Financing Urban Infrastructure Development: HIFU’s Practical Experiences Speech by Dr. Vuong Duc Hoang Quan Director of Investment Department Ho Chi Minh Investment Fund for Urban Development (HIFU)

Hochiminh City Investment Fund for Urban Development - HIFU HIFU is the 1st Local Development Investment Fund in Vietnam – established by the decision of Vietnam’s Prime Minister in June 1996 and under the direct control of the Ho Chi Minh City’s People Committee Mission: Increase the effectiveness in mobilizing and utilizing funds from various sources, including private funding, for the ultimate purpose of promoting the development of the socio- and physical infrastructure of the City.

HIFU Main activities Direct Investment Lending Entrusted Capital Management Securities Market Participation Municipal Bond Issuance Agency

Fund-mobilization methods used by HIFU Trusted management of state fund Loan syndication with banks Municipal bond issuance Foundation of joint – stock companies investing in infrastructure

1. Trusted management of state fund Before1990s, pay-back “free” mechanism to finance investment projects Upon HIFU’s establishment, loans already made by the Ho Chi Minh City Department of Finance were transferred HIFU is responsible for disbursing loans made out of budget funds, monitoring the use of capital deployed as well as collecting on these loans.

Trusted management of state fund (cont) This mechanism has been mostly applied in financing projects relating to land clearance, and environmental improvement. The application of this approach was found to improve the efficiency in using the national-budget originated funds through enhancing the project owner’s accountability when getting financed.

Trusted management of state fund (cont) HIFU has been trusted and assigned to manage some other funds: Pollution Minimization Fund of Ho Chi Minh City (USD 1 million) Revolving Fund (USD 2.5 million) for cleaner production program ADB’s loan of USD 43.3 million for environmental improvement of Ho Chi Minh City.

Trusted management of state fund (cont) Trust Fund loans of HIFU have grown more than double over the last six year from VND 532.6 billion to VND 1,332.85 billion (equivalent to USD 83.30 million). The majority of the outstanding balance of Trust Fund loans at HIFU paid no interest and, on these, there were management fees payable.

2. Loan syndication with banks Loan syndication is not a newly-invented approach to rise funding Advantages: Ability of pooling many financial institutions’ capital to get access to large amount of fund for long – term projects, whose size could not be funded by any single bank Risks can be shared among banks and the controlling of project implementation will be increased owing to many participating lenders

Loan syndication with banks (cont) HIFU has applied this approach successfully to finance big infrastructure development projects in the City: Water treatment plants (about USD 101.59 million) Thu Thiem New Town project (USD 50.79 million) Transportation development (USD 31.75 million) Projects of repair, upgrading and equipping facilities for hospitals, infirmaries, schools with total investment of over USD 45.70 million

Loan syndication with banks (cont) In implemented projects, with the role as a syndication leader, capital proportion HIFU has participated accounts for about 20% Through the role HIFU has played, local government has been successful in mobilizing remaining 80% from other sources of different economic sectors for investment

3. Municipal bond issuance First municipal bond issues ever in Viet Nam were done by the City’s government and by HIFU in 2003 to raise fund for Ho Chi Minh City’s government with total amount issued of USD 127 million Bonds issues by Ho Chi Minh City: “Plain vanilla” general obligations by the City Semi-annual debt service Principle and interest payment are made out of the City’s budget resources. Proceedings from municipal bond issues have contributed to balancing capital resources needed for the City’s urban infrastructure projects.

Municipal bond issuance (cont) Successful municipal bond issuances in Ho Chi Minh City opened up a new fund raising channel with advantages of longer term and stable financing, reasonable cost of financing suitable to infrastructure projects, not only for Ho Chi Minh City but for other provinces in Viet Nam as well. This financing has contributed to capital mobilization for infrastructure development and overcome drawbacks of commercial lending from banks. From 2003 to, HIFU has issued 2’000 VND (equivalent to approximately USD 120 million) of municipal bond each year for the City.

4. Foundation of joint – stock companies investing in infrastructure Direct fund mobilization from the public through capital contribution in setting up joint stock companies operating in project investment. Typical model of public – private partnership. Investment responsibility and risks previously on the state’s side can be partly transferred to private sector. Better management due to private participation with average but stable profitability is a noteworthy feature of this model, attracting public to invest.

Foundation of joint – stock companies investing in infrastructure When establishing these joint stock companies, HIFU clearly identifies the types as well as the objectives of these Public-Private Partnership projects. The projects should be those in accordance with the Master Development Plan of the City. They are urgently essential for the development of the City, and revenue-backed. By establishing joint stock companies, HIFU has actually not only succeeded in raising funds needed to make the projects feasible but also bring over investment opportunities to investors, either state-owned or private, to directly involve in the development of City infrastructures

HCMC Infrastructure Investment Co. (CII) Founded in 2001, USD 20 million capital (HIFU 15%) Listed May 2006 Current Market Cap: USD 175 million Functions: Concession contracts of operating transportation projects Investing in revenue – backed infrastructure projects under various forms of BT, BOT, etc. Projects: Hung Vuong and Dien Bien Phu roads Phu My Bridge BOT Joint - Stock Company - USD 101.60 million (Cofounder) Thu Duc Water Treatment Plant Project - USD 101.60 million (Cofounder)

Hochiminh City Investment Fund for Urban Development - HIFU Thank you!

HO CHI MINH CITY INVESTMENT FUND FOR URBAN DEVELOPMENT 1997 - 2007