Vietnam Property Fund Net Asset Value and August 2012 Update (0019M)

TIDMVPF

RNS Number : 0019M

Vietnam Property Fund

11 September 2012

Vietnam Property Fund Limited

"VPF" or "the Company"

NAV and August 2012 Update

Fund NAV Performance

The NAV per share closed at US$ 0.764 on 31 August 2012.

Investment Climate

HSBC's Purchasing Managers Index ("PMI") increased from 43.6 in July to 47.9 in August. This implies that the economy continued contracting but at a much slower pace than before; the first improvement in the last four months. There were relative improvements across the various sub-indices with the biggest increases being recorded in the New Order Index, the New Export Order Index and the Employment Index. These improvements point to seasonal factors supporting the PMI as the economic activities are being ramped up to prepare for the year end reporting season. Similar PMI improvements were also reported last year in August and September. However, given the current economic outlook, we are on the skeptical side as to whether the PMI will keep on improving in the coming months.

The arrest of Mr. Kien, co-founder of Asia Commercial Bank, for questioning about alleged "wrong-doings related to his business activities" caused temporary shockwaves within Vietnam. The unofficial US$/VND exchange rate briefly shot up to US$/VND 21,100 but then settled comfortably within the trading band at US$/VND 20,950, an important indication that local confidence was restored and remained intact. Interbank interest rates also returned to normal levels, with overnight rates dropping from 8% down to 3%, thanks to the State Bank of Vietnam's prompt infusion of additional liquidity to stabilise the market. During the last monthly cabinet meeting, Mr. Vu Duc Dam, the Government Office's spokesman, referred to the recent events and assured the public that any future actions taken by the Government would have little negative effect on the markets and that the Government remained determined to improve governance in the banking sector. Whilst we believe that such actions from the Government will create short term volatility for the system they are indeed necessary for the reform of the banking sector.

According to a research project supported by the National Assembly's Economic Committee ("NAEC") and the United Nations Development Programme, Vietnam's non-performing loans in the banking system are about 10-12% of total credit (about $123bn), translating into $12-15bn of bad debts. The project report however indicated that Vietnam may need less than $12-$15bn to recapitalise the banks, a view that we endorse. Outstanding loans are 1.35x collateralized. However, after taking actual market conditions into consideration, the ratio should be adjusted to 0.72x, according to our estimate, bringing uncovered bad debts to around $3.5-4bn; a not insubstantial amount given the total banking sector equity is about $12-$13bn. However, provided the Government is serious and takes the appropriate approach we believe the bad debt problem can be managed through a joint effort between the Government and the banks over the next 2-3 years.

Investment Update

It has been a turbulent month in Vietnam with a couple of high profile figures in the banking industry being detained by the authorities to help with enquiries. This has caused significant volatility in the stock market which has detracted from what was looking like a sustained period of gains. It is unclear what the future will bring but we beleive it is positive that the Government is trying to deal with widespread crossholdings and vested interests in the banking sector. Any move to improve the banking sector can only be welcomed and this puts further pressure on already beleaguered land owners and property developers. There is clear pain in the market and the current landscape of foreign and domestic investors has never been so bare giving a competitive advantage for VPF. Whilst Vietnam is not at the top of most international investors list of emerging markets to invest in, it is the view of Dragon Capital that now is the time to pick up bargains and plan for the inevitable upswing. Nothing happens quickly in Vietnam but we are seeing more and more opportunities.

We are also seeing macroeconomic indicators move in the right direction with inflation coming under control at under 7% y-o-y, bank lending rates dropping and the currency being relatively stable for over a year now. This has not, however, been enough for the real estate market to recover any momentum yet due to continued restrictions on credit growth, particularly in the real estate sector, while the specter of increased non performing loans continues to plague both developers and banks alike. Financing is still difficult to obtain in the current market but where credit can be obtained interest rates are now being quoted around 15% to 18% for VND as opposed to 22% to 25% 12 months ago. This is not quite low enough to make projects and feasibility studies work but it is a step in the right direction. In conclusion, we may not be at the bottom of the property cycle quite yet but we believe now is the time to be planning for distress and then recovery as the market will be opening up for more attractive deals.

For further information including the full August Monthly Report please visit - www.vietnampropertyfund.com or contact:

Enquiries:

Rachel Hill

   Dragon Capital Markets (Europe) Limited |            Tel: [phone] 

Freddy Crossley / Tom Sheldon

Seymour Pierce Limited (Nominated Adviser and Broker) | Tel: [phone]

This information is provided by RNS

The company news service from the London Stock Exchange

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