Bank buys bond to bail out suspended expressway project

Vietinbank, Vietnam’s fourth largest lender by stock market capitalization, has pumped VND300 billion (US$15 million) into the country’s first expressway project to help keep the construction work go on.

View of a section of East-West Highway in HCMC’s District 4. Vietnam has only four roads under construction that rise to international expressway standards (Photo:Minh Tri)

The work on Vietnam’s first expressway was halted earlier as the builder - state-run Vietnam Expressway Corporation (VEC) – constantly failed to sell the project’s bond due to the economic recession.

VEC chairman Tran Xuan Sanh said the construction work this year required an amount of VND4.3 trillion ($215 million), which was expected to be raised from the bond issue earlier.

But the issue was then undue as the bond’s low interest rates could not catch investors’ interest. The Ministry of Finance last year announced it would have to halt guaranteeing the bond issue as the corporation’s total debt to equity ratio rose too high.

To curb the problem, Deputy Prime Minister Hoang Trung Hai instructed the Ministry of Finance to keep providing the guarantee in order to help VEC speed up the project.

Some commercial banks later stepped in to buy a total amount of bonds worth VND1 trillion. Among them was Vietinbank buying the five-year bonds worth VND300 billion, with the interest rate of 12.1 percent per annum.

“Vietinbank financed the Cau Gie – Ninh Binh expressway with a very low interest rate compared to the current one [14 percent per year] as a token of our gratitude to our big client VEC,” said chairman Pham Huy Hung of Hanoi-based lender.

“Moreover, it is the nation’s key transport project, which will help improve infrastructure and boost the economy.”

Doan Thanh Thao, deputy head of the finance department of the Ministry of Transport, said Vietinbank’s move was a significant thing for the transport sector.

The 56-kilometer construction project on Cau Gie – Ninh Binh expressway kicked off in 2006, with the total investment of VND9 trillion ($450 million). The progress has reached 75 percent so far, with VND4.5 trillion being disbursed.

VEC – an arm of the Ministry of Transport - earlier tried to raise VND2.7 trillion (US$169 million) from a domestic bond issue in 2007 to invested in the first phase of the 56-km Cau Gie-Ninh Binh expressway through Ha Nam, Ha Tay, Nam Dinh and Ninh Binh provinces.

The corporate bond issue recently approved by the government was guaranteed by the Ministry of Finance.

In a dispatch to the VEC in 2007, Prime Minister Nguyen Tan Dung instructed the ministries of transport and finance, and relevant agencies to assist the corporation in drawing up a bond schedule.

The first phase of the project, for which construction kicked off January, 2007, saw VEC build the four-lane road expected to open traffic in 2009. In the second phase, the expressway was expected to be expanded into six lanes.

As planned, the project owner was also expected to build other facilities along road like petrol and auto repair stations, rescue centers, motels and advertising services.

Vietnam has only four roads under construction that rise to international expressway standards.

Under the government’s infrastructure development plan between 2007 and 2020, the target of a 2,353-kilometer highway to be built by 2015 will be the VEC’s largest task.

Expressways account for 4.44 percent of total roadway mileage in Singapore, 0.61 percent in Malaysia, and 2.4 percent in Korea, but they are almost negligible in Vietnam.

Building highways in the country has long fallen under the authority of Project Management Units (PMUs) within the Ministry of Transport. Since 2004, however, the task has been transferred to the VEC.

By Bao Minh – Translated by Vu Minh

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