HDBank in sale talks with three Japan financial companies

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Ho Chi Minh City Housing Development Commercial Joint-Stock Bank is in talks with three Japanese finance firms to sell as much as a 30 percent stake, amid a wave of investments in Vietnam from Asia's second-largest economy.

The sale of existing shares would involve more than one buyer next year, Chairwoman Le Thi Bang Tam said in an interview in Hanoi on Nov. 14. She declined to name the Japanese companies, saying the talks are confidential, or to estimate the value of the deal. Vietnamese law limits foreign ownership of a bank to 30 percent, with no more than 20 percent held by a single investor.

The talks follow Mitsubishi UFJ Financial Group Inc.'s December purchase of a 15.5 trillion-dong ($734 million) stake in Vietnam Joint-Stock Commercial Bank for Industry and Trade, or VietinBank. Vietnam is trying to accelerate restructuring of the banking system, which Fitch Ratings says is saddled with the highest rate of bad debt in Southeast Asia, as Prime Minister Nguyen Tan Dung seeks to allow more foreign ownership.

"Partnerships with Japanese banks can help us expand business with Japanese companies, and give us assistance in improving our corporate governance," Tam said. "Japan is the biggest foreign investor in Vietnam, with investment and official development assistance inflows rising steadily."

A 30 percent stake of an estimated total outstanding 810 million shares could be valued at about 1.7 trillion dong after a planned acquisition of a local bank, according to Bloomberg calculations. The bank is trading at about 7,000 dong a share on the country's over-the-counter market, Hoang Thach Lan, Ho Chi Minh City-based brokerage unit head at MHB Securities Co. said today. The bank currently has 500 million shares outstanding, according to the company.

HDBank also plans to list its shares on the Ho Chi Minh City stock exchange after selecting a foreign partner, Tam said.

DaiABank acquisition

HDBank is buying DaiA Commercial Joint Stock Bank and a local unit of Societe Generale SA, bringing total assets to 93 trillion dong at the end of the first quarter next year from 61 trillion dong at the end of October, Tam said.

HDBank will issue new shares, offering one for each outstanding share in DaiABank, she said. That values the deal at 2.2 trillion dong, according to Bloomberg calculations based on the current share price of 7,000 dong per share on the over-the-counter market and DaiABank's 310 million outstanding shares. HDBank expects to receive central bank approval for the purchases this month, Tam said. DaiABank expects to finish the deal within weeks, Chairman Chu Viet Cuong said by phone Nov. 15.

DaiABank's bad-debt ratio stood at 4.4 percent at the end of September, while HDBank's was about 3 percent, Tam said. DaiABank isn't on a list of banks required by the central bank to undergo restructuring, she said.

The benchmark VN Index rose 0.4 percent at open today and has gained about 22 percent so far this year. The dong has weakened about 1.2 percent this year.

Deal value

The State Bank of Vietnam is seeking to attract foreign investment as it strives to speed up restructuring of the industry, the central bank said Nov. 14. It is classifying more banks as "weak" and in need of overhaul, after identifying nine such lenders last year, according to the statement.

In addition to Mitsubishi UFJ, Japan's other two so-called megabanks have invested in Vietnam in recent years. Sumitomo Mitsui Financial Group Inc. bought 15 percent of Vietnam Export-Import Commercial Joint Stock Bank, known as Eximbank, for $225 million in 2007. Mizuho Financial Group Inc. announced the purchase of 15 percent of state-owned Joint-Stock Commercial Bank for Foreign Trade of Vietnam, or Vietcombank, for about $560 million in 2011.

Spokesmen for Mitsubishi UFJ, Mizuho and Sumitomo Mitsui declined to comment on whether they're in talks with HDBank.

"The Japanese are coming in everywhere in Southeast Asia, as we see an exodus of manufacturing from China," said John Sheehan, regional managing director for Capital Services Group, a loan servicing and collection company. "The Japanese banks that have invested in Vietnam so far have paid over market value," he said, adding that starting their own operations may be better than buying shares in existing banks.

Bad debt

HDBank plans to sell some of its nonperforming loans to the Vietnam Asset Management Company, set up by the central bank this year to help clean up bad debt, Tam said, adding that the amount has yet to be determined. Banks with bad-debt ratios of 3 percent or more will be required to sell nonperforming loans to the company, the government said in May.

Vietnamese banks have the highest bad-debt ratio of six Southeast Asian countries covered by Fitch Ratings. Soured credit stood at 7.8 percent of outstanding loans at the end of last year, according to the central bank.

The government is targeting economic growth of 5.8 percent next year, the first time since 1988 that expansion would be less than 6 percent for three straight years, according to International Monetary Fund data. Delayed reforms at banks and state-owned companies could undermine investor confidence and worsen the nation's growth prospects, the World Bank said in July.

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