Bonds to rescue stalled projects

CII will breathe a new lease of life into incomplete projects such as Binh Trieu 2

“We think issuing convertible bonds is more feasible than issuing shares as previously planned,” said CII’s deputy general director Nguyen Quyet Chien.
“Both domestic and foreign investors will be allowed to register in the forthcoming bond issue,” he told Vietnam Investment Review last week.
The issue is due for mid-year so CII can present tenders for key projects in the city, Chien said, adding that capital from future bonds should net registered capital of VND400 billion ($25.4 million).
Convertible bonds to be issued by CII would likely have annual interest of 8.4 per cent and a term of three years or less.
After three years, the bonds could be exchanged, at the option of the holder, for a specific number of shares of the company’s preferred stock or common stock.
Bonds will be traded on the free market and, if permitted by the State Securities Commission, on the stock market, said Chien.
Capital mobilised from the issue will mostly be used for the half-complete Binh Trieu 2 bridge and road project that the cash-strapped investor has failed to continue, he said.
The Ho Chi Minh City government has recently asked CII to join the Ho Chi Minh City Department of Transport and Public Works in taking over the project valued at VND1.69 trillion ($108 million) from Cienco 5, as this developer can not afford the huge investment required.
The 11-kilometre project that was started in early 2001 comprises three bridges and two sections of road. One links the southern end of Binh Trieu 2 bridge to Binh Thanh district and the other links it to Binh Phuoc intersection in the outlying district of Thu Duc.
Cienco 5 (Civil Engineering Construction Corporation 5) has only completed the Binh Trieu 2 bridge. The corporation put the project on hold in late 2003, as it could not afford to build the remaining works due to financial constraints.
CII would be responsible for completing the rest of the project while the department would use state budget funds to cover compensation and site clearance.
Founded by Ho Chi Minh City Investment Fund for Urban Development (HIFU) in December 2001, CII is the first joint-stock company in Vietnam to raise funds from the public to invest in large-scale infrastructure.
The company plans to purchase operating rights from developers of key infrastructure projects in the city, and then collect tolls to recoup investment.
CII has been given the rights to collect tolls for a nine-year period on the Hanoi Highway and the extended section of Hung Vuong boulevard in Ho Chi Minh City, with the total cost of the two projects estimated at VND1 trillion ($63 million).
Most urban infrastructure projects in Ho Chi Minh City are funded by the municipal budget or short- or medium-term commercial credit loans with high interest rates.
Idle capital belonging to the public and financial institutions, meanwhile, has yet to be effectively mobilised due to the lack of appropriate mechanisms.
“With the transfer of rights to CII to operate the two roads, the city can recoup capital to fund other major infrastructure projects,” said CII general director Le Vu Hoang.
As part of its development strategy, Hoang said the company planned to raise funds for major projects in the city in addition to collecting tolls on road projects.
These projects include a $145 million Thu Duc water plant in Thu Duc District, Soai Kinh Lam commercial and apartment complex in District 5, and infrastructure for Tan Phu Trung industrial park in Cu Chi district, which has just been approved by the prime minister.
CII also plans to join five partners to construct Phu My Bridge, the first suspension bridge in Ho Chi Minh City, which is estimated to cost VND1.6 trillion ($101 million).
It will also contribute funds to the Eastern Canal Water Shareholding Company to build a VND1 trillion ($63 million) water plant with a daily capacity of 200,000 cubic metres in Cu Chi, as well as apartment buildings in districts 2, 5, and 10.