As bad debts clog Vietnamese banks, investors wait
By Chris Brummitt, APHANOI -- The soured loans clogging up Vietnam's banks and the rows of abandoned houses gathering mold in the Hanoi rain are signs of a sick economy. But to foreign investors they represent an opportunity for sparkling returns — if only the Communist government makes them welcome.
September 24, 2013, 12:17 am TWN
Neil Hagan, an American debt recovery specialist who wants to start a company servicing bad loans in Vietnam on behalf of foreign buyers, says he gets weekly calls from hedge funds based in Singapore and Hong Kong asking whether now is the time to scoop up some of the debt.
So far at least, he advises them to stay put.
“They see the kill, but they just can't get in,” said Hagan, who serviced debt for Lehman Brother's and others in Asia after the financial crisis in 1998. Foreign investors bought billions in bad debt and distressed assets following the meltdown.
Hagan predicted that by the end of year a couple of smallish deals or “teaser cases” might be possible. He named private equity giants like Lone Star and Fortress as possible buyers. Other economists and investments bankers were less confident, noting the government would have to make significant changes in the law for this to happen smoothly.
Vietnam's banks lent out billions of dollars in the late 2000s as the government sought to stimulate the economy in the face of a global economic slowdown. Much of the money was lent with little oversight to state-owned companies, many of whom invested in the property market.
Now, with property prices slumping and the economy posting its slowest growth for more than 10 years, companies and individuals who took out the loans are unable to pay them back. These so-called non-performing loans are threatening to bankrupt many of the smaller banks and crimping lending at others, further squeezing the economy.
Selling bundles of soured loans to international investors is one way take them off the books of the banks. Typically, investors will buy tranches of loans along with their assets at significantly below face value. They hope to male make money by flipping the assets or spending money sprucing them to sell later or squeeze revenue from them. They employ loan servicing companies to carry that out.