Vietnam Property Fund Net Asset Value and June 2012 Update (3023H)

TIDMVPF

RNS Number : 3023H

Vietnam Property Fund

10 July 2012

Vietnam Property Fund Limited

"VPF" or "the Company"

NAV and June 2012 Update

Fund NAV Performance

The NAV per share closed at US$ 0.779 on 30 June 2012.

Investment Climate

Credit growth was a mere 0.4% for the first six months of 2012, much lower than the Government's target of 12%, even though M2 grew 6.8%. One of the main reasons for this sluggish credit growth is that banks are naturally very cautious about lending when non-performing loans ("NPLs") are rising. In such an environment credit worthy companies don't dare to borrow as lending rates are too high whereas risky companies who want to borrow don't get credit. This has been hampering economic growth as inflation finally was brought under control. In order to fuel growth the economy however will need a reasonable credit expansion. For this occur it will require a clear plan on dealing with NPLs and further restructuring of the banking sector. There is no such clear plan for NPLs as of yet as the Government announced that they will not use new cash to solve NPLs in order to avoid future inflation. Instead they will employ financial instruments and the existing regulatory framework to address NPLs, though it remains unclear what financial instruments they have in mind. We expect the State Bank of Vietnam ("SBV") to have a clear plan on NPLs in August.

Another reason for the low credit growth is that the effective lending rates have not fallen sufficiently yet, despite substantial reductions in policy rates during Q2 which are still at around 16-17%. Whilst some banks still offer 12 month deposit rates of 12%-13% others offer only 9%. Hence, if cost of funding is to be reduced faster then it will be important to control and constrain maximum deposit rates. Given that the banking sector restructuring has only led to two M&A transactions thus far the Prime Minister has recently urged the SBV to accelerate the restructuring efforts. We understand that the SBV just finished a plan on 5 July to restructure another nine banks which gives rise to the hope that restructuring indeed will be accelerated in Q3. If so, we expect lending rates to reach 12-14% on average.

In Q2 GDP grew 4.7% year on year compared to 4.1% in Q1, resulting in a 4.4% GDP growth for 1H2012. Industrial & Construction was again the driver for the slow down, declining from 5.8% in 1H2011 to 3.8% in 1H2012. Services were a smaller factor, reducing from 6.2% in 1H2011 to 5.6% in 1H2012. Agriculture was no exception and slowed, too, from 3.9% in 1H2011 to 2.8% in 1H2012. The Government revised its GDP growth target down from 6-6.5% to a more realistic 5.2-5.7% target. However, we think that it would be quite a success to achieve a 5.2% growth as we expect credit growth in 2012 to be much lower than the Government's target, i.e. only 8% vs. the target of 15%. What further underpins our concern is the Purchasing Managers Index data published by Markit of 46.6 in June, which is the lowest number since Feb 2012. Nonetheless, we believe that the real economy will slowly find its bottom in Q3/Q4 2012.

Investment Update

The financial year of 2011/2012 has come to an end on 30 June with the feeling that it has once again been a year of two halves. 2H2011 brought to an end one of the worst years for the Vietnam real estate market since the Asia crisis of 1997 with many developers and land owners feeling the pinch as high interest rates, slow sales and falling rents put many projects in jeopardy. The fact there were not more bankruptcies as a result of bank foreclosures and loan defaults is as much to do with the banks not wanting to declare NPL's as developers finding solutions. The main impact for VPF was felt in our listed equity portfolio which saw poor performance during this period. Our project holdings, however, held up well with strong performance from our PDD office building and our projects being in the development phase as opposed to struggling for sales.

1H2012 has been more interesting for us here at VPF. The stock market saw some good performance in the first four months with real estate and banking stocks - those that had performed the worst in 2011 - leading the initial recovery. The market has tracked sideways since then however although this is more due to the issues experienced around the world than being a specifically Vietnamese slowdown. We are in the process of preparing our year end valuations and annual report which will be available soon.

The future for the Vietnam real estate market is certainly on an upward trend although it is unclear at this time when a full recovery is likely. We are starting to see better sales in the best residential projects such as Phu My Hung's Chateau villa development providing good sales at high prices and Sapphire's City Garden development seeing a marked pickup in activity. It is clear that landed property like villas and townhouses are performing the best with apartments still proving difficult to sell unless in a central location. The phrase, 'an Englishman's home is his castle' appears to be equally true in Vietnam as the majority of sales in the landed property sub-sector are going to owner occupiers. In terms of pipeline we have more good opportunities than ever before and are currently considering an investment in a development company, a hospital project, a logistics and storage business as well as the more traditional residential and commercial project. The next twelve months are likely to see the property market go through further pain although we feel it will be time for VPF to shine as we have cash to take advantage of distressed and better priced projects.

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

Enquiries:

Rachel Hill

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

Freddy Crossley

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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