Transcript Vietnam’s experience of

Current experiences, opportunities
and innovations of municipal financing
in Ho Chi Minh City, Vietnam
Presentation to International Conference on Financing
Municipalities & Sub-national Governments
30th September 2004
CONTENTS
1.
An introduction of Ho Chi Minh City Investment
Fund for Urban Development (HIFU).
2.
Experience in fund raising for urban infrastructure
development.
3.
Opportunities – challenges & HIFU’s strategies to
capital mobilization for Ho Chi Minh City’s
infrastructure development.
Introduction of HIFU

HIFU, a state-owned financial institution, directed by Ho Chi
Minh City People’s Committee, was established by the
Government in 1997 as a pilot model to increase effectiveness
in utilizing state budget and non-state mobilized funds for
developing urban infrastructure.

HIFU’s equity capital increased from USD 12.84 million in 1997
to USD 39.75 million at the end of 2003.

HIFU’s operations mainly focus on:
i.
Disbursement and repayment management of trusted fund;
ii.
Lending to urban infrastructure projects of transportation, treated
water, health, education, resident areas, and industrial parks;
iii. Directly investment through founding and managing joint-stock
companies operating in socio-economic insfrastructure aspects.
Fund raising Experiences

Trusted state fund management

Loan syndication with banks

Foundation of joint-stock companies investing in
infrastructure fields

Municipal bond issuance
Trusting state fund to HIFU’s management

City’s government assigned a part of state capital to HIFU’s
management of disbersement, utilization and repayment

This mechanism has partly helped transform state-subsidized
mechanism into budget lending with full repayment.

This mechanism has been mostly applied in financing projects
of channel area clearance, damaged resident building
clearance, and new area building...

With its experiences of trusted fund management, HIFU has
been assigned to manage Pollution Minimization Fund of
HCMC and Revolving Fund, which are cleaner production and
enviromental improvement program.
Loan syndication with banks

Advantages of this financing are:
 Ability of raising a large amount of fund for long-term financing
of revenue-backed projects couldn’t be funded by any single
bank.
 Risks can be shared among banks and the controlling of project
implementation will be increased.

This mechanism has been applied to finance many big
infrastructure development projects in the City.

As a role of syndication leader, HIFU’s capital participated in
these projects about 20%. Then, local government has been
successful in mobilizing remaining 80% from other economic
sectors for investment.
Foundation of joint-stock companies
investing in infrastructure fields


This is a typical model of public – private partnership.
Advantages of this modality:




Investment responsibility and risks previously on state’s
side can be partly transferred to private sector
Better management
Stable profitability
Successful applying through foundation of Ho Chi Minh
City Infrastructure Investment Company (CII) in 2001
CII – model of public-private partnership




Founded by HIFU in 2001, CII operates in concession contracts of
operating transportation projects; investing in revenue – backed
infrastructure projects under various forms of BT, BOT,...
The city has transferred to CII the entitlement of operating 02
roads to take back budget resource for other projects.
Based on this cocession contract and contributing 15% of equity to
CII, HIFU publicly mobilized capital to set up an initial USD 20million registered capital
CII then has multiplied this model by participating in other urban
infrastructure projects.
HIFU’s strategy is putting in seed capital (about 20% of registered
capital) to attract other public financial resources to invest in the
City’s infrastructure projects.
Municipal bond issuance

HCMC Municipal Bond (local government bond) were firstly
issued by Ho Chi Minh City’s government in 2003, under the
form of general obligation bond.

The City’s government has empowered HIFU, by basing on
legal stipulations of government bonds, to issue USD 127
million of 2003’ municipal bond.

Successful municipal bond issues in HCMC opened up a new
fund raising channel with advantages of longer term and
stable financing, reasonable cost of financing, and suitable to
infrastructure projects.

In 2004, HIFU has issued another USD 127 million of
municipal bond and has been studying municipal bond issued
plan for revenue-backed projects of the City
Opportunities

High decentralization for HCMC allows it to mobilize every
domestic and foreign resource for local needs, specially in
seeking finacing of infrastructure development.

HIFU’s achievments over the past opens up its future
opportunites:

Ability of mobilizing financial resource from any economic sector in
Vietnam and from abroad.

Affirming HIFU’s stratergic position as a leader and coordinator in fund
raising.

Applying various market – based economy financing mechanisms in
emerging Vietnam.

Chances of working with international partners for achieving larger
funding size and applying other financing mechanisms
Challenges

Mission of raising a large size capital for infrastructure
development lead to the demand of expanding and multiplying of
HIFU model in other provinces.

A need of large – in – size long – term financing with low interest
rate to make public services and to match projects’ revenue
generation and budget balancing of the City.

A need of improvements and adjustments in financing process
management, financial and accounting transparency, autonomy,
and achieving credit ratings in accordance with international
financing standards.

Building of capacity to meet international standards and the
expansion of HIFU’s and other local funds’ capital size.

Creation of supporting agencies for Viet Nam such as credit rating
agencies should be one of priorities.
HIFU’s long term development strategies

A Technical Assistance project has been put in
implementation, including HIFU’s capacity building task to
bring HIFU to an international or an Asian Region standard
fund

Mobilizing capital in local and overseas markets
(domestic/foreign currency – denominated municipal bond
issues, bond issues in international financial markets under
HIFU as the issuer, and other types of debt financing)

An idea of setting up Ho Chi Minh City Infrastructure
Development Fund (HIDF) for the City which has received
strong interest and support from Ho Chi Minh City’s
government, other national ministries.