under the Decree on Copyright TheProvisions specifically directed at the transfer of technology already exist

Competition Law An important part of the transition to a market economy is the

creation and subsequent preservation of a competitive environment for all economicentities, regardless of ownership That goal is frequently met by a competition law or aset of laws, which does not yet exist

Bankruptcy law As a part of the reform program, a draft bankruptcy law, prepared

by the government, considered by the NA, finally was passed on Dec 1993 and startedits implementation since July 1, 1994

µ Land issues

Land use right The movement towards strengthening property rights accelerated

in 1988, where a Land Law was enacted While state ownership of land was maintained

under this law, private land use rights granted by the state were also recognized Theseland use rights could be recorded on a cadastral survey and evidenced by a certificateissued by the government The lack of transferability means that land use rights cannot

be pledged as collateral for a loan However, as the economy has surged ahead thehigh value of land use rights in both rural and urban areas has reportedly engendered a

significant number of de factor sales of land use rights.

Land value In the last several years, land allocation has begun to be viewed as a

major source of potential revenue Urban governments are experimenting with variousmethods of valuing and charging for land use rights (including auctions) and even ruralareas are moving towards charging for further allocations of land from remaining areas

in communal control There is discussion of seeking rental payment from users such asstate enterprises who received free allocations in the past Such charges already existfor land contributed to a joint venture (JV) with foreign party

Land for Foreign Investment The difference between regulation and the reality of

the marketplace for land, combined with the unclear situation with regard to land at thelevel of state-owned enterprises, state agencies, and local governments, as well as thegeneral scarcity of completely clear title to privately controlled land, make it difficult toforeign investors, especially large-scale ones, to operate in Vietnam The only holders

of large urban land with clear title are the state entities, so they must be brought into a

JV [UNDP-WB, 1993]

Another major concern of foreign investors is a right to mortgage land use rights.The restriction on the term of the transfer of land use rights to JVs of only 20 years wasextended to 70 years at the end of 1992, exceeding the useful life of most investments

In order to encourage the development of the market economy and to regularizeand tax the burgeoning trade in land use rights, a major revision of the 1988 Land Lawwas drafted during 1992-1993 and finally approved in 1994 Important provisions of theamended Land Law are: (1) the right to sell or lease land use rights in a free marketand (2) the right to mortgage land use rights

There was major improvement in the framework for land use and it was veryimportant that these proposals in fact got enacted before the law has been passed.Other important aspects of the proposed legal basis for land use include rights ofinheritance and compensation for recovery of the land by the government

µ Foreign Investment

Foreign Investment Laws:

A legal framework for foreign investment was put into practice in 1987, in parallelwith but separate from the national legal framework for the domestic market-orientedeconomy There is clear constitutional protection both for Vietnamese enterprises toenter JVs and partnerships with Vietnamese and foreign investors, foreignorganizations and individuals The constitution expressly provides that foreign investedenterprises shall not be nationalized

Forms of Investment The foreign investment legislation has grown to encompass

not only a foreign investment law and regulations for its implementation, but alsodetailed rules in many areas of foreign economic activity, such as labour, currency, andtechnology transfer The legislation provides for four types of investment:

v Business co-operation (a contractual, non-equity joint venture),

v Vietnamese-foreign joint venture,

v Wholly foreign-owned enterprises,

v Build-operation-transfer facilities

Investment process In general, the legislation has adopted a case-by-case

approach in which the foreign investor has to apply for admission and obtain priorapproval of the application and import licenses, and the foreign investment is admittedonly after fulfilling certain conditions under a specific procedure Usually SCCI3, in somecases even other governmental departments are involved in the approving process

Treatment standards The basis standard is that all foreign investors shall be

treated fairly and equitably More detailed provisions on treatment are on the wholefavourable to the foreign investors

Guarantees The Foreign Investment Law prohibits the requisition or expropriation

of invested capital and assets for compensation However, SCCI retains the power tosuspend or cancel a foreign investor's business licence or even dissolve a JV if there is

a breach of law or deviation from the investment objectives or incorporation conditions

Dispute Settlement Disputes arising out of foreign investments will, if they cannot

be settled by negotiation or conciliation, be referred to such judicial or arbitrate forum4

as will have been agreed by the parties at the time of admission of the investment

Foreign Investment status:

Foreign direct investment (FDI) has increased rapidly since 1991 Following the

1990 revision that clarified several provisions in the original version of the FDI law, theamount of foreign investment approved for 1991 double that of the previous year Theincreasing trend continued in 1992 at a slower rate, but picked up again in 1993-94(Figure 3.2)

3 State Committee for Cooperation and Investment

4 Currently, international arbitration facilities are available under the Chamber of Commerce andIndustry of Vietnam

1988 1989 1990 1991 1992 1993 1994 0

500 1,000 1,500 2,000 2,500 3,000 3,500 4,000

Figure 3.2 investment by years, 1988-1994 (in million US$)

Foreign investors are most active in hotels & tourism industry and light industry(Figure 3.3) About 21% of the approved investments are in hotels & tourism sector.Tourism activities are visible in larger cities where some large hotels and hotel-resortcomplex are being built

Service

Hotels & Tourism

Agro-Forestry Light Industry

EPZ Oil & Gas

Banking & Finance

1%

Aquaproducts

2%

Culture, Health & Education

less than 1% Construction

8%

Telecom & Post 8%

Source: SCCI, 1994

Figure 3.3 Investment by sector, from Jan 1988 to Dec 1, 1994

The export-oriented projects using low-cost local labour in light industry are ingarments and footwear where foreign investors from Taiwan, Hong Kong, and SouthKorea bring in equipment and materials to produce final goods for export; they are also

in the food industry where seafood processing for export is the main activity Taiwanand Hong Kong are the top leaders, followed by Singapore and South Korea (Figure3.4)

500 1,000 1,500 2,000

Figure 3.4 Top five largest investors (1/1/88-1/12/94)

The majority of foreign investment projects are JVs (figure 3.5), mostly with owned enterprises or state agencies who often contribute their capital in the form ofland use The FDI law allows private companies to enter JV with foreign investors Italso allows for 100% foreign-owned projects, but relatively few of the approved projectsare of this type

state-Joint Venture 100% Foreign-owned Business Cooperation

3.2.2 Banking system and financial institutions

Some important steps has taken in the last few years in developing a more oriented financial system The State Bank of Vietnam5 (SBV) has succeeded inmarkedly slowing inflation, interest rates have been allowed to adjust with inflation, andthe SBV has been active in reforming its methods for formulating and implementingmonetary policy and bank supervision

market-Movement

v Entry into the banking system has increased;

v Greater discretion has been given to the banks in making credit decisions;

v The problem of bad debts has been addressed by the government;

v The bank internal system has been modernized;

v Improvement of the payment system is supported by new-created inter-bankmarket

v Currency Exchange has been facilitated by new-established Foreign ExchangeTrading Centers

Problem

The banking sector is highly taxed by international standards, is significantlyundercapitalized and has a staff for the most part only marginally familiar withinternational banking methods and standards The banking system consists of anumber of individual banking units with little interaction between one another

v Nine foreign bank branches (Table B2 in appendix B);

v Four JV banks;

v Fifty three representative offices of over 40 banks from 15 countries;

v More than 24 local joint-stock banks, with varied ownership, including privateand public firms, cooperatives, Peoples' Committees and individuals

v About 7,500 very small rural and urban cooperatives, one state-run insurancecompany, and two very small finance companies

no upper limit to unsecured credit compared to secured credit, nor, are thereregulations with regard to asset distribution Banks are allowed to trade in gold,precious metals, and stones, generally considered extremely risky operations, withoutany quantitative limitation.

Except for the BID, most of the banks have been engaging in predominating term lending Vietnam did not have one savings bank charged with depositmobilization, so its banks are not characterized by the unbalanced balance sheetsfound there The state banks are now authorized to act as full service "universal"banks Effectively, this means that these banks will be able to lend to all sectors of theeconomy, and there are no longer any preferred interest rates outside the programfunded from the budget

short-Supervision

Banks are supervised by the SBV and by the Ministry of Finance (MOF) which has

an oversight role over the SBV The supervision unit of the SBV gathers data monthly,quarterly, and annually from the banks, and will perform on-site supervision

Taxation

Banks and other intermediaries are subject to a variety of taxes on their operations.Most unfavorable and quite rare is the subjecting of banking to turnover taxes of 4% to8% In addition, banks pay profit taxes of 50% of their net income, before anydeductions are taken for specific or general provisions6 These practices - both high taxrate and the non-deductibility of provisions - discourage banks from acting promptly toidentify and provision against potentially unprofitable loans

3.2.3 Prospects of domestic Stock Exchange market

Many investors are calling for a quick opening of Vietnam's stock market, thebenefits of which are clear:

v Foreign investors will gain the all-important exit strategy;

v Investments will be liquid; and

v Large institutional investors will more comfortable in a public marketenvironment

The only question is to be seriously considered: are there adequate conditions forthe establishment of stock market in Vietnam?

To continue stimulating the high economic growth rates that have been witnessedover past four years, economic policy makers will need to carefully address fouressential areas, among some of the most urgent requirements in the coming years:

6 Currently, Vietcombank pays 40% on the bank's net profit and 30% on turnover for creditservice Industrial & Commercial Bank, joint venture banks, and foreign bank branches pay 15%

on similar service

v Macroeconomic stability;

v Foreign trade and investment;

v Development of capital markets; and

v Future strengthening of the legal framework

The development of capital markets will contribute to the expected achievement ofmajor economic targets of: 9 - 10% GDP growth; 13 - 14% industrial output growth; and4.5 - 5.0% agricultural output growth The Government estimates that capitalrequirement for such ambitious targets is between 30 and 40% of gross domesticproduct (GDP) in domestic and foreign sources However, capital markets areinadequately developed and raising this amount of capital (somewhere between US$4.7 and US$ 6.2 billion based on 1994's GDP of US$ 15.5 billion) will pose a seriouschallenge to economic makers with providing the environment of attracting capital

[Vietnam Investment Review, Jan 1995]

Currently, there are three main sources of capital: (1) Domestic savings andinvestment; (2) Official development assistance (ODA); and (3) Foreign directinvestment

There also are problems in mobilizing capital to satisfy the financial needs:

v Local credits are principally short-term ones because people do not yet haveconfidence in the banking system needed to make long-term deposits;

v Long-term borrowing from foreign countries is not used due to constantfluctuation of commercial soft-interest loans and high fees of banking;

v Massive increase in FDI does not cover the large difference between approvedinvestments and actual investments;

v In addition, some US$ 500 million in multilateral funds has been raised offshorefor investment in private equity or listed equity for only when stock market takesoff

The need for stock market is clear, since it will resolve the problem of long-termmobilization and will attract much more foreign direct investments As consequence,this will effectively influence the satisfaction of capital requirement for the nation'seconomic development

Up to now, some measures has been taken to improve the situation A number ofimportant policies facilitating capital markets development were pushed through in1994:

v Domestic investment law;

v Decree permitting the establishment of a bond and stock market

This will encourage the mobilization of domestic capital and will allow banks andstate and private companies to raise debt and equity capital State Bank is nowapplying some policies and measures as preparing steps towards the opening of stockmarket:

v Allowing commercial banks to sell long-term bonds and issue credit cards;

v Assisting the Government, together with MOF in the sale of stocks and shares;

v The SBV and MOF, on behalf of the Government, will issue stocks and shares

in foreign countries;

v Creating conditions for certain enterprises to sell stocks and shares

The opening of stock market should be handled correctly, otherwise it could fail.The current conditions are not yet adequate to support an economic environmentinvolving company shares and the sale of shares and bonds To promote such anenvironment, a system of economic civil and commercial laws must first be in place.This includes a code of by-laws laying out the regulations and the guarantees to buyersand sellers, none of which are presently available The managing staff, including theorgan of national management of securities, the office of transactions, companies foraccountancy and mediation must be formed in parallel if Vietnam aspires to host aviable stock market

Regarding the establishment of stock market, the SBV has decided to move forwardslowly and carefully Too much focus on the stock market could become a huge drain

on talent from other areas in the financial sector that are equally important to the

country's economic development As noted by Eugene A Matthews, President of Ashta International, the SBV has been correct in avoiding the mistakes that other countries in

Southeast Asia and Eastern Europe made by rushing the opening of public markets tosatisfy outside investors

industrial (12.9%), and service (10.2%) sectors [Vietnam Investment Review, 1995]

This favourable developments will encourage more foreign investments, but will notensure that foreign investors would not assume country risk when making investmentdecision Macroeconomic situation has been stable during last four years Therefore,low macro risk would be assumed if this trend still continue And to maintainmacroeconomic stability, it is essential for policy makers to provide a policy frameworkthat is conductive to economic restructuring and sustaining economic growth - not onlyfor 1995 but well into the next century

The challenge for Vietnam is to strengthen its fiscal system In turn, this requiresimproving the tax collection system without arbitrarily taxing productive sectors of theeconomy, which is likely to enhance external trade and domestic growth Anotherrequirement would be to phase out subsidies to State-owned enterprises whichcontinue to drain scare public resources and hamper efforts to effectively manage thebudget This way, Vietnam is likely to maintain economic stability and from the foreigninvestors' eyes to reduce risk inherent in business environment

3.2.5 The availability and reliability of the information

In the context of project financing, the most important information is informationrelated to financial data General recognition is that most Vietnamese companies haveaccounts, but they rarely reflect the company's true financial position One of thereasons indicates undeveloped accounting system Another problem is lack of marketinformation This can be explained from statistical figures where some data are lessaccurate

The first users of such information are bankers Before granting loans to anybusiness unit, the banks have to evaluate its activity and business performance Creditrisk assessment by number crunching is still difficult when there are so few reliablenumbers to crunch The banks have to rely on other mean They try to conduct marketresearch, which is helpful, of course, but time consuming

The company's assets evaluation is also facing problems in equitization projectsdue to limited financial reportage and poorly used accounting methods Historical dataare not reliable because they were "established" on the non-market basis Theequitization project's sponsors have been attempted pilot steps to apply internationallyrecognized accounting standards in selected enterprises Once successful, this will be

a sample for other equitization projects to follow

The third group of information users are foreign non-banking investors Many ofthem have been researching the market directly or through local market researchers toget such type of information which is available in their home country, but not in Vietnamsuch as product market share, market size etc Limited financial data of both state-owned and private enterprises give foreign investors less choices in selecting localpartner to enter JV with

Due to less available information, consultant firms, lawyers, and accounting/auditingcompanies played an important role in helping foreign investors start up their business

in Vietnam However, legal system has been improving, and laws have become morespecific, they [consultant units] are being less important compared to 1990-92 periodwhen consulting ability strongly relied on local connections

3.3 Project financing in the Vietnamese context

There is a big gap between financing state-invested and privately invested projects,

in term of both size and access to funding Large investment projects such as roads,ports, utilities, telecommunication, etc are usually funded from budget programs;medium-scale projects such as construction, production infrastructure, modernization ofstrategic sectors etc are supported in form of soft-interest loans from state-ownedbanks Even small-sized public projects can find out the interest of local governmentwhich then provides guarantee to get bank loan with favourable terms At themeantime, private sector investment in most cases falls into small-size category and it

is not easy for the investors to get loan from state banks

In fact, registration of private companies has been increasing, however the mainsources of funds for starting up business are family members, relatives, and friends,definitely not the banks If private companies are growing, if they gain certain marketposition, they may consider the possibility of bank loans Many private businessinvestors have practically mobilized capital among individuals They are capable to

mobilize large capital up to billions of VN Dongs (some hundreds of US Dollars) if they

keep the schedule of interest payments as well as principal refunding

While the State commercial and stock banks and the Vietnam Industrial andCommercial Bank have been carrying out the program to loan private sector, otherbanks remain wary of loans to private businesses, citing shaky laws on mortgage andthe lack of a system to evaluate private assets as the main deterrents In the event of aloan default, these banks have few avenues by which to recover their loss

This is unfortunately the fact Loaning to the private sector is not easy becauseVietnam has no mortgage law The existing laws do not stand on the side of the bank ifany risks occur in loaning Principally, houses and land can be mortgaged However,this issue is confused when attempting to appraise the value of assets The state hasyet to legitimize the value of estate property, which causes difficulty for the banks incase they have to sell off assets if loans go into default This matter has discouragemany banks from loaning to the private sector

Appendices

Table A3.1 Investment by country, Jan 1, 1994 to Dec 1, 1994

Table A3.2 Investment by country, Jan 1, 1988 to Dec 1, 1994

Figure B1 - Investment by sector (January 1, 1994 to December 1, 1994)

Figure B2 - Foreign bank branches (by Jan 1995)

Figure B3 - The leaders (investment by country, 1/1/1988-1/12/1994)

Chapter 4

CASE STUDY 1:

W E S T L A K E R E G E N C Y

Service Apartment project

( Project financed mainly by foreign investors)

4.1 Introduction

West Lake - a lake full of legends Renowned for its size and beauty at dawn and dusk, it was traditionally known as Dam Dam or "The Misty Lake" Then, under the influence of the Chinese in the 15th century, it was renamed West Lake Legend has it that the 500-hectare lake was created by the Golden Buffalo from China, who rushed south on hearing its mother's call Actually, it was a sound made by Khong Lo, a Vietnamese Buddhist monk In its frenzy, the Buffalo dug up a huge crater which formed a lake ¾ the famous West Lake of Hanoi.

4.2 Public hotels, property business and the Tourism Industry in Hanoi

Foreign investors have been rushing to Hanoi since 1993 While a few years ago aninvestment project worth some hundred thousand US dollars was notable, recently aproject worth tens of million of US dollars is commonplace Tourism and services arethe areas attracting most foreign investment, amounting to 95 projects The GeneralTourism Department estimates that more than one million tourists will come to Hanoi in

1995 In order to meet this requirement, 5,000 rooms of international standard will beneeded for 1995, and 14,000 rooms for the year 2000 This estimates may explain the

"Hotel building fever" in Hanoi Besides the minihotels which have mushroomed in thecapital city, larger hotels and shopping centers worth tens of millions of US dollars arenow under construction not only in downtown Hanoi, but also in suburban areas such

as Nghi Tam, Nhat Tan, and Quang Ba

One of the efforts to improve the tourism industry in Hanoi is the West LakeMasterplan In 1980, Soviet urban planners chose West Lake as the centerpiece ofHanoi development plan Free-market reforms in late 1980s have added todevelopment pressure A masterplan for Hanoi's rapidly developing West Lake Districthas been approved, resolving one of the most sensitive urban planning issues in thecapital

West Lake is destined to be a center for tourism as well as trade, and buildingconstruction and design will come under close scrutiny The area has been divided intofive zones

v The south of West Lake linking Hanoi to Noi Bai international airport will be atrading center;

v Hotels and high-rises will have priority to the west of the lake;

v The north and the east is reserved for parks and tourist facilities;

v The lake itself will be dedicated to recreation

So far, some US$ 200 million in development has either been completed orproposed around the lake

4.3 The project

4.3.1 Structure of the project

West Lake Regency (WLR) is a service apartment project established in form of a

JV company, called West Lake Development Co Ltd (WLDC) This is JV betweenPRIMAWELL Investments Pte Ltd Singapore, and Hanoi Housing and RenovationDevelopment Company (HRDC) Of the total legal investment of US$ 3,101,428,Vietnamese party holds 30% and the foreign party holds 70%

Under the JV agreement, Board of Management has five members representingtwo from Vietnamese party and three from foreign party7 There were some changes inBoard of Management during the construction phase, the project organization,however, remains as set up at the beginning (Figure 4.1)

Since many parties are involved in the project financing and implementation, theboard of management has designed clear communication channels (Figure A4.1 inappendix) to be implemented for project and construction management

4.3.2 Funding structure

Structure of ownership

The sponsors of West Lake Service Apartments Development (WLSAD) Project provide equity fund amounting US$ 3,101,428 The fund, according to initial feasibility study, could be used to finance two-fl1oor to three-floor buildings with 32 apartments This plan would not require any amount of loan Such investment falls into small-sized categor

7 When JV had decided to increase investment capital, the Loan Agreement then requires JV toincrease the numbers of Board of Management from five to six

BOARD OF MANAGEMENT

BOARD OF MANAGEMENT

CONSULTANTS & CONTRACTORS

PROJECT &

CONSTRUCTION MANAGEMENT

SITE OFFICE

ACCOUNTING, AUDITING

& TAXATION

HANOI ADMIN OFFICE

(At Doi Can)

SERVICE APARTMENT MANAGEMENT &

MARKETING

GENERAL MANAGEMENT

&PROJECT COORDINATION

GENERAL MANAGEMENT

&PROJECT COORDINATION

(Choy Tuck Leong)

* Liang Court Regency

(Allan Tan)

* LCV Construction Superintendent (Mr Teh)

* LCV Structural Engr (Chandra)

* Vietnamese Structural Engr (Mr Tuan)

Only after careful study of Hanoi's Architecture and Construction Masterplan andWest Lake Development Masterplan, the board of directors of WLDC decided toincrease their investment in selected site The project piece of land is assessed as one

of the most beautiful place of the West Lake area By increasing the investment, WLDCexpects greater effectiveness and efficiency of the project

Higher investment does not change structure of capital contribution (Table 4.1).Vietnamese party still holds 30% of legal capital, contributed in form of land use right.Singaporian party contributes 70% of legal capital in form of cash andmaterials/equipment imported from foreign countries This way of sharing investmentcapital is very popular under Vietnam Law on Foreign Investments, particularly forinvestment on hotels, commercial office buildings, service apartments or the hotel-office-resort complex

Table 4.1 Equity structure (US$)

Shareholders Form of capital Amount

(US$)

Percentage

%

A Hanoi Housing Renovation

& Development Company Land use right 930,428 30 %

B PRIMAWELL Investments

Pte Ltd - Singapore

Cash, importedmaterials/equipment 2,171,000 70 %

Structure of debt

After evaluating the quotations of (1) Overseas Union Bank, (2) ANZ Bank and (3)United Overseas Bank of Singapore, the Joint Venture Company be authorized toborrow up to US$ 6 million from the United Overseas Bank (UOB) for the purpose offunding the increased construction cost and to provide additional working capital for theproject

Table 4.2 Loan structure (US$)

Lenders Type of loan Amount granted

(US$)

Interest term

(%)

Maturity

(Years)United Overseas

company to receive and fully use the loan in accordance with the Facility Letter TheSCCI, the SBV, and other relevant authorities are involved in this process It isproposed that Vietnamese party or SBV8 will provide a guarantee in such form as UOBmay require in accordance with the Facility Letter Foreign party also provides aguarantee to the UOB, so that the JV company will be authorized to borrow the loan itneeds for the project construction The SBV will give its written approval for theprincipal and the interest under the loan provided by UOB to be remitted to UOB inSingapore in accordance with the Facility Letter.

The figure 4.2 presents various partners involved in the financing of WLSADproject The scheme looks somewhat complicated, however it reflects the reality ofexisting procedures for investment and banking activity associated with projectfinancing

4.3.3 Project description

µ Overview

Luxury apartments developed by WLDC are constructed in the area of 5,500 m2,situated at No 254D Thuy Khe St., Ba Dinh dist of Hanoi city Four blocks withdifferent types of apartments are designed in very nice space Total surface ofconstruction floors is 9,040 m2, composing from 20 apartments type A with a size of 98m2 (two-bedroom); 25 type B apartments having size of 96 m2 (Two-bedroom); and 15type C apartments with a size of 63 m2 (One-bedroom) There is sport room, laundry,room safes, business center, restaurant, swimming pool, tennis court and children'splayground

µ Natural conditions

The 5,500-m2 piece of land in 254D Thuy Khe street is located in the bank of theWest Lake There are some main features of the climate in the West Lake area: (1)summer lasts long, temperature is not high; (2) winter usually brings very cold weatherdue to north-east winds, humidity is high; (3) rainy season lasts from April to Augustwith annual rainfall of 1,600 mm Sometime, Hanoi hits storms, but they are weakenwhen passing long distance from off-shore

µ Design and construction

Since Vietnamese party is a construction company, it was selected to take charge

in designing the whole project from planning to construction designs It was also asked

to consult with architects appointed by Singaporian party during designing process Italso took the responsiblity to deal with entire procedures to get construction permit

8 The Government of Vietnam authorizes the Ministry of Finance to provide guarantee togovernment organisations, and State Bank to provide guarantee to non-governmentorganisations

appropriate with regulations issued by the government of Vietnam and Hanoiauthorities.