RNS Number : 0450Z
Vietnam Property Fund
09 March 2012
Vietnam Property Fund Limited
"VPF" or "the Company"
NAV and February 2012 Update
Fund NAV Performance
The NAV per share closed at US$0.753 on 29 February 2012.
The consumer price index ("CPI") month-on-month ("m/m") increased from +1.0% in Jan to +1.37% in Feb, mainly due to the Vietnamese New Year (Tet) effect. This was much lower compared to last year when CPI m/m reached 1.75% in January and 2.5% in February. CPI year-on-year ("y/y") continued to drop and recorded 16.4% in February, down from 17.3% last month. Prices were more stable during this Tet holiday with both food and non-food February m/m inflation decelerating: food +1.45% this year vs. 3.6% last year and non-food +0.7% this year vs. 1.0% last year.
Given the rapid rise in global energy prices the pressure to increase petroleum prices has been building. The Government therefore recently reduced the import tax to support petroleum distributors. Despite this support petroleum distributors continued making losses, said to be some VND1,400 loss/liter, prompting the Government to increase petrol prices by 7.5% on average on 7 March. We estimate that this increase will add about 0.9% to the CPI (0.3% directly, 0.6% indirectly). If we conservatively assume that the electricity price may be increased by about 15% soon we would have to add another estimated 1.1% to the CPI. Hence, even with an electricity price hike, we expect inflation in 2012 to still come in below 10% given weak aggregate demand and prudent monetary and fiscal policies .
The Government reported that FX reserves increased by 20% since the beginning of 2012 thanks to a falling trade deficit. This brings the estimated FX reserves from around US$15bn as at end of 2011 to some US$18bn. This is largely in line with our forecast of a US$5-6bn balance of payment surplus this year, much higher than the Government's conservative forecast of US$2bn. The better than expected performance was not only due to the falling trade deficit, but also due to the increasing confidence in the Vietnamese Dong which motivated Vietnamese people to shift from US$ and gold assets to the Dong.
Owing to the rapidly decelerating inflation, the Government just announced that interest rates would be reduced by 100bps in the very near future: deposit interest rate cap will go down from 14% to 13%, refinancing rate from 15% to 14% and Open Markets Operations rate from 14% to 13%. This move was anticipated by the market and hence will not fuel inflation expectations as the market realises that:
-- The current economic situation is weak and inflation y/y has been falling sharply since Q3 last year, from 23.2% in August 2011 to 16.4% in February 2012.
-- The currency has stabilised. Both interbank and black market rate are now more or less the same as the official mid rate, a phenomena not seen for a long time.
It has been an encouraging start to the year with a good sustained increase in the VN Index sending signals of a potential recovery in the stock market. Real estate provided perhaps the biggest surprise with a couple of our equity holdings rising over 50% year to date. Admittedly we do have quite a long way to go to break even on some of our stock holdings but the first two months of the year have been extremely encouraging from both a price growth point of view and daily trading volume increase.
We have also been actively trading in February with a deal agreed to sell our holding in SJS to a local investor. Towards the end of last year we heard about a dispute between the management of SJS, the largest shareholder and parent company and the decision was taken to exit this holding. We were offered a premium to the share price on the date of trading of just under 15%. This deal did realise a loss of c. 45% from the original purchase price but the exit was necessary to avoid being caught up in a potentially damaging local dispute that VPF would have had no control over. It is worth noting that this is not the first time we have exited a position with SJS and that, over the life of VPF to date, our net US$ return on SJS is a more acceptable 18%.
We have also deployed more funds into the SDI project. In order to meet its short term cash flow requirements and to comply with one of the Vietnamese company regulations (charter capital has to be at least 20% of investment capital), SDI decided to increase charter capital by the maximum of VND 300bn, equally divided into 3 capital calls with the first capital call occurring at the end of February at VND 100bn (c. US$ 4.79m). VPF fully contributed its portion of VND 10bn (c. US$ 479,386) to maintain its 10% equity interest in the company. We supported this company action as it allowed the company avoiding costly bridging finance in the current weak borrowing conditions and as it allowed VPF preventing a negative impact of US$ 1.89m on VPF's NAV that a dilution would have had. Currently, SDI is undertaking negotiations to acquire further financing options in order to avoid the shareholders injecting further funds into the project.
For further information including the full February Monthly Report please visit - www.vietnampropertyfund.com or contact:
Dragon Capital Markets (Europe) Limited | Tel: +44 79 71 214 852
Seymour Pierce Limited (Nominated Adviser and Broker) | Tel: +44 20 7107 8000
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