Australia’s Resource Boom: From Blessing To Curse

By: QFinance   Date: 30 October 2012

QFINANCE is a unique collaboration of more than 300 of the world’s leading practitioners           

 

Over the last decade, the Australian economy has experienced a boom on the back of the rise of Asia – with Chinese demand for Australian commodities in particular spurring economic growth. Yet, with emerging market growth in Asia having now slowed down, Australia’s abundance of resources is transforming from being a blessing to a curse.

 

The Paradox of Plenty, or the Resource Curse, as it is also known, refers to the conundrum posed by the fact that historically, countries blessed with abundant natural non-renewable resources such as mineral wealth or oil, tend to have stunted economic growth and to lag behind in value added production.

There are any number of reasons given for this depressing outcome from what should have been beneficial beginnings: There is the difficulty other sectors have in competing with the resource sector, which tends to be privileged and which soaks up the lion’s share of inward investment; There is the fact that resource exporting countries tend to see a marked appreciation of their currencies, which sucks in imports and makes value added exports uncompetitive; and of course there is the swings and roundabouts that characterize commodity markets, with price volatility being part of the course.

Australia’s economy has boomed on the back of the rise of China over the last decade or so. In a recent paper, three members of the Reserve Bank of Australia, Michael Plumb, Christoper Kent and James Bishop, state unreservedly that growth in Asia has been very positive for the Australian economy. By driving up commodity prices, investment demand from Asia has supported a very significant increase in the considerable productive capacity and export capabilities of the resource sector. Asia has also boosted jobs, income, tax revenues and wealth generally in Australia, the three admit.

Australian citizens have also benefited from the lifestyle effects that come from having a strong currency and being able to import manufactured goods from elsewhere. As the paper puts it, «the purchasing power of the average wage has risen in all major indices since the terms of trade begun to rise in 2003/4».

Growth in household disposable income was even stronger that wage growth since the government has been able to make tax cuts thanks to stronger tax receipts from the resource sector.

Australia has also seen a huge influx of FDI (foreign direct investment) with some estimates now putting the foreign ownership of Australia’s resource sector as high as 80 percent.

«The combination of the high exchange rate, a record of low and stable inflation and a relatively flexible labour market means that while demand for labour, and the growth of wages, has been higher in the resource and resource-related sectors, this has not led to a significant increase in wages in Australian dollar terms across the economy as a whole.»

The Resource Curse

On the down side, industries outside the favoured resource group have seen their costs go up, unless they happen to be importing from overseas suppliers in which case a strengthened currency would have helped them. And there has indeed been a steady drain of people away from jobs in the other sectors and towards the resource intensive section. Moreover, the boom in emerging market growth across Asia has now slowed and there is continued talk of a possible hard landing for the Chinese economy. Many sectors in the Australian economy are now performing under their potential and on October 2, the Reserve Bank took the decision to cut rates.

Announcing the rate cut RBA Governor, Glenn Stevens sounded a warning for companies relying on China.

«Growth in China has … slowed and uncertainty about near-term prospects is greater than it was some months ago. Around Asia generally, growth is being dampened by the more moderate Chinese expansion and the weakness in Europe,» he warned.

Already this slowdown is impacting the Australian economy. The country’s terms of trade with the rest of the world declined by over 10 percent through 2012, by comparison with the peak in 2011 and further declines are anticipated. The RBA rate cut also saw the Australian dollar pull back sharply against the US dollar, from over US$1.06 to the Australian dollar to US$1.01 five days later, with parity with the US dollar briefly seeming like a real possibility (the Australian dollar has since improved somewhat).

Any weakening of the Australian dollar though still has its up side for Australian exporters, who are also being helped by the fact that inflation is currently down around 2 percent. The economy too, should benefit from a slightly more accommodative monetary policy. Until the recent rate cut, the RBA had been trying to damp down the potential for the recent commodity price boom to ripple through into spiraling inflation, by raising interest rates.

This seems largely to have succeeded and the risk now is that a mild slowdown in Asia could cause the Australian economy to catch a severe cold, hence the shift back to a more accommodative rate policy. By mid October inflation in Australia was down below the RBA’s target rate of 2-3 percent, again signalling that a looser economic policy would not be likely to stoke inflation in the short to medium term.

By Anthony Harrington

Anthony Harrington is an award-winning business and energy journalist, writing regularly for the Scotsman newspaper, the Glasgow Herald newspaper, Financial Director magazine, Pensions Insight magazine, CA Magazine, and a number of other publications. He won Business Finance Journalist of the Year 2006, Institute of Financial Accountants, and Journalist of the Year, State Street 2006 Institutional Press Awards, and was runner up in 2007 and 2008.

 

Advertisement

U.S. Stocks to Open After Longest Storm Outage Since 1888

By Nina Mehta and Katia Porzecanski – Oct 31, 2012 BLOOMBERG

U.S. equity markets will open today after the longest weather-related shutdown in more than a century, resuming after the New York Stock Exchange was spared by Hurricane Sandy as it swept through New York Oct. 29.

The decision was announced in statements by NYSE Euronext, Nasdaq OMX Group Inc. (NDAQ) and Bats Global Markets Inc. The NYSE’s headquarters are running on backup power and will keep using it if necessary all week, Larry Leibowitz, the chief operating officer, said in a phone interview. Fixed-income trading, halted at noon Oct. 29, will also reopen, under a recommendation by the Securities Industry and Financial Markets Association. Trading was canceled for four straight days in the wake of the Sept. 11, 2001, terror attacks and the New York exchange shut for seven days in 1933 during President Franklin Delano Roosevelt’s bank holiday.

U.S. exchanges are in the second day of a suspension called to safeguard workers as Sandy barreled north, halting public transit and forcing evacuations in New York City. NYSE Euronext’s building on Wall Street is near areas of Manhattan that were deluged when the storm propelled a 13-foot sea surge. Arthur Levitt, the former chairman of the Securities and Exchange Commission, said the NYSE needed a better backup plan.

“We’ve got people there at the floor, which was not compromised by the flooding,” Duncan Niederauer, chief executive officer of NYSE Euronext, said in an interview on Bloomberg Television with Matt Miller. “We’re spending the day testing connectivity with clients, many of whom are operating from their own contingency sites. So first and foremost, we’re going to deal with them.”

Leaves, Branches

The SEC has been in consultation with the markets throughout the storm and supports the decision to reopen, John Nester, a spokesman, said in an e-mail. The Depository Trust & Clearing Corp., located at the southern tip of Manhattan, was open yesterday and expects to be fully operational today, according to a statement.

Streets outside the exchange at 11 Wall Street were strewn with leaves and branches before noon New York time, with sandbags still stacked two high around the building. Mailboxes and trashcans were overturned at Broad Street and Beaver Street.

Florescent lights were visible on upper floors of the NYSE building. Water had receded from the financial district. Tourists wearing sneakers took pictures amid groups of police and residents walked their dogs around the neoclassic structure, opened in 1903.

“We fully plan to be up and running,” Leibowitz said. “There’s no damage to the physical plant. We’re running off our generators.”

Market Makers

Brokers and trading firms may experience “spotty connectivity problems” when they access markets today, Leibowitz said. He predicted some firms may have trouble finding fuel if they are running from backup systems or using generators.

NYSE plans to operate the floor with at least 100 people including designated market makers and other personnel, Leibowitz said. All NYSE-listed companies will be represented by their market makers, though the firms may not be “fully staffed,” he said.

The company’s main data center for its U.S. markets in Mahwah, New Jersey, “cut over to backup power as a precaution,” Oct. 29, Leibowitz said. He expects all NYSE Euronext exchanges run out of the Mahwah facility to operate normally today. “It’s better to cut over to backup power when you can control it,” he said.

Consecutive Shutdowns

The NYSE began testing for a backup plan that would be necessary had storm damage prevented it from reopening the floor. In that case, NYSE Arca, its electronic market, would be deemed the primary market for NYSE-listed stocks and the Big Board wouldn’t have operated. Firms started to test their systems at 9:30 a.m.

American equity markets were closed Oct. 29 and yesterday, the first consecutive shutdowns because of weather in more than a century. The last comparable closure of the NYSE was on March 12 and 13, 1888, when a blizzard dumped 21 inches of snow on New York, according to the company’s website. The exchange was closed for about 1 1/2 days after a snowstorm in February 1978.

The NYSE’s reputation will suffer because of the shutdown, said former SEC Chairman Levitt.

Contingency Plan

“People look to the New York Stock Exchange (NYX) as being the symbol of American capitalism, and to see the exchange go down for two days without an adequate backup plan is very, very unfortunate,” Levitt said on a Bloomberg Radio interview. “To see the New York Stock Exchange crippled is a body blow that will really shake the image of that institution for a long time to come.”

His view is “disappointing,” the NYSE’s Niederauer said.

“Obviously Arthur has been involved in the industry for a long time but is maybe a little out of date with the facts,” he said. “We had a contingency plan. It was approved by the SEC in ’09. It was communicated to everyone in ’10 and tested earlier this year, and the industry simply preferred that we not implement that plan on Monday and Tuesday.”

New York officials began assessing damage after Sandy killed 10 people, sparked a fire that razed 80 homes in Queens, flooded tunnels of the biggest U.S. transit system and left 750,000 customers without power. Sandy is among the worst storms in New York history, rivaling the blizzards of 1888 and 1947.

Stock markets hadn’t been closed for four days in a row since the start of 2007 when, following a weekend and the New Year’s Day holiday on a Monday, they shut on Jan. 2 to observe a day of mourning for President Gerald Ford’s death.

Terror Attacks

Trading was canceled for four days after the Sept. 11, 2001, terrorist attacks, the longest shutdown since President Roosevelt declared a bank holiday in March 1933. In 2001, the Standard & Poor’s 500 Index plunged 4.9 percent when markets reopened Sept. 17. The Dow Jones Industrial Average soared 15 percent the first trading day after the 1933 stoppage

Trading on the Chicago Board Options Exchange (CBOE) and CBOE Futures Exchange was shut yesterday, said CBOE Holdings Inc. in an e-mailed statement. The exchange operator said trading will resume today.

“I’m a little surprised that the exchanges couldn’t secure the technology needed,” Dominic Salvino, a specialist on the CBOE floor for Group One Trading LP, the primary market maker for VIX options, said in a phone interview. “It seems unreasonable that the nation’s financial markets have to shut down just because everyone has located themselves within five miles of each other in New Jersey.”

Plans Scuppered

Exchanges had planned as recently as Oct. 26 to open for normal business this week before forecasts for the storm got worse. At about 4 p.m. on Oct. 28, the NYSE announced it would shut the trading floor at its headquarters and use its Arca exchange, an electronic platform, for all transactions. After a series of discussions between exchange officials, market makers, the SEC and other participants, the industry said at about 11 p.m. that night that all markets would be shut on Oct. 29.

“Do you really want to open up the market and have these potential issues right before the election, right before month end?” Matt McCormick, who helps oversee $7.3 billion at Cincinnati-based Bahl & Gaynor Inc., said in a telephone interview. “I’d rather be slow and correct than fast and wrong and really wrong. It’s better to be conservative.”

The NYSE’s plan to switch floor trading to Arca spurred investor concern about potential malfunctions in a market still shaken by recent trading mishaps, including a software error at Knight Capital Group Inc. that almost sent the Jersey City-based market maker into bankruptcy in August.

Nasdaq experienced delays in opening Facebook Inc. in its initial public offering in May, causing losses for some traders who bought more shares than intended. Bats Global Markets Inc. canceled its IPO in March when it couldn’t get its shares to trade on its own exchange.

To contact the reporters on this story: Nina Mehta in New York at nmehta24@bloomberg.net, Katia Porzecanski in New York at kporzecansk1@bloomberg.net;

Σε 60 τρισ. κυβικά πόδια τα κοιτάσματα φυσικού αερίου στην Κύπρο

26 Οκτωβρίου 2012,  Newsbeast.gr

Το καθαρό κέρδος εκτιμάται ότι ξεπερνά τα 800 δισ. ευρώ

Σε 60 τρισεκατομμύρια κυβικά πόδια ανέρχονται τα τα κοιτάσματα φυσικού αερίου στην κυπριακή ΑΟΖ, σύμφωνα με τις εκτιμήσεις του διευθυντή της Υπηρεσίας Ενέργειας του υπουργείου Εμπορίου, Σόλων Κασίνη.

Μόνο στο τεμάχιο 12, δήλωσε στο ΡΙΚ ο κ. Κασίνης, τα κοιτάσματα πιθανόν να ανέρχονται στα 8 με 12 τρισεκατομμύρια κυβικά πόδια και, όπως σημείωσε, αρκούν για να εξυπηρετήσουν τις ενεργειακές ανάγκες της Κύπρου για 250 χρόνια.

Η συνολική αξία του τεμαχίου 12 υπολογίζεται σε 350 δισ. ευρώ, ενώ το καθαρό κέρδος μόνο για το συγκεκριμένο τεμάχιο, αν αφαιρεθεί το κόστος ανόρυξης και εκμετάλλευσης, ανέρχεται στα 86 δισεκατομμύρια.

Η συνολική αξία των τεμαχίων στην κυπριακή ΑΟΖ ανέρχεται σε δύο τρισεκατομμύρια ένα δισεκατομμύριο ευρώ. Το καθαρό κέρδος εκτιμάται ότι ξεπερνά τα 800 δισεκατομμύρια, σύμφωνα πάντα με τον κ. Κασίνη. Kαι οι δύο εκτιμήσεις αφορούν μόνον το φυσικό αέριο.

Peru May Invest About $5.2 Billion in Water, Wastewater Projects

By Randall Hackley – Oct 26, 2012 BLOOMBERG

Peru is aiming to improve access to potable water in cities including Lima and rural areas with about $5.2 billion of projects and investments over the 2010-2016 period, the state news agency Andina said.

Drinking water coverage in Peru’s cities was about 89 percent two years ago and the government aims to increase that to 92 percent by 2016 with infrastructure upgrades, the Housing Ministry said. The government also hopes to improve wastewater treatment access with $521 million in projects during that period, Andina said in a statement.

The government estimates 1 million people in Lima, the country’s largest city and capital with 10 million residents, don’t have access to running water. The government said it hopes to boost potable water coverage in rural areas to 57 percent from 39 percent two years ago with the investments.

Randall Hackley in London at rhackley@bloomberg.net

Crude Pares Second Weekly Loss as Hurricane Approaches

By Mark Shenk and Moming Zhou – Oct 27, 2012 BLOOMBERG

Oil pared a second weekly loss, rising with gasoline and heating oil on concern that Hurricane Sandy will disrupt East Coast refinery production and as the U.S. economy showed signs of growth.

Prices advanced as Sandy was forecast to intensify into a “Frankenstorm” that may become the worst to hit the U.S. Northeast in 100 years. The gross domestic product grew at a 2% annual rate in the third quarter, according to the Commerce Department, exceeding analysts’ expectations.

“Oil would have closed lower if not for the Frankenstorm,” said Phil Flynn, senior market analyst at Price Futures Group in Chicago. “It’s obviously having a bigger effect on heating oil and gasoline because supplies are tight. If the storm shuts refineries and we’re then hit by a cold snap, we could see heating oil prices surge.”

Sandy is forecast by the National Hurricane Center to go between Philadelphia and Baltimore on Oct. 30. Five refineries in Delaware, New Jersey and Pennsylvania that produce 600,000 barrels a day of gasoline may be shut down, said Andy Lipow, president of energy consultant Lipow Oil Associates LLC in Houston.

Purchasing Power

GDP, the value of all goods and services produced, increased its growth from 1.3 percent in the prior quarter. The median forecast of economists surveyed by Bloomberg was a 1.8 percent gain.

Consumers’ purchasing power eased, with disposable income adjusted for inflation rising at a 0.8 percent annual rate from July through September, the least since the end of 2011, today’s report showed.

The GDP estimate is the first of three for the quarter, with the other releases scheduled for November and December when more information becomes available.

“The GDP number was better than expected but 2 percent growth doesn’t signal a booming economy,” said Kyle Cooper, director of commodities research at IAF Advisors in Houston. “At $86 a barrel we’re close to fair value.”

The U.S. is the world’s biggest oil consumer, accounting for 21 percent of global consumption last year, according to BP Plc (BP/)’s Statistical Review of World Energy.

Price Outlook

Oil may decline next week on surging U.S. inventories, weakening demand and higher production, a Bloomberg survey showed. Sixteen of 36 analysts, or 44 percent, forecast crude will decrease through Nov. 2. Fifteen respondents, or 42 percent, predicted a gain. Five forecast little change.

“Fundamentally, supply has been big,” said Bill Baruch, senior market strategist at Iitrader.com in Chicago. “There are still fears that the global economy is slowing down.”

Mark Shenk in New York at mshenk1@bloomberg.net; Moming Zhou in New York at mzhou29@bloomberg.net

 

Iranians nurture ties to Asia to blunt sanctions

By Brian Murphy

Associated Press

October 25, 2012

 

DUBAI, United Arab Emirates — In back-to-back Asian summits this month, Iran’s president made sure to carve out special time to look east.

At one gathering in Azerbaijan, Mahmoud Ahmadinejad reminded the president of Kazakhstan about the vision of a railway linking the heart of Central Asia with Iran’s warm ports.

At another meeting in Kuwait, he held talks with Tajikistan’s leader about their growing trade ties.

Even as U.S. and European sanctions tighten around Iran’s economy, officials in Tehran are busy reaching out to Asian markets as a critical lifeline.

For months, Iran’s oil sales to energy-hungry nations such as China and India have been the focus of intense Western efforts to reduce the flow as part of the pressure over Iran’s disputed nuclear program.

Yet lesser — but not insignificant — economic pathways for Iran also run along the ancient Silk Road connecting China and the Middle East.

While Iranian trade and projects in Central Asia are tiny compared with oil sales to the continent’s economic powerhouses, the outreach represents another way for Tehran to seek economic buffers from sanctions in a region where Washington holds relatively limited sway.

It also displays some of Iran’s first steps at trying to diversify its economy away from oil — which still represents 80 percent of foreign currency revenue — and develop backyard markets for its construction and technology industries.

«The Iranian economy is so strong that it could live without oil revenues,» Mr. Ahmadinejad said at a Pan-Asian summit last week in Kuwait. «Our people could get accustomed to that, and I think that things will change in the near future.»

On Tuesday, Iranian Oil Minister Rostam Qasemi told an energy conference in Dubai that Iran has contingency plans to run the country without the critical oil revenue, including investments in solar and other renewable sources.

While Iran is a long way off from functioning without its oil income — and may never reach that stage — the remarks reflect real ambitions to turn Central Asia into a key market for Iranian goods and technological expertise while offering the landlocked former Soviet republics access to the sea.

In August, carmaker Iran Khodro announced plans to boost exports to Kazakhstan and Turkmenistan.

In Tajikistan, Iranian construction firms are major builders, with projects such as hydroelectric power stations and a $39 million tunnel that connects the capital Dushanbe to northern Tajikistan.

But the centerpiece of the Islamic republic’s outreach — an uninterrupted rail link through Central Asia — remains caught up in disputes and competing ventures more than 15 years after the first leg was opened between Iran and neighboring Turkmenistan.

Last month, Turkmen President Gurbanguli Berdymukhamedov abruptly canceled a reported $700 million contract with Iran’s Pars Energy to continue the rail line to Kazakhstan along the Caspian Sea coast.

The reasons were unclear, but Turkmenistan has been reviewing its deep trade ties with Iran as Western sanctions widen.

Meanwhile, Turkmenistan and Uzbekistan have expressed interest in joining a rail project running from Azerbaijan’s Caspian Coast to the eastern Turkish area of Kars.

Such a railway would bypass Iran and still provide the sea access coveted by the Central Asian states.

«Iran has no choice but to turn to Asia for trade» because of the Western sanctions, said Sasan Fayazmanesh, an economic affairs expert and head of the Middle East Studies Program at California State University, Fresno. «But that, of course, will not solve Iran’s problem of selling its oil since the Central Asian countries, for the most part, do not need Iran’s oil.»

But for Tehran, its overtures to Central Asia mean more than just a price tag.

Iran has been a cultural point of reference for centuries across the ex-Soviet states through books, films and traditions dating back to Persia’s pre-Islamic Zoroastrian faith.

Iran’s main Central Asian foothold, Tajikistan, also shares linguistic ties that give Iran an important commercial edge over China and Russia.

A weak link for Iran, however, is the rifts within Islam.

Much of Central Asia is Sunni Muslim, and governments are cautious about any moves that could stir sectarian tensions with Shiite minorities. These same divides, in turn, help cement the influence of Shiite Iran in Iraq and parts of Afghanistan.

 

Vietnam’s Biggest Property Developer Bets on Shift from Gold to Property

Pham Nhat Vuong became a billionaire selling a Ukrainian instant-noodle business and creating Vietnam’s biggest property developer.

The 44-year-old chairman of Vingroup Joint-Stock Co. (VIC), which is building eight mixed-use projects in prime locations in Vietnam at a total cost of more than $4 billion, plans to get even richer selling high- and mid-end apartments to Asians who want to reallocate their holdings from cash and gold.

 “Vietnamese people still hold a lot of gold as their savings,” Vuong said in an interview at the company’s headquarters in Hanoi. “Vietnamese are very similar to the Chinese. They just can’t sit on gold bars underneath their beds. Eventually they will pull out their gold bars and invest. It will be a boom for the real-estate market.”

Vuong and his wife, Pham Thu Huong, own about 50 percent of Vingroup, Vietnam’s fifth-biggest company by market value. Excluding shares he has pledged as collateral to finance some of the company’s real estate projects, Vuong is worth $1.3 billion, according to the Bloomberg Billionaires Index. He has never appeared on an international wealth ranking.

Vingroup is seeking to raise about $300 million in a share sale in Singapore by August to fund its Vietnamese expansion. The company shelved plans for a Singapore listing last year when the city-state’s benchmark Straits Times Index (FSSTI) fell 17 percent.

“If you give me $10 billion now, I would spend it all on construction because there’s so much more to build,” Vuong said. “There is tremendous demand in Vietnam.”

The billionaire said he also has plans to build properties in Singapore or Hong Kong, where some of Asia’s biggest developers are based.

Nestle Sale

Vuong studied geological economic engineering at Moscow Geology University in Russia. After school, he moved to Ukraine, where he created LLC Technocom, a producer of more than 100 dehydrated food products, including instant noodles and mashed potatoes.

He sold the company for an undisclosed price to Nestle SA in 2010. Technocom had revenue of more than $100 million at the time of the sale. Based on the average revenue multiple of mergers and acquisitions involving food companies worldwide in 2010, the company could have been valued at $150 million when the billionaire sold the operation to the Vevey, Switzerland- based food company that year, according to data compiled by Bloomberg. Vuong declined to comment on the sale price because of a confidentiality agreement.

Back Home

Vuong returned to live in Vietnam in 2001, when he started resort developer Vinpearl Joint-Stock Co. He set up Vincom Joint-Stock Co., which develops mid- to high-end commercial and residential properties, the following year. Vinpearl and Vincom, both of which were listed, merged to form Vingroup this year.

Vingroup has controlling interests in 19 mixed-use and resort projects it is building in Vietnam, including in Hanoi, Ho Chi Minh City, Hung Yen and Da Nang. It owns almost 97,000,000 square meters of the site area.

Vingroup’s projects in Hanoi, known for its French colonial architecture and tree-lined boulevards, are within 10 kilometers of the city center. The government, which created a market economy with Doi Moi, or economic renovation policies, in 1986, is seeking to develop the capital into a modern metropolis.

At the mixed-use Royal City project, situated at an old factory site about 5 kilometers from Hanoi’s central business district, construction continues around the clock. Buyers of the high-end apartments, which are being sold at $1,800 to $2,500 a square meter, can adapt the design of their units to suit their “fengshui,” or Chinese geomancy, needs. The project will include the first indoor water park and ice-skating rink in Vietnam when completed next year.

Lifestyle Change

At Times City, located in a bustling residential and commercial area in Hanoi, Vingroup opened Vietnam’s first hospital that offers single-patient rooms and presidential suites. The project, scheduled to be completed in 2014, also includes residential blocks, a mall and an international school.

Vuong, a father of three, said he wants to sell a new “living experience” for Vietnamese people.

“We want to bring better products to Vietnam,” he said. “My hope is through changes in lifestyle and the products we consume, it will affect the people and change the way they are thinking. The country will develop further from where it is today.”

Vingroup has acquired land from factories that are relocating from central districts to the outskirts of the city as the capital pushes through its urban renewal plan. The company owns about 10,200 hectares of land in prime locations in Hanoi, the southern commercial capital of Ho Chi Minh City, as well as the coastal cities of Nha Trang, Da Nang and Hai Phong.

Premium Spots

Buying land in prime or unique locations has enabled Vingroup to sell its properties at a premium to market rates, even during a downturn, said Phuong Ton, an analyst at Viet Capital Securities in Ho Chi Minh City, who has a “hold” recommendation on the stock. Another key selling point is the developer’s ability to complete its projects within a short period of time, she said.

Vingroup “has a special advantage in terms of capital; that’s why they can target those projects which require a lot of leverage right at the beginning,” Ton said. “Most of the properties that they have introduced in Hanoi and Ho Chi Minh City have incorporated some new development concept in Vietnam.”

Convertible Financing

The company sold $300 million of convertible bonds to international investors this year. It raised $100 million in the first overseas convertible bond sale by a Vietnamese company in 2009. Vingroup had assets of about $1.7 billion and liabilities of $1.3 billion as of Dec. 31, according to data compiled by Bloomberg.

The billionaire said he will develop properties outside of Vietnam “when there’s a good opportunity.” He hired McKinsey & Co. this year to conduct a strategic review of Vingroup’s business and advise the company on its future.

“Given their vision, limiting themselves to Vietnam’s boundaries would limit their growth potential,” Viet Capital Securities’ Ton said.

Vuong travels to other cities for ideas. When the developer was building the Vincom Center in Ho Chi Minh City, he organized a trip to Singapore for the complex’s retail tenants, paying for their airfare and accommodation. They went to Ion Orchard, jointly owned by Singapore-based CapitaLand Ltd. and Hong Kong’s Sun Hung Kai Properties Ltd., to study its shop front and other features of the luxury shopping mall.

Dismantling Rooms

Before building Vinpearl Resort Nha Trang, his first hospitality project, nestled on a private beach by the South China Sea, Vuong visited the hotels in Phuket with a screwdriver stashed in his suitcase. He used the tool to dismantle hotel room fittings — before reassembling them — to understand how they were put together.

“He’s very modest and down-to-earth,” said Le Thi Thu Thuy, chief executive of Vingroup and a former Lehman Brothers Holdings Inc. investment banker. “He always tells management to continue learning every day, that you can’t be happy, content with what you already have.”

The size of Vuong’s target customers is unclear. Vietnam’s urban population is growing 3.4 percent annually, according to the World Bank, with growth fastest in and around the two biggest cities, Ho Chi Minh City and Hanoi. Only about 5 percent of the population in the two largest cities is able to afford homes currently being produced by large developers, according to the lender.

Limited Affordability

About 47 percent of households in Hanoi and Ho Chi Minh City earn an average annual income of $7,425, according to property broker CBRE Group Inc.’s local unit, which said it would take 51 years to save enough money to buy a mid-end condominium that would cost $72,000.

The majority of real estate purchases in Vietnam are still made without a mortgage. It would take the average household 242 years to save enough to buy a $342,000 luxury condominium, according to CBRE’s local unit.

Home prices in Ho Chi Minh City surged almost threefold from 2004 to the first quarter of 2008, according to CBRE data. Values then fell as the government raised interest rates and restricted lending for real estate and other non-productive sectors, in a bid to tackle inflation.

The State Bank of Vietnam has lowered its key refinance rate by 500 basis points since March to 10 percent, as annual inflation plunged back toward single digits from a high of 23 percent in August last year.

Sales Data

Vingroup sold 7,000 to 8,000 residential units at the end of 2010 and early 2011, Vuong said. The apartment units at the Vincom Center in Ho Chi Minh City, which also boasts a spa and fitness center, were sold in 2010 at an average selling price of about $8,000 per square meter, a record in Vietnam.

Vuong, who values discipline and rewards those who do well, upholds a slogan for employees: “Speed, creativity and efficiency in everything you do, in every action.”

The billionaire plays soccer and basketball every week with Vingroup employees at the company’s sports center, often trading his suit and tie for a company soccer team’s red jersey and shorts. He plays the position of striker, whose job is to score goals.

“Attacking is better than defending,” he said, adding that he applies that principle to everything he does.

The Historical Silk Route Map

The Proposed Trans Adriatic Pipeline Map

The Northern Naval Route