Expressway hits road block

In mid-January 2012 developer Vietnam Expressway Corporation (VEC) failed selling VND300 billion ($14.2 million) bonds with the Ministry of Finance (MoF) acting as underwriter to source further capital for project implementation.

The northern expressway project reportedly needs VND4.728 trillion ($225 million) more to reach the target of getting the whole project being put into service by late June 2012. Part of this sum will be used to pay up debts from previous bond issuances.

The recent bond issuance failure came from the fact that the bid price offered by a sole investor eclipsed MoF’s set ceiling coupon rate (14 per cent against 12.4 per cent).

“While commercial loans are pegging lending rates at 21-23 per cent per year, the ceiling coupon rate set by MoF for VEC bonds are rather low,” said VEC chairman Tran Xuan Sanh.

In fact, VEC’s bond rates are set by the MoF based on government bond coupon rates plus 0.3-0.6 per cent per year interest rate to cover investor risks. Hence, these rates are often low just slightly higher than those of treasury bonds.

Industry insiders, however, assumed the financial market’s current hostile climate for bond issuances was one reason why investors turned their backs on VEC bonds.

“With 25-30 years time for investment capital recouping and low profitability the project’s finance would reach an impasse once developer raced with commercial banks to hike bond coupon rates to lure investors,” said Sanh.

The 50 kilometre long expressway stretching from Hanoi’s Cau Gie to Ninh Binh reportedly could not be open to traffic in June 2012 as demanded by the prime minister if developer VEC could not raise the proposed $225 million fund from issuing bonds.

“VND1.8 trillion ($85.7 million) advanced sum from state coffers for the project is basically disbursed, meanwhile remaining work volume is huge,” Sanh said.

Issuing bonds to raise funds is the only way for the expressway project to source investment capital. Hence, to rescue the project from falling short of completion deadline VEC has proposed the MoF seek permission from the prime minister to get an additional advance from state coffers and consider selling the right for toll collection of the project to enrich capital sources.

Selling toll collection rights at this point of time could dampen the project’s finance later on, according to an industry expert.

Reality shows that putting 23km in the project’s beginning sector into service from late October 2011 had yielded dividends to developer since each month VEC reaped over VND350 billion ($16.6 million) from toll collections.

“The developer could get better revenue figures if the entire 50km expressway was available for use from June,” said VEC chief accountant Luong Quoc Viet.