RISK AND RETURN ANALYSES IN PROJECT FINANCING:

SELECTED CASES IN VIETNAM

By
HOANG MINH TAM

A research study submitted in partial fulfillment of the requirement for the degree of
Master of Business Administration

Examination Committee:

Prof. Jyoti P. Gupta (Chairman)

Prof. I. M. Pandey
Dr. Urs Bumbacher

Hoang Minh Tam

Nationality
Previous Degree

:
:

Vietnamese
B.Eng. ( Energy Technology)
Czech University of Technology of Prague
Czech Republic

Scholarship donor

Government of Switzerland

Asian Institute of Technology

Bangkok, Thailand
March, 1995.

-iACKNOWLEDGMENTS

The author would like to express his sincere gratitude to Prof. Jyoti P. Gupta,
Research advisor and Chairman of the Research Committee for his valuable guidance,
constructive comments and encouragement throughout the research study.
Thanks are also due to Prof. I. M. Pandey and Dr. Urs Bumbacher for their valuable
contribution in serving as Committee members, as well as for precious suggestions and
comments on the research study.
The author would like to take this opportunity to express his deep appreciation to the
Government of Switzerland, Asian Institute of Technology and the Ministry of
Education and Training of Vietnam for organizing the Management Development
Program in Vietnam (SAV program) and for providing him with a scholarship to complete
his MBA at AIT (Thailand).
Thanks are also extended to the West Lake Development Co. Ltd. and Thuy Tien
Office Building's Owners, Vietnamese banks and foreign bank branches, representative
offices and other institutions in Hanoi that he visited for his data collection. The willingness
of the Vietnamese and foreign managers, officers of those institutions to spare their
valuable time for discussions is greatly appreciated.
The author remains indebted to his family, who have provided continued moral support
during his whole study period in Ho Chi Minh City (Vietnam) and in AIT, Bangkok
(Thailand). Especially, the author would like to express his indebtedness to his wife for
her great love, her taking care of our son and her invaluable assistance in completing this
research.
Last but no least, the author would like to thank all the faculties and friends at SOM
and AIT for their help and boundless inspiration.

- ii ABSTRACT

Seeking investment opportunities, foreign investors today face difficulties in assessing

the political, social and economic situation to classify the country risks and any kind of
risks possibly related to their business in Vietnam. This study aims to highlight main
aspects influencing the risk-return analysis in project financing. The research is carried out
on the basis of the fundamentals of risks identification and the application of methods
dealing with risks. Together with focusing on property business, data collection was
conducted from secondary sources, in-depth interviews concerning two projects, direct
and indirect interviews in some financial institutions. All visits were realized in Hanoi
capital. The research revealed that most foreign investors assume risks arising from the
country's legal infrastructure, especially laws on foreign investment and land. Problems
with credit risk assessment and less developed banking system have been placing
constraints against capital mobilization, which has certain effects on the financing of both
foreign and domestic investments.
Based on specific characteristics of risks inherent in projects, this study proposes a
risk-return analysis model which should be used as a guideline for decision makers in
financing decisions, who want to minimize risks and expect maximum benefit from their
investments in the country being in the transition phase to a market-oriented economy.

- iii TABLE OF CONTENT

Title page
Acknowledgement
....................................................................................................................................
i
Abstract
....................................................................................................................................
ii
Table of content
....................................................................................................................................
iii
List of tables and figures
....................................................................................................................................
vi

APPENDIX A
....................................................................................................................................
75
APPENDIX B
....................................................................................................................................
95
REFERENCES
....................................................................................................................................
102

- vi -

LIST OF TABLES AND FIGURES

LIST
OF
TABLES
....................................................................................................................................
vi

- vii LIST
OF
FIGURES
....................................................................................................................................
vii

LIST
OF
TABLES
AND
FIGURES
IN
APPENDIX
A
....................................................................................................................................
vii
For chapter 3:
Table A3.1. Investment by country, Jan 1, 1994 to Dec 1, 1994
........................................................................................................................
75
Table A3.2. Investment by country, Jan 1, 1988 to Dec 1, 1994
........................................................................................................................
76
For chapter 4
Figure
A4.1.
Communication
channels
(WLR)
........................................................................................................................
77
Table A4.1. Master Budget for West Lake Service Apartments
Development
Project
........................................................................................................................
78
Table A4.2. Expenses in West Lake Service Apartments Development
Project.
........................................................................................................................
80
Table A4.3. Projected Income Statement (conducted in feasibility study)
........................................................................................................................
82
Table A4.4. Estimated Income Statement (conducted just before starting
operation)
........................................................................................................................
87
For chapter 5
Table
A5.1.
Project
cost
estimation
........................................................................................................................
92
Table A5.2. Expenses for project development and construction
........................................................................................................................
93

Table
A5.3.
Estimated
Income
Statement
........................................................................................................................
94
LIST
OF
TABLES
AND
FIGURES
ETC.
IN
APPENDIX
B
....................................................................................................................................
vii
Figure B1. Foreign bank branches in Vietnam (by Jan 1995)
........................................................................................................................
95
Figure B2. Investment by sector, Jan 1, 1994 to Dec 1, 1994
........................................................................................................................
95
Table B3. The Leaders (investment by country, 1/1/1988-1/12/1994)
........................................................................................................................
96
Questionnaire
B4
........................................................................................................................
97
Questionnaire
B5
........................................................................................................................
99