What’s behind the Eximbank-SMBC hand shaking?

In early August 2007, breaking news was announced: Eximbank had chosen Japanese Sumitomo Mitsui Banking Corporation (SMBC), one of the leading banks in the world, as its strategic partner. There are many more things that can be said about the cooperation.

The announcement about the cooperation between Vietnam’s Eximbank and Japan’s Sumitomo Mitsui was the fully satisfactory result of the quiet negotiations between the two sides.

It is clear that Eximbank has made a good deal, since Japanese banks are well known for their cautiousness and conservatism, always taking skeptical steps in doing business, and having perfect risk management skills. Japan is the country with the biggest number of banks in the world. This is the first time a Japanese bank has bought shares of a Vietnamese bank.

If comparing the Eximbank-SMBC deal with the deals of selling shares by other Vietnamese banks to foreign partners, one should see that the selling price of Eximbank proves to be the highest and most beneficial to the local bank in the context of share price slides and decreasing VN Index.

The deal of selling 15% of shares to the Japanese partner can bring Eximbank the huge sum of money of $225mil. The issuance price was 6.42 times higher than the share face value, and 10% lower than the market price at the issuance moment.

Money is not the only thing SMBC can bring to Eximbank. The Japanese bank will also bring support in technologies, and bank governance. In order to bring the support, SMBC will assign a representative to Eximbank, who will join the bank’s management board.

The move by Eximbank of choosing a leading Japanese bank as a strategic shareholder has been highly praised by other local banks, as it was a double move.

The move will allow Eximbank to improve its financial capability and upgrade its management skills. Moreover, it will help the bank better satisfy clients, and Vietnamese enterprises which do business and have relations with Japanese partners. Every one knows that Japan is one of Vietnam’s leading export markets, and one of its biggest trade, investment and tourism partners.

At this moment, Eximbank is also nearly wrapping up the deal on selling 10% of its shares to two foreign investment funds. The said deals would help Eximbank raise its chartered capital from VND2,800bil ($175mil) to VND3,733bil ($233.31mil) in 2007.

The capital surplus Eximbank can get after selling shares to foreign partners may reach VND5,600bil ($350mil). If counting the capital surplus the bank got when selling shares to 17 local partners, estimated at VND3,500bil ($218.75mil), Eximbank would get more than VND9tril ($568mil), enough to become the joint stock bank which has the biggest ownership capital and the bank which has the second biggest chartered capital in Vietnam.

It is expected that in 2008-2010, Eximbank will give dividends to shareholders and divide the fund of capital surplus with the minimum proportion of 35% per annum. By 2010, Eximbank’s chartered capital will reach VND13tril ($812.5mil) at minimum, the level that other banks will find it hard to reach.

With the big ownership and chartered capital, Eximbank will be able to follow its strategy on modernising technologies and initiating other investment plans.

More than one month ago, on June 20, 2007, Eximbank announced it reached an agreement to sell VND500bil of chartered capital to 17 domestic strategic shareholders, which are big economic groups. The selling price was 8-fold higher than the face value, worth VND4tril ($250mil).

The 17 strategic shareholders included big names like Generalexim 1, Asia Commercial Bank, Kinh Do Group and Saigon Trading Corporation.

The said move has also been praised by analysts: while other joint stock banks just have one or two domestic partners, Eximbank has chosen 17 big ones.

Source: VNE