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  • 1. Vietnam Infrastructure Limited Annual Report 2008
  • 2. 2 VNI 2008 Annual Report Contents Vietnam Infrastructure Limited Annual Report 2008 Section 1 Introduction Overview 3 Chairman’s Statement 5 Section 2 Manager’s Report State of the Economy 6 Investment Environment 8 Portfolio Performance 10 Featured Investments 16 Section 3 Financial Statements and Reports Report of the Board of Directors 20 Independent Auditors’ Report 22 Consolidated Financial Statements 23 Notes to the Consolidated Financial Statements 26
  • 3. VNI 2008 Annual Report 1Rush hour traffic on Ho Chi Minh City’s crowded roads
  • 4. 2 VNI 2008 Annual Report Vietnam’s busiest port, Saigon Port, is in the middle of HCM City, leading to increased traffic congestion.
  • 5. VNI 2008 Annual Report 3VNI OverviewVietnam Infrastructure Limited (VNI) is a closed-end infrastructure and infrastructure relatedinvestment company admitted to trading on the AIM market of the London Stock Exchangein July 2007. The company focuses on key strategic sectors with underlying economicdemand within Vietnam’s emerging infrastructure market, namely energy, transport,telecommunications and water utilities.VNI DETAILSSize of fund: USD335 million (NAV as of 30 June 2008)Term of fund: Ten years subject to shareholder vote for extensionMaximum investment: 20 percent of NAV in any one projectGeographic focus: Greater Indochina comprising Vietnam (minimum 70%), Cambodia, Laos and southern ChinaFund structure: Cayman company trading on London Stock Exchange (AIM)Auditor: KPMG (Vietnam)Nominated advisor: Grant Thornton Corporate Finance (UK)Custodian: HSBC TrusteeLawyers: Lawrence Graham (UK) Maples & Calder (Cayman Islands)Broker: LCF RothschildManager: Vinacapital Investment Management LimitedManagement and performance fee: Management fee of 2 percent of NAV. Performance fee of 20 percent of total NAV increase over the higher of an 8 percent compound annual return and the high watermark
  • 6. 4 VNI 2008 Annual Report Bridge and road construction and repair are constant sights across the country.
  • 7. VNI 2008 Annual Report 5Chairman’s StatementDear Shareholders,We are pleased to present the first annual financial VNI highlights over the fund’s first year include investments There is no question this has created a difficult situationstatements for Vietnam Infrastructure Limited (AIM: VNI) in several major power plants that have resulted in a close for VNI as we enter 2009. We remain strongly convinced,for the year ended 30 June 2008. working relationship with Electricity of Vietnam, entering into however, that VNI is on the correct strategic track and that a joint venture company that will be Vietnam’s first major infrastructure, by its nature a long-term investment, willInfrastructure is a fundamental area of investment in any airplane leasor, and becoming Vietnam’s largest investor in continue to benefit from Vietnam’s excellent prospects foremerging market. In Vietnam, this is particularly the case mobile telephone base transceiver station towers. continued economic ten years of rapid economic development at an averageof 7.5 percent annual GDP growth has not been matched The goal of being fully invested within two years is well on track. However, despite the success in building a strong Thank you for your continued adequate investment in physical infrastructure. portfolio of investments, it was an extremely challenging yearLaunched in July 2007, VNI was perfectly timed to for Vietnam economically, in particular for the stock market Don Lam, Chairmancapitalise on the need to address the dire infrastructure which plummeted almost 60 percent over the first half of Vietnam Infrastructure Limitedshortfall in Vietnam, and benefit from the growing 2008. This had a negative impact on VNI’s net asset value 28 October 2008willingness of the Government of Vietnam to involve as a result of several initial investments in listed companies.private sector partners in major projects. Moreover, it was a very difficult year for infrastructure stocks and funds across Asia and the world.VNI was established with four target sectors – energy,transportation, telecommunications and water – with The negative sentiment saw VNI’s share price fall to USD0.60the goal to invest the fund’s initial USD389 million capital at 30 June 2008, versus a net asset value of USD0.84 per share.within two years. After one year, excellent progress has After the financial year ended, the global financial crisis sawbeen made in building a diversified portfolio, with some the share price drop in September and October 2008, as20 total investments in all target sectors except water, emerging market closed-end funds were among the mostwhile adding several investments in industrial parks and heavily affected stocks worldwide.related infrastructure services.
  • 8. 6 6VNI 2008 Annual Report VOF 2008 Annual Report State of the Vietnam’s economy over the first half of 2008 endured painful adjustments following the exuberance of 2007. Vietnam in 2007 saw strong GDP growth of 8.5 percent – reaching a limiting lending for securities purchases to 20 percent of charter capital for all banks, limiting domestic credit growth to 30 percent for 2008, introducing obligatory one-year 7.8 Economy ten-year average of 7.5 percent – and foreign direct investment (FDI) at a record USD20.3 billion. Industry, manufacturing and services all grew rapidly, with the construction sector leading percent SBV bond purchases for all banks, and increasing interest rates from 8.75 percent at the beginning of the year to 14 percent by the end of June. In addition, controls on the way due to a booming real estate market. foreign exchange conversion were tightened and public expenditure was scaled down, including a 10 percent Vietnam in 2007 continued the trend of becoming an spending cut across all government ministries. increasingly open economy, with the ratio of total trade (exports plus imports) to GDP at 153 percent, second only to As part of the policy package, the government reduced the Malaysia in the region. official GDP growth target for 2008 from 9 percent to 7 percent. The surge in foreign investment in 2007 led to increased imports, in particular machinery and equipment, and a What followed was a period of great turbulence, as a market worsening trade deficit at over USD12 billion. This put strong “priced for perfection” at high valuations adjusted to the new, pressure on the country’s foreign exchange reserves. There more restrictive environment. The first and most obvious was concurrently a rise in inflation due to commodity costs casualty was the capital markets as represented by the and an expansionary monetary and fiscal policy to facilitate Vietnam Index, which fell a precipitous 60 percent over the economic growth. Broad money supply and domestic credit first half of 2008. grew a staggering 46 and 54 percent, respectively, when the The tightening policies put strong pressure on bank liquidity State Bank of Vietnam (SBV) opened its coffers to domestic and placed smaller banks at extreme risk. Meanwhile, the lenders to fund real estate deals and imports. currency came under pressure due to the rising deficit, with By the end of 2007, inflation as measured by the consumer the spread between the official and open market rates peaking Vietnam needs to focus on price index reached 12.6 percent. In early 2008 inflation at over 15 percent in the second quarter of 2008. Both foreign continued to rise, reaching 19.4 percent year-on-year at the and domestic economic analysts, previously highly bullish on its ability to absorb foreign end of the first quarter. The trade deficit also continued to the Vietnamese economy, suddenly began to sound dire climb, to USD7.4 billion at the end of the first quarter. and pessimistic, including comment that Vietnam may be direct investment, in terms heading toward a financial crisis similar to Thailand in 1997. A time to act of infrastructure, expertise Faced with an overheating economy, the government chose to As the second half of 2008 began, however, it was clear that the government policy package was beginning to have act. In early April 2008, the government made the difficult but and labour. necessary decision to slow growth by fighting inflation and the its intended effect. Month-on-month inflation, averaging 3 percent monthly over the first half of 2008, slowed notably deficit through sharp cutbacks to credit and spending. in June and has fallen further since, to a rate of under one A comprehensive policy package was announced that included percent month-on-month during the third quarter of 2008.
  • 9. VOF 2008 Annual Report 7 VNIThere was also a marked improvement in the trade deficit, (items that may not see a sharp drop in demand) will protect itwhich reached USD14.9 billion at the end of the first half of somewhat from the global slowdown.2008 but began to slow its growth by June. The threat to the In the medium term, Vietnam’s young, educated populationVietnam dong eased as a result, and by the end of the first half and emerging middle class will continue to drive economicthe official and open market exchange rates were nearly even. growth and development. The rise in consumer spending and services, and growing demand for modern urban spaces,Outlook will continue. The industrial base will be strengthened as oilOvershadowed by the market turmoil was the continued surge refineries come online in 2009 and transport infrastructurein FDI, with USD30.6 billion in new commitments registered in improves. The global economic situation will slow, not stop,2008 to June, 50 percent higher than the full-year record set Vietnam’s inevitable 2007. Several multi-billion dollar projects were recorded insteel production and real estate development. Breakdown of FDI in to Vietnam H1 2008 vs 2007 Vietnam: Some Economic Factors H1 2008 vs 2007Growth slowed to 6.5 percent over the first half of 2008(versus 7.4 percent in the first half of 2007). However, as USDbnexpectations moderated around the lower growth ratethe outlook for the remainder of the year looked positive. USDbn 18 17.3Unfortunately, the global economy took a sudden turn for the 2007 70 2007worse at the end of the third quarter of 2008. This has clouded 15 H1 2008 60.8 H1 2008 13.2 60the short to medium-term outlook for Vietnam, even as the 12 50 48.4country’s fundamentals continue to be strong. 44.6 9.4 40Near the end of the year, the government wavered only 9 31.6 7.0 29.7slightly in loosening its fiscal and monetary stance to allow 30 6faster GDP growth. Controlling inflation and maintaining 20 20.3 14.9financial stability remain the top economic priorities. In the 3 12.4context of the dire global economic situation, the government 1.2 10 5 4.9 0.3 0.3 0.2will likely use a flexible interest rate policy as a primary tool to 0 0contain inflation while minimising potential liquidity risks in Industry Real estate Others Agriculture, Import Export Trade deficit FDI Disbursed FDI & construction forestry & aquaculturethe banking system, to help weak banks survive and to avertany potential rise in real estate loan defaults.Vietnam needs to focus on its ability to absorb the FDI influx, Some 478 new FDI projects were registered with a total capital of Exports reached USD29.7bn in the first half of 2008, up 31.8 percentin terms of infrastructure, expertise and labour. The global USD30.9bn. Together with USD661m supplementary capital in 158 year-on-year. Imports rose to USD44.5bn, up 60.3 percent against projects, total FDI over H1 2008 reached USD31.6bn, a 3.7 fold 2007. Over the first half this resulted in a deficit of USD14.9bn,financial crisis will have an impact on Vietnam chiefly in the increase year-on-year over 2007. Disbursed FDI over H1 2008 was higher than the trade deficit for the whole of 2007. The largestpotential slowing of FDI disbursement. In other areas, the USD4.9bn, on track to reach the annual target of USD10bn. component of imports was machinery and equipment, accountingcountry’s diverse export base and numerous low-cost exports for 15.7 percent of the total.
  • 10. 8 8VNI 2008 Annual Report VNI 2008 Annual Report Power Investment The growth in energy demand in Vietnam over the period from now to 2020 is expected to be remarkable by international standards. The government’s 2006 master plan for the power increase rapidly by 12-14 percent per year to 2010. Such rapid growth has increased the pressure on Vietnam’s Environment transport infrastructure network, which has suffered from sector, which assumes 7.5 percent annual GDP growth to decades of underinvestment. 2020, anticipates electricity demand growth of 16 percent yearly to 2010, 11 percent yearly from 2011-2015, followed by To improve the situation, the government has approved a list 9 percent yearly from 2016-2020. Expected demand growth in of projects to initiate before 2010 that will require USD4.5 the next two years implies almost a doubling of the installed billion for the construction of 10 seaports, USD6.3 billion for generating capacity of Electricity of Vietnam (EVN). Such high 700km of expressway, and several billion USD more for new growth rates reflect the projected high level of economic and upgraded airports. Foreign investment in transportation activity and industrialisation of Vietnam. infrastructure is encouraged through incentive plans such as BOT and BT project structures. The Ministry of Transport Given the pace of demand growth, supply is struggling to keep and provincial and municipal governments are also required up given long investment lead times. The country’s power system each year to issue lists of road and bridge projects eligible for experiences low reserves particularly during the dry season, foreign investment. when hydropower plants can only operate at about 40-50 percent of their rated output. The power system will operate with zero reserves during dry seasons until 2010, necessitating power Industrial parks The continuous flow of foreign direct investment into Vietnam imports from China and Laos, with rolling black-outs. has resulted in rapid growth of the industrial park business. The government has called for increased private sector At the end of 2007 there were 179 industrial parks in Vietnam The government has called investment in power generation given the significant financial resources required to increase supply capacity. In addition to covering an area of 43,000 ha and contributing approximately 36 percent of GDP while creating more than one million jobs. for increased private private sector participation in greenfield power projects, the government is also continuing to equitise operating power Foreign investors are attracted by Vietnam’s central location in Asia, young and low-cost labour force, and government sector investment in plants and those under construction. incentives. Industrial parks are the preferred location to establish manufacturing and business operations because of power generation given Transportation Between 1999 and 2005, freight travel on Vietnam’s roads their quality infrastructure, utilities and other ready-to-use facilities and services. Industrial parks have attracted a total of the significant financial increased by an average of 8 percent yearly, and reached 18 percent yearly in key economic hubs like Hanoi and 2,600 foreign-invested projects worth USD25.3 billion. resources required to Ho Chi Minh City. The growth in passengers per kilometre has also increased by about 7.7 percent yearly over the same The government also encourages local producers to relocate factories from cities to neighbouring industrial parks, to lower increase supply capacity. period. Container volume growth of 19.8 percent yearly from 1995 to 2006 may increase to 25 percent in the short term due pollution and traffic congestion. As a result, the demand for industrial properties is increasing steadily. Industrial parks built to rapid growth of trade turnover. Air travel is also expected to and managed by experienced developers like VSIP, AMATA
  • 11. VNI 2008 Annual Report 9and Tan Thuan, who understand the requirements of foreign new wave of private investment into the water treatmentinvestors, have been very successful. In addition to 50-year industry. Led by the Infrastructure Company of Ho Chi Minhleaseholds, they also offer standard ready-built factories and City – CII, Thu Duc BOO became the first successful BOOwarehouses on a monthly fee basis. As the infrastructure water treatment project in Vietnam. The first BOT projectsurrounding industrial parks improves, this sector has high in Vietnam is the 100,000 cu.m per day Binh An watergrowth potential for many years. treatment plant.Water treatment TelecommunicationsVietnam’s water treatment industry has grown substantially Vietnam is seeing rapid growth in its telecommunicationsin recent years amid rapid urbanisation, an attractive policy sector, particularly mobile telecommunications, asframework, and increasing public and government awareness incomes rise and lifestyles modernise. The number ofon the importance of proper hygiene and sanitation. mobile phone subscribers quadrupled from 9 to 36 millionVietnam is currently experiencing one of the highest rates from 2005 to 2007, resulting in a penetration rate of overof urbanisation in its history, at 27 percent yearly growth 41 percent. Meanwhile, the number of fixed-line usersin the urban population. This has outpaced infrastructure doubled in the same period to reach 11.4 million,development in every corner of the country. As of 2004, a penetration rate of 13 percent. Internet use increased byVietnam’s rural access to water and sanitation was only 180 percent to 18.9 million users at January 2008, equal48 percent and 16 percent, respectively, while access rates in to 22 percent of the population.urban areas for water and sanitation were 82 percent and Industry analysts expect this rapid growth to continue.76 percent. By the end of 2008 the mobile penetration should reachIn 2007 the government signed a decree regulating water 60 percent and by 2011 it should surpass the 100 percenttreatment, distribution, and consumption. This decree threshold. Fixed line users should increase to 13 millionencourages private sector investment into water treatment by the end of 2008, a penetration rate of 15 percent.and distribution, with attractive incentives including tax The rate is forecast to exceed 17 percent by the end ofbreaks, land use rights, and low-interest loans from the 2012. The number of internet users should rise toVietnam Development Bank. Moreover, private investors can 31.5 million by 2012, or 34 percent of the population.enter BOO, BOT, or BT contracts with the government The strong growth of the sector requires service providers like Mobile operators are now upgrading their infrastructure to 3Gto develop water treatment projects. VNPT, S-Telecom, Vietel, Hanoi Telecom and GTel to continue and competing for licences. The first commercial deploymentCurrent targets include 95 percent urban access to clean to invest in expanding their network infrastructure – to meet of 3G mobile services is expected in 2008, with Businessdrinking water and 85 percent rural access to national-standard the growing demand, to improve and enhance services and Monitor International predicting Vietnam will have overclean water of 60 litres per person per day by 2010. By 2020, coverages, and to maintain competitiveness. Four mobile four million 3G customers by the end of 2012, or 7.5 percentthese targets increase to 100 percent urban access to operators will receive 3G licence from the Ministry of Culture of the mobile user base. Such developments in the120-150 litres and 100 percent rural access to 60 litres per and Information, and five mobile operators will receive telecommunications sector create huge opportunities forperson per day. These goals will be hard to meet, even with the permission to undertake mobile WiMax trials. investment in the related infrastructure.
  • 12. 10 VNI 2008 Annual Report 10 VNI 2008 Annual Report Portfolio Vietnam Infrastructure Limited (VNI) made great progress over its first year in building a portfolio of infrastructure assets portfolio, and the safety of a large remaining balance of cash and bank deposits which stood at USD197.0 million at Performance diversified by sector, asset class and geographic location. VNI began trading on the London Stock Exchange (AIM) on 4 July 2007 after raising USD389 million to invest in Vietnam’s infrastructure sector, with the goal of fully investing this 30 June 2008. VNI has been conservative in its valuation process, and avoided entering numerous deals when prices were at their peak in late 2007 (as one example, VNI entered a significant deal shortly original capital within a two year period. after the financial year closed at one-third the cost of the initial The year ended 30 June 2008 saw great turbulence in the offer received six months earlier). As a result of this discipline, Vietnamese market, highlighted by a 57 percent decline in some 60 percent of VNI’s NAV remained in cash and deposits at the benchmark Vietnam Index. VNI saw its net asset value 30 June 2008, of which about half had been committed and share price challenged by domestic and global economic to projects. conditions. Despite the difficult environment, VNI can claim VNI’s target portfolio structure is one-third operating assets, an excellent performance record to date, with a much smaller one-third under construction (brownfield) projects, and decline in net assets than either the VN Index, comparable one-third greenfield developments. As a significant number of Vietnam funds, or comparable Asian infrastructure funds. operating companies are listed, VNI ended the financial year VNI’s began trading on 4 July 2007 at a net asset value of with 20.8 percent of its assets in listed securities. Some of USD389 million, or USD0.97 per share. At 30 June 2008 the these investments were privately negotiated placements at NAV had declined 13.9 percent to USD335 million, or 25 to 30 percent discounts to the prevailing market price. USD0.84 per share. This compares to a drop of approximately VNI’s NAV decline to date is entirely from the unrealised losses 38 percent on average for listed, close-ended funds focused on in these marked-to-market listed and OTC securities. It is Vietnam, according to the broker LCF Edmond de Rothschild. realistic for these share prices to recover as in many cases they The VNI share price was negatively affected near the end have fallen below their intrinsic value and even replacement of the financial year due to a combination of pessimistic cost. VNI is working with some investee companies to assist sentiment from the failure of several global infrastructure them with a dual listing on a more mature stock exchange funds _ despite the fact that VNI has no debt at the fund (eg. Singapore) where more sophisticated investors would level. The VNI share price peaked at USD1.04 on 16 October be able to properly assess their potential. Currently up to 80 2007 before gradually falling to USD0.60 at 30 June 2008. percent of trading on the Vietnam exchanges is retail investors. The share price then declined again, sharply, during the As the year progressed VNI focused more on semi-developed September-October onset of global financial crisis that saw projects, particularly in the telecommunications infrastructure a worldwide ‘flight to safety’ out of emerging market and sector, where over the year the company became Vietnam’s other sectors or funds perceived as high risk. largest investor in privately-owned mobile network towers At the end of October 2008 the share price stood at (called base transceiver stations). Attractive returns are USD0.26 per share, well below the fund’s cash position. possible with one transmitter from one mobile operator per Without question, this is an irrational and unsettling tower. This allows for strong upside potential as there are six situation that greatly concerns the VNI Board of Directors mobile operators licensed in Vietnam and 3G licences are also and the investment manager. A review of VNI’s investment expected to be issued in 2009, requiring the infrastructure performance indicates that there is great potential in the density to increase two or threefold.
  • 13. VNI 2008 Annual Report 11 Portfolio by sector (to 30 June 2008) Portfolio by asset class (to 30 June 2008)OutlookVNI’s original mandate and strategy to invest in Vietnam’s infrastructure sector remains valid. 335m 335mThe need for infrastructure in Vietnam, in every subsector, is extremely strong. The anticipatedglobal economic slowdown will have some impact on some areas, but the demand for power, 100% 3.92% Other sectors 100% 2.33% Fixed Incomewater, roads and bridges is very high and inelastic. 12.40% Private 20.38% IP/ConstructionThe difficulty in raising debt in the current market for greenfield projects requires VNI to only 4.38% OTC 80% 80%look at projects that have debt funding already in place. 2.05% Telecom 20.79% Listed 7.81% EnergyAn increasing number of investment opportunities are available at very attractive prices. The 5.73% Transport and Aviationhigh interest rates and lack of liquidity in Vietnam have project owners looking for new partners 60% 60%– and VNI is unique in being the only fund focused on infrastructure in Vietnam. With significantavailable cash and a strong pipeline, the company has solid prospects going forward. 29.93% Cash 29.93% Cash and cash equivalent and cash equivalent 40% 40% 20% 20% 30.18% Approved 30.18% Approved to be disbursed to be disbursed 0% 0%Top investments 2008 2008 NAV and share price performance (to 30 June 2008)Company Sector Type USDTan Tao Industrial Park JSC IP Listed 1.2Vietnam Aircraft Leasing Co. Transport Private 1.0Long An S.E.A. Industrial Park and Service Area IP Private 0.8 0.839 0.6Pha Lai Thermal Power JSC Energy Listed 0.4Can Don Hydropower JSC Energy Listed 0.2 0.595Mobile Infrastructure Development Co. Telecoms Private 0.0Song Da Urban & IZ Development & Investment JSC IP/Construction ListedBa Ria Thermal JSC Energy Listed Jul-07 Sep-07 Nov-07 Jan-08 Mar-08 May-08 Jun-08Petrovietnam Drilling & Well Services Investment Energy OTC NAV Per share Price
  • 14. 12 VNI 2008 Annual Report Vietnam Aircraft Leasing Corporation is a joint venture that will lease aircraft on short and long-term contracts.
  • 15. VNI 2008 Annual Report 13VNI is Vietnam’s largest investor in base transceiver station towers _ the backbone of mobile networks.
  • 16. 14 VNI 2008 Annual Report VNI’s first investment in the power sector was Can Don Hydro, a listed company.
  • 17. VNI 2008 Annual Report 15VNI has investments in both greenfield and operating industrial parks, like Tan Tao in Ho Chi Minh City.
  • 18. 16 VNI 2008 Annual Report Feature Power Investments Electricity supply in Vietnam cannot meet the demand of a fast growing economy. This is a key development bottleneck and a fundamental reason for VNI to be a long-term investor in power generation companies in Vietnam. After one year, 7.8 percent of VNI’s net asset value is invested in the energy sector. Can Don Hydro Power Joint Stock Company (SJD) VNI’s first investment in the power sector was in SJD – a hydro power company with an installed capacity of 78 MW and listed on the Ho Chi Minh Stock Exchange (HOSE). The plant is located on the Song Be River just after Thac Mo Hydro Power. The area served by the plant – including Ho Chi Minh City, Vung Tau, Bien Hoa and Binh Duong provinces – has the fastest growth rate in Vietnam and is the industrial and technology hub of the country. VNI currently owns a 16.6 percent stake in SJD, with the majority owner being Song Da, one of Vietnam’s leading conglomerates. Thac Mo Hydro Power Joint Stock Company VNI owns a 1.4 percent stake in Thac Mo Hydropower JSC, which owns a power plant on the Song Be River in southeastern Vietnam. The total designed capacity of its two generators is 150 MW, equivalent to an annual output of approximately 610 million kWh. The company is currently undergoing an expansion project to increase annual output by 52 million kWh. Ba Ria Thermal Power Joint Stock Company VNI owns a 2.6 percent stake in Ba Ria Thermal Power, which owns a plant in Ba Ria-Vung Tau in southern Vietnam. The 389 MW capacity plant has a current annual output of approximately two billion kWh, some 4 percent of total power output in Vietnam. Ba Ria Thermal Company is 80% owned by Electricity of Vietnam and is one of the top five power companies in Vietnam. Pha Lai Thermal Power Joint Stock Company (PPC) VNI has a 3.5 percent stake in the largest thermal power plant in Vietnam, PPC, with 1040 MW of generating capacity providing approximately 10 percent of Vietnam’s electricity output. PPC primarily generates electricity derived from thermal (coal) power sources and has the advantage of proximity to two major coal mines in northern Vietnam, namely Vang Danh and Mao Khe.
  • 19. VNI 2008 Annual Report 17Telecommunications Transportation Industrial ParksThe rapid growth of mobile use in Vietnam has translated Vietnam’s road, rail, air and water transport links are all in dire Industrial Parks are the leading model for economic growth ininto a demand for telecommunications infrastructure such as need of upgrading. The government’s willingness to involve the manufacturing sector in Vietnam, as they offer numerousbase transceiver station (BTS) towers. The three major mobile private sector participation in this sector has opened the door benefits for factories including improved infrastructure suchphone operators are estimated to require about 7,000 BTS for VNI to make profitable long-term investments. as independent waste disposal and power supplies. Industrialover the next two years. VNI is now Vietnam’s largest single Parks are profitable businesses and VNI has invested ininvestor in companies that build and lease BTS towers to the listed companies Tan Tao and Song Da, along with twomobile network providers. independent IP ventures.Mobile Infrastructure Development Company (MIDC) Innovative Technology Development Corporation (ITD) Ba Thien 2 Industrial ParkVNI established MIDC as a joint venture that is expected to VNI owns a 15 percent stake in ITD, a holding group with VNI has joined with CPK Vinh Phuc to develop Ba Thien 2,be the largest private BTS owner and lessor in Vietnam. VNI six subsidiaries operating in various areas of infrastructure a modern 308ha industrial park 60km north of Hanoi. VNIhas a 49 percent equity stake in MIDC and is the single largest technology including telecommunications, power, electronics, owns a majority stake in the joint venture, which will investshareholder. Since incorporation, MIDC has secured orders to toll-road equipment and information systems. ITD is the in the park infrastructure and lease land to industrial and lease about 1,000 BTS towers across Vietnam. largest toll road equipment provider in Vietnam. Ba Thien 2 is located in Vinh Phuc province, a prime industrial location for major corporations including Honda, Toyota,Mobile Information Services (MIS) Vietnam Aircraft Leasing Company (VALC) Foxconn and Compal.VNI currently owns a 30 percent stake in Hanoi-based VNI owns a 16 percent stake in VALC, a joint venture betweenMIS, which has built over 100 BTS for VMS Mobifone and some of the largest state-owned enterprises, including Long An Industrial Park Service AreaVinaphone, and is in the process of building another Vietnam Airlines, Bank for Investment and Development of VNI will develop 398ha of industrial park and 239ha of service100 towers. Vietnam (BIDV), Viet Nam Oil and Gas Group (PetroVietnam), area for the 2,000ha Long An S.E.A complex that will include a Viet Nam Shipbuilding Industry Group (Vinashin) and Phong port, IP, services, residential areas and park space. The Long AnGlobal Infrastructure Investment Limited (GII) Phu Corp. VALC will lease out aircraft on short and long-term complex is located only 25km from Ho Chi Minh City. The futureVNI established GII as a joint venture with two strategic contracts. The company has already signed contracts with S.E.A port will significantly aid the development of the industrialpartners, Innovative Technology Development Corp. (ITD) Boeing and Airbus to purchase eight B787-8 Dreamliners and park as manufacturers will be able to significantly reduce timeand Global Lightning Technologies Corp. (GLT). VNI has a ten A321-200 aircraft, all to be leased by Vietnam Airlines, and cost for the import and export of materials and finished49 percent equity stake in the joint venture, which is based with the debt for this lease guaranteed by the Government of products. Construction will begin in Ho Chi Minh City. As of 30 June 2008 – within three Vietnam. VALC’s potential projects also include investments inmonths of being established – GII had constructed 11 BTS airport infrastructure and aviation services.towers and secured contracts for an additional 55 towersfrom the two largest mobile providers in Vietnam (VMSMobiphone and Vinaphone).
  • 20. 18 VNI 2008 Annual Report Left to right: Mr. Horst F. Geicke, Mr. Ekkehard Goetting, Mr. Luong Van Ly, Mr. Paul Cheng, and Mr. Don Lam.
  • 21. VNI 2008 Annual Report 19Board of DirectorsDon Lam, Chairman Horst F. Geicke, Director Luong Van Ly, DirectorDon Lam is Co-founder and Chief Executive Officer of Horst Geicke is Chairman and Co-founder of VinaCapital Mr. Luong is currently the CEO of DNL Partners, anVinaCapital Group Limited. He has overseen the Group Limited. He has resided in Asia for almost 30 years investment consultancy company. He has also held theGroup’s growth from manager of a single USD10 million fund and has over 25 years of operating and investing experience position of Deputy Director of the Department of Planningin 2003 into a full-featured investment house managing four in the region, having made several financial and strategic and Investment in Ho Chi Minh City for six years and beforefunds worth almost USD2 billion and offering a complete investments in Vietnam, including the establishment of a that he was the Deputy Director of Foreign Affairs. He hasrange of corporate finance and real estate advisory services. manufacturing plant for his family business. Mr. Geicke also had over 25 years of experience in Vietnam giving him aBefore founding VinaCapital, Mr. Lam was a partner at co-founded the Pacific Alliance fund management good understanding of both the government and the market.PricewaterhouseCoopers (Vietnam) Limited, where he led group, which has more than USD2 billion in assets under He attended the Graduate Institute of International Studiesthe Corporate Finance and Management Consulting practices management. Mr. Geicke was the President of the German in Geneva, Switzerland.throughout the Indochina region. Mr. Lam has also held Chamber of Commerce in Hong Kong for four years and in 2005,management positions at Deutsche Bank and became the president of the European Chamber of CommerceCoopers & Lybrand in Vietnam and Canada. in Hong Kong. Mr. Geicke has a Masters degree in Economics and Business Law from the University of Hamburg, Germany.Ekkehard Goetting, Director Paul Cheng, DirectorMr. Goetting is currently Chairman and CEO of German Industry Mr. Cheng is an independent non-executive director of Espritof Commerce Ltd. (GIC), Hong Kong, South China, Vietnam and Holdings Limited and Kingboard Chemical Holdings Limiteda member of the Board, GIC Taicang Ltd., Taicang, PRC. He is – both listed companies on the Hong Kong Stock Exchange.also Vice President of the German Chamber of Commerce in He is a member of the International Advisory Board of AbdulHong Kong. Mr. Goetting was born in Germany and attended Latif Jameel Co. Ltd., one of the largest private companies inthe University of Hamburg where he studied law and computer Saudi Arabia, and is an advisor to Steelcase Corporation in thescience. He has over 17 years of business experience in Asia, and U.S. He was formerly Chairman of The Link Management Ltd.,has worked to increase business ties between his native Germany which manages a portfolio of previously government-ownedand Asia. He established a Representative office of German retail and car parking assets, valued at over HK$30 billion.Industry and Commerce in Hanoi and he has led multiple German The privatisation in late November 2005 was the world’sand International business missions to Vietnam and Cambodia largest Real Estate Investment Trust (REIT) IPO. Born in China,starting as early as 1990. He has served on many Asia-specific Mr. Cheng was raised in Hong Kong and received his higherAdvisory Boards, most notably the Asia-Pacific Committee of education in the United States. He has a B.A. degree fromGerman Industry, the Federation of German Industries, the East Lake Forest College (Illinois, U.S.A) and received his M.B.A.Asia Business Association and the Association of German Banks. degree from the Wharton Graduate School of Business at theCurrently he also holds the position of Chief Representative for University of Pennsylvania.the German National Tourist Office, Hong Kong and South Chinaas well as Messe Berlin, Hong Kong, PRC and Port of Hamburg,Hong Kong, PRC, Vietnam.
  • 22. 20 VNI 2008 Annual Report Report of the The Company Vietnam Infrastructure Limited is incorporated in the Cayman Islands as a company with limited liability. The registered office of the Company is PO Box 309GT, Ugland House, South Church Board of Directors Street, George Town, Grand Cayman, Cayman Islands. Principal activity The Company’s principal activity is to invest in a diversified portfolio of entities owning infrastructure projects and assets in Vietnam and the surrounding Asian countries. The Company mainly invests and holds equity, debt and hybrid instruments in unquoted companies that themselves hold, develop or operate infrastructure assets. The Company may also invest in entities whose shares or other instruments are listed on a stock exchange, or traded on OTC markets. The Company also may invest in other funds that invest in infrastructure. Results and dividends The results of the Group for the year ended 30 June 2008 and for the period from 18 January 2007 The Board of Directors submits its report (date of establishment) to 30 June 2007 and the state of its affairs as at those dates are set out in the accompanying consolidated financial statements. together with the consolidated financial The Company’s ordinary shares were admitted to trade, and commenced trading, on the AIM market of the London Stock Exchange on 5 July 2007. statements of Vietnam Infrastructure The Board of Directors do not recommend payment of dividends in respect of the year. Limited (“the Company”) and its Directors The directors of the Company during the year were as follows: subsidiaries (together referred to as “the Group”) for the year ended 30 June 2008 Name Position Appointed on and for the period from 18 January 2007 Don Lam Chairman 29 June 2007 Horst Geicke Director 29 June 2007 (date of establishment) to 30 June 2007. Paul Ming Fun Cheng Director 29 June 2007 Ekkehard Goetting Director 29 June 2007 Luong Van Ly Director 29 June 2007
  • 23. VNI 2008 Annual Report 21Directors’ interests in the CompanyAs at 30 June 2008 and 2007, the interests of the Directors in the shares, underlying shares and have been appropriately disclosed, explained and quantified in the financial information;debentures of the Company were as follows: 3. maintain adequate accounting records and an effective system of internal controls; 4. prepare the financial information on a going concern basis unless it is inappropriate to assume that the Group will continue its operations in the foreseeable future; and 5. control and direct effectively the Group in all material decisions affecting its operations No. of shares and performance and ascertain that such decisions and/or instructions have been properly 30 June 2008 30 June 2007 reflected in the financial information.Horst Geicke 1,000,000 500,000 The Board of Directors is also responsible for safeguarding the assets of the Group and hence forDon Lam 600,000 500,000 taking reasonable steps for the prevention and detection of fraud and other irregularities. The Board of Directors confirms that they have complied with the above requirements in Approximate % of holding preparing the financial information. 30 June 2008 30 June 2007 Statement by the Board of DirectorsHorst Geicke 0.25% 0.12% In the opinion of the Board of Directors, the accompanying consolidated balance sheets,Don Lam 0.15% 0.12% consolidated statements of income, cash flows and changes in equity, together with the notes thereto, have been properly drawn up and give a true and fair view of the financial position of the Group as at 30 June 2008 and 2007 and the results of its operations and cash flows for theAt the date of this report there had been no changes in the above holdings. year ended 30 June 2008 and for the period from 18 January 2007 (date of establishment) to 30 June 2007 in accordance with International Financial Reporting Standards.Subsequent eventsDetails of significant subsequent events of the Group are set out in Note 26 to the accompanyingconsolidated financial statements. On behalf of the Board of Directors,Directors’ responsibility in respect of the consolidated financial statements Don Lam, Chairman The Board of Directors is responsible for ensuring that the consolidated financial statements Ho Chi Minh City, Vietnam(“financial information”) are properly drawn up so as to give a true and fair view of the financial 28 October 2008position of the Group as at 30 June 2008 and 2007 and of the results of its operations and itscash flows for the year ended 30 June 2008 and for the period from 18 January 2007 (date ofestablishment) to 30 June 2007. When preparing the financial information, the Board of Directors isrequired to:1. adopt appropriate accounting policies which are supported by reasonable and prudent judgements and estimates and then apply them consistently;2. comply with the disclosure requirements of International Financial Reporting Standards or, if there have been any departures in the interest of true and fair presentation, ensure that these
  • 24. 22 VNI 2008 Annual Report Independent Auditors’ Report To the shareholders of Vietnam Infrastructure Limited Scope We have audited the accompanying consolidated financial statements of Vietnam Infrastructure In making those risk assessments, we consider internal control relevant to the entity’s Limited and its subsidiaries (together referred to as “the Group”) which comprise the preparation and fair presentation of the financial statements in order to design audit procedures consolidated balance sheets as at 30 June 2008 and 2007, and the consolidated statements of that are appropriate in the circumstances, but not for the purpose of expressing an opinion income, changes in equity and cash flows for the year ended 30 June 2008 and for the period on the effectiveness of the entity’s internal control. An audit also includes evaluating the from 18 January 2007 (date of establishment) to 30 June 2007, and summary of significant appropriateness of accounting principles used and the reasonableness of accounting estimates accounting policies and other explanatory notes, as set out on pages 26 to 40. made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide Management’s Responsibility for the Financial Statements a basis for our opinion. Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation Audit opinion In our opinion, the financial statements present fairly, in all material respects, the financial and the fair presentation of financial statements that are free from material misstatement, position of the Group as at 30 June 2008 and 2007, and the results of its operations and its whether due to fraud or error; selecting and applying appropriate accounting policies; and cash flows for the year ended 30 June 2008 and for the period from 18 January 2007 (date of making accounting estimates that are reasonable in the circumstances. establishment) to 30 June 2007 in accordance with International Financial Reporting Standards. Auditors’ Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with relevant ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and KPMG Limited disclosures in the financial statements. The procedures selected depend on our judgement, Vietnam including the assessment of the risks of material misstatement of the financial statements, 28 October 2008 whether due to fraud or error.
  • 25. VNI 2008 Annual Report 23Consolidated balance sheets as at 30 June 2008 and 2007 Note 30 June 2008 30 June 2007 USD’000 USD’000AssetsNon-currentProperty, plant and equipment 6 17,970 - 17,970 -CurrentTrade and other receivables 7 6,008 -Financial assets at fair value through profit and loss 8 112,880 -Investments in equity accounted investees 9 3,814 -Bank deposits 10 61,828 -Cash and cash equivalents 11 135,248 402,100 319,778 402,100Total assets 337,748 402,100EquityEquity attributable to shareholders of the GroupShare capital 12 4,021 4,021Treasury shares (729) -Share premium 13 386,367 386,367Accumulated losses (54,327) (851) 335,332 389,537Minority interest 14 906 -Total equity 336,238 389,537LiabilitiesCurrent liabilitiesPayables to related parties 15 827 11,712Other liabilities 683 851Total liabilities 1,510 12,563Total equity and liabilities 337,748 402,100Net asset value per share (USD per share) 20 0.84 0.97 The notes set out on pages 26 to 40 form an integral part of these consolidated financial statements
  • 26. 24 VNI 2008 Annual Report Consolidated statements of changes in equity for the year ended 30 June 2008 and for the period from 18 January 2007 (date of establishment) to 30 June 2007 Equity attributable to shareholders of the Group Minority Total equity Share capital Treasury shares Share premium Accumulated losses Total interest USD’000 USD’000 USD’000 USD’000 USD’000 USD’000 USD’000 At 18 January 2007 (date of establishment) - - - - - - - Net loss for period ended 30 June 2007 - - - (851) (851) - (851) Issue of new shares 4,021 - 398,079 - 402,100 - 402,100 Placing fees - - (11,712) - (11,712) - (11,712) At 30 June 2007 4,021 - 386,367 (851) 389,537 - 389,537 Net loss for the year ended 30 June 2008 - - - (53,476) (53,476) (6) (53,482) Acquisition of subsidiaries - - - - - 912 912 Buy-back of shares - (729) - - (729) - (729) At 30 June 2008 4,021 (729) 386,367 (54,327) 335,332 906 336,238 Consolidated statements of income for the year ended 30 June 2008 and for the period from 18 January 2007 (date of establishment) to 30 June 2007 From 1 July 2007 From 18 January 2007 Note to 30 June 2008 to 30 June 2007 USD’000 USD’000 Net changes in fair value of financial assets 16 (46,388) at fair value through profit and loss Other investment income 17 18,262 - Administration expenses 18 (9,750) (851) Loss from operating activities (37,876) (851) Net foreign exchange loss (15,491) - Share of loss of equity accounted investees 9 (115) - Loss before tax (53,482) - Income tax 19 - - Net loss (53,482) (851) Basic loss per share (USD per share) 20 (0.13) (0.002) The notes set out on pages 26 to 40 form an integral part of these consolidated financial statements
  • 27. VNI 2008 Annual Report 25Consolidated statements of cash flows for the year ended 30 June 2008and for the period from 18 January 2007 (date of establishment) to 30 June 2007 From 1 July 2007 to 30 June 2008 From 18 January 2007 to 30 June 2007 USD’000 USD’000Operating activitiesNet loss before tax (53,482) (851)Adjustment forGains on disposals of financial assets (17) -Share of loss of equity accounted investees 115 -Unrealised foreign exchange losses 13,734 -Net changes in fair value of financial assets at fair value through profit and loss 46,405 -Interest and dividend income (18,261) -Net loss before changes in working capital (11,506) (851)Change in secured bank deposits (61,828)Change in trade and other receivables (1,016) -Change in trade and other payables 659 851 (73,691) -Investing activitiesInterest received 12,842 -Dividends received 427 -Purchases of property, plan and equipment through acquisition of subsidiaries (See Note 5) (17,000) -Other purchases of property, plan and equipment (58) -Investments in associates (3,929)Purchases of financial assets (166,543) -Proceeds from disposals of financial assets 217 - (174,044) -Financing activitiesProceeds from shares issued - 402,100Payment for buy-back of shares (729) -Payment for share issuance costs (11,712) - (12,441) 402,100Net (decrease)/increase in cash and cash equivalents for the year/period (260,176) 402,100Unrealised foreign exchange differences of cash and cash equivalents (6,676) -Cash and cash equivalents at the beginning of the year/period 402,100 -Cash and cash equivalents at end of the year/period 135,248 402,100 The notes set out on pages 26 to 40 form an integral part of these consolidated financial statements
  • 28. 26 VNI 2008 Annual Report Notes to the consolidated financial statements for the year ended 30 June 2008 and for the period from 18 January 2007 (date of establishment) to 30 June 2007 These notes form an integral part of and should be read The financial statements have been prepared using the excluded from consolidation from the date that the in conjunction with the accompanying consolidated historical cost convention, as modified by the measurement at control ceases. financial statements. fair value of certain financial assets and financial liabilities, the In addition, acquired subsidiaries are subject to application measurement bases of which are described in the accounting of the purchase method of accounting. This involves the 1. General information policies below. measurement at fair value of all identifiable assets and Vietnam Infrastructure Limited (“the Company’) is a limited The preparation of financial statements in accordance liabilities, including contingent liabilities of the subsidiary, liability company incorporated in the Cayman Islands. The with IFRS requires the use of certain accounting estimates at the acquisition date, regardless of whether or not they registered office of the Company is PO Box 309GT, Ugland and assumptions. Although these estimates are based on were recorded in the financial statements of the subsidiary House, South Church Street, George Town, Grand Cayman, management’s best knowledge of current events and actions, prior to acquisition. On initial recognition, the assets and Cayman Islands. The Company mainly invests and holds equity, actual results may ultimately differ from those estimates. liabilities of the subsidiary are included in the consolidated debt and hybrid instruments in unquoted companies that The estimates and underlying assumptions are reviewed balance sheet at their fair values, which are also used as the themselves hold, develop or operate infrastructure assets. on an ongoing basis. Revisions to accounting estimates are basis for subsequent measurement in accordance with the The Company may also invest in entities whose shares or other recognised in the period in which the estimate is revised and Group’s accounting policies. Goodwill represents the excess of instruments are listed on a stock exchange, or traded on the in any future period affected. acquisition cost over the fair value of the Group’s share of the OTC markets. The Company also may invest in other funds that identifiable net assets of the acquired subsidiary at the date of invest in infrastructure. The Company’s shares are traded on The areas involving a higher degree of judgment or complexity, acquisition. Negative goodwill is immediately allocated to the the AIM market of the London Stock Exchange under the ticker or areas where assumptions and estimates are significant consolidated statement of income as at the acquisition date. symbol VNI. to the financial statements, are disclosed in Note 3 to the consolidated financial statements. All intra-group balances and significant intra-group The Company’s fiscal year is from 1 July to 30 June. The first transactions and resulting unrealised profits or losses fiscal year was from 18 January 2007 (date of establishment) 2.3 Basis of consolidation (unless losses provide evidence of impairment) are to 30 June 2007. The financial statements of the Group as of 30 June 2008 eliminated on consolidation. and 2007 and for the period from 18 January 2007 2. Summary of significant accounting policies (date of establishment) to 30 June 2007 and for the 2.5 Associates 2.1 Statement of compliance year ended 30 June 2008 comprise the Company and its Associates are those entities in which the Group has significant The consolidated financial statements (the “financial subsidiaries (together referred to as “the Group”) and the influence, but not control, over the financial and operating statements”) have been prepared in accordance with Group’s interests in associates. policies. Associates are accounted for using the equity International Financial Reporting Standards (“IFRS”). method and are initially recognised at cost. The Group’s 2.4 Subsidiaries investment includes goodwill identified on acquisition, net The consolidated financial statements were approved for issue Subsidiaries are all entities over which the Group has the of any accumulated impairment losses. The consolidated by the Board of Directors on 28 October 2008. power to control the financial and operating policies so as financial statements include the Group’s share of the income to obtain benefits from their activities. In assessing control, 2.2 Basis of preparation and expenses and equity movements of the equity accounted potential voting rights that presently are exercisable or The significant accounting policies that have been used in investees from the date that significant influence commences convertible, along with contractual arrangements, are taken the preparation of the financial statements are summarised until the date that significant influence ceases. When the into account. Subsidiaries are fully consolidated from the below. These policies have been consistently applied to all the Group’s share of losses exceeds its interest in an associate, date on which control is transferred to the Group. They are financial periods presented unless otherwise stated. the carrying amount of that interest is reduced to nil and the
  • 29. VNI 2008 Annual Report 27recognition of further losses is discontinued except to the translation are recorded in the foreign exchange translation the effective interest method.extent that the Group has an obligation or has made payments reserve in equity. Dividend incomeon behalf of the associate. 2.8 Property, plant and equipment Dividend income is recorded when the Group’s right to receive2.6 Functional and presentation currency Items of property, plant and equipment are measured at cost the dividend is established.The consolidated financial statements are presented in less accumulated depreciation and accumulated impairment 2.10 Expense recognitionUnited States Dollars (“USD”), the Company’s functional losses. The initial cost of a property, plant and equipment All expenses, including management fees and custodian fees,currency. The financial statements of each consolidated comprises its purchase price, including import duties and are recognised in the statement of income on an accrual basis.entity are presented in either USD or the currency of non-refundable purchase taxes and any directly attributablethe primary economic environment in which the entity costs of bringing the asset to its working condition and location 2.11 Financial assetsoperates (“the functional currency”), which for most for its intended use. Expenditures incurred after property, plant Financial assets, other than hedging instruments, are divided intoinvestments is Vietnamese Dong (“VND”). USD is used as and equipment have been put into operation, such as repairs the following categories: loans and receivables; financial assets atthe presentation currency because it is the primary basis and maintenance and overhaul costs, are normally charged to fair value through profit or loss; available-for-sale financial assets;for the measurement of the performance of the Group income in the year in which the costs are incurred. In situations and held-to-maturity investments.(specifically changes in the Net Asset Value of the Group) where it can be clearly demonstrated that the expenditures Management determines the classification of its financial assetsand the Company’s share price is quoted in USD on the AIM have resulted in an increase in the future economic benefits at initial recognition depending on the purpose for which themarket of the London Stock Exchange. expected to be obtained from the use of property, plant financial assets were acquired. Where allowed and appropriate and equipment beyond their originally assessed standard of2.7 Foreign currency translation management re-evaluates this designation at each reporting date. performance, the expenditures are capitalised as an additionalIn the separate financial statements of the consolidated The designation of financial assets is based on the investment cost of property, plant and equipment.entities, transactions arising in currencies other than the strategy set out in the Group’s Admission Document to the AIMfunctional currency of the individual entity are translated When parts of an item of property, plant and equipment have market of the London Stock Exchange, dated 29 June exchange rates in effect on the transaction dates. different useful lives, they are accounted for as separate items All financial assets are recognised when, and only when, theMonetary assets and liabilities denominated in currencies (major components) of property, plant and equipment. Group becomes a party to the contractual provisions of theother than the functional currency of the individual entity Gains and losses on disposal of an item of property, plant instrument. When financial assets are recognised initially, theyare translated at the exchange rates in effect at the balance and equipment are determined by comparing the proceeds are measured at fair value, plus, in the case of investmentssheet date. Translation gains and losses and expenses from disposal with the carrying amount of property, plant not designated as at fair value through profit or loss, directlyrelating to foreign exchange transactions are recorded in and equipment and are recognised net in the consolidated attributable transaction costs.the statement of income. statement of income. Derecognition of financial assets occurs when the rights to receiveIn the consolidated financial statements, assets and liabilities 2.9 Revenue recognition cash flows from the investments expires or are transferred andincluded in the financial statements of subsidiaries which are Revenue is recognised when it is probable that the economic substantially all of the risks and rewards of ownership haveprepared in currencies other than USD are translated into benefits will flow to the Group and when the revenue can be been transferred. At each balance sheet date, financial assetsUSD at the exchange rates in effect at the balance sheet date. reliably measured, on the following basis: are reviewed to assess whether there is objective evidence ofIncome and expenses of these subsidiaries are translated impairment. If any such evidence exits, any impairment loss isinto USD at exchange rates approximating to the rates in Interest income determined and recognised based on the classification of theeffect on the transaction dates. Differences resulting from the Interest income is recognised on a time proportion basis using financial assets.
  • 30. 28 VNI 2008 Annual Report The Group’s financial assets consist primarily of cash, bank Financial assets at fair value through profit and loss includes 2.12 Cash and cash equivalents deposits, listed and unlisted securities, private equity trustee loans to banks and other parties where the Group Cash and cash equivalents include cash at bank and in hand investments, bonds, loans and receivables. receives interest and other income on the loans calculated as well as short-term highly liquid investments such as money based on the proceeds from the sales of specific assets held market instruments and bank deposits with an original Loans and receivables by the counterparties. Fair value is determined based on the maturity term of not more than three months. All loans and receivables, except trustee loans, are non- expected future discounted cash flows from each loan. derivative financial assets with fixed or determinable 2.13 Equity payments that are not quoted in an active market. After initial Available-for-sale financial assets Ordinary shares are classified as equity. Incremental costs recognition these are measured at amortised cost using the Available-for-sale financial assets are non-derivative financial directly attributable to the issue of ordinary shares are effective interest method, less allowance for impairment. assets that are not designated as other categories of recognised as a deduction from equity, net of any tax effects. The Group’s trade and most other receivables fall into this financial assets. All financial assets within this category are Share premium includes any premiums received on the initial category of financial instruments. Discounting, however, is subsequently measured at fair value. Gains and losses arising issuance of the share capital. Any transaction costs associated omitted where the effect of discounting is immaterial. from changes in their fair values are recognised directly in with the issuance of shares are deducted from share premium. equity, except for impairment losses, until the financial asset Significant receivables are considered for impairment on a is derecognised, at which time the cumulative gain or loss When share capital recognised as equity is repurchased case-by-case basis when they are overdue at the balance sheet previously recognised in equity would be recognised in the (treasury shares), the amount of the consideration paid, which date or when objective evidence is received that a specific statement of income. includes directly attributable costs, is net of any tax effects, counterparty will default. and is recognised as a deduction from equity. Repurchased For available-for-sale investments in equity securities that do Financial assets at fair value through profit or loss shares are classified as treasury shares and are presented as not have a quoted market price in an active market and whose Financial assets at fair value through profit or loss include a deduction from total equity. When treasury shares are sold fair value cannot be reliably measured, they are measured financial assets that are either classified as held for trading or or reissued subsequently, the amount received is recognised at cost less any identified impairment losses at each balance are designated to be carried at fair value through profit or loss as an increase in equity, and the resulting surplus or deficit on sheet date subsequent to initial recognition. upon initial recognition. By definition, all derivative financial the transaction is transferred to/from retained earnings. instruments that do not qualify for hedge accounting fall into Held-to-maturity investments Currency translation differences on net investment in foreign this category. Other financial assets at fair value through profit Held-to-maturity investments are non-derivative financial operations are included in the translation reserve. or loss held by the Group include listed and unlisted securities. assets with fixed or determinable payments and fixed Upon initial recognition, attributable transaction costs are maturities. Investments are classified as held-to-maturity if it Retained earnings/accumulated losses include all results recognised in profit or loss when incurred. is the intention of the Group to hold them until maturity. from current and prior periods as disclosed in the statement of income. Any gain or loss arising from financial instruments is based on Held-to-maturity investments are subsequently measured at changes in fair value, which is determined by direct reference to amortised cost using the effective interest rate method. In 2.14 Financial liabilities active market transactions or using industry standard valuation addition, if there is objective evidence that the investment The Group’s financial liabilities include trade and other techniques where no active market exists. Where the valuation has been impaired, the financial asset is measured at the payables and other liabilities. techniques result in a wide range of valuation or when the fair present value of estimated cash flows. Any changes to the Financial liabilities are recognised when the Group becomes value is not reliably measured the financial assets are recorded at carrying amount of the investment are recognised in the a party to the contractual agreements of the instrument. cost less impairment losses considered necessary by the Directors. statement of income.
  • 31. VNI 2008 Annual Report 29All interest related charges are recognised as an expense in resources will be required to settle the obligation. A contingent 2.17 Earnings per share and net asset value per sharefinance costs in the statement of income. liability also arises in the rare circumstance where there is The Group presents basic earnings per share (EPS) for its a liability that cannot be recognised because it cannot be ordinary shares. Basic EPS is calculated by dividing the profitTrade and other payables and other liabilities are recognised measured reliably. or loss attributable to the ordinary shareholders by theinitially at their fair value and subsequently measured at weighted average number of ordinary shares outstandingamortised cost, using the effective interest rate method. A contingent asset is a possible asset that arises from past during the period. events whose existence will be confirmed by uncertain futureA financial liability is derecognised when the obligation under events beyond the control of the Group. The Group does Net asset value (NAV) per share is calculated by dividing thethe liability is discharged or cancelled or expires. not recognise contingent assets but discloses their existence net asset value attributable to ordinary shareholders of the2.15 Provisions, contingent liabilities and contingent assets when inflows of economic benefits are probable, but not Company by the number of outstanding ordinary shares as atProvisions are recognised when present obligations will virtually certain. the balance sheet date. Net asset value is determined as totalprobably lead to an outflow of economic resources from the assets less total liabilities. Where treasury shares exist, net 2.16 Related partiesGroup that can be reliably estimated. A present obligation asset value per share is calculated based on the assumption Parties are considered to be related if one party has the abilityarises from the presence of a legal or constructive obligation that those treasury shares have been cancelled. to control the other party or exercise significant influence overthat has resulted from past events. Provisions are not the other party in making financial or operational decisions. 2.18 New standards, amendments and interpretations not recognised for future operating losses. Parties are considered to be related to the Group if: yet adoptedProvisions are measured at the estimated expenditure 1. directly or indirectly, a party controls, is controlled by, or is The following new standards, amendments and interpretationsrequired to settle the present obligation, based on the most under common control with the Group; has an interest in to existing standards have been published, but are not yetreliable evidence available at the balance sheet date, including the Group that gives it significant influence over the Group; effective for the year ended 30 June 2008 and the Group hasthe risks and uncertainties associated with the present or has joint control over the Group; not early adopted them:obligation. Where there are a number of similar obligations, 2. a party is a jointly-control entity in which the Group is IFRS 8 Operating Segments, which is effective for financialthe likelihood that an outflow will be required in settlement is a venturer; statements for periods beginning on or after 1 Januarydetermined by considering the class of obligations as a whole. 3. a party is an associate of the Group; 2009, introduces the “management approach” to segmentLong-term provisions are discounted to their present values, 4. a party is a member of the key management personnel of reporting. It is not expected that the adoption of IFRS 8where the time value of money is material. the Group; will have a material effect on the Group’s consolidated 5. a party is a close member of the family of any individualAll provisions are reviewed at each balance sheet date financial statements. referred to in (4);and adjusted to reflect the current best estimate of 6. a party is an entity that is controlled, jointly controlled or Revised IAS 23 Borrowing Costs, which is effective forGroup’s management. significantly influenced by, or for which significant voting capitalisation of borrowing costs to qualifying assetsThe Group does not recognise a contingent liability but power in such entity resides with, directly or indirectly, any commencing on or after 1 January 2009, removes thediscloses its existence in the financial information. A contingent individual referred in (4) or (5). option to expense borrowing costs and requires that anliability is a possible obligation that arises from past events entity capitalise borrowing costs directly attributable to the Other investment funds under the management of VinaCapitalwhose existence will be confirmed by uncertain future events acquisition, construction or production of a qualifying asset Investment Management Ltd are considered related parties tobeyond the control of the Group or a present obligation that as part of the cost of that asset. It is not expected that the the not recognised because it is not probable that an outflow of adoption of Revised IAS 23 will have a material effect on the
  • 32. 30 VNI 2008 Annual Report Group’s consolidated financial statements. the effect of this interpretation on the Group’s consolidated for periods beginning on or after 1 January 2009, with financial statements. retrospective application required, are not expected to have IFRIC 12 Service Concession Arrangements provides guidance any effect on the Group’s consolidated financial statements. on certain recognition and measurement issues that arise IFRIC 16 Hedges of a net investment in a foreign operation, in accounting for public-to-private service concession which is effective for financial statements for periods Revised IFRS 3 Business Combinations (2008) has broadened arrangements. IFRIC 12, which is effective for financial beginning on or after 1 October 2008, clarifies the accounting the definition of a business which is likely to result in more statements for periods beginning on or after 1 January 2008, treatment in respect of net investment hedging. This includes acquisitions being treated as business combinations. Further, is not expected to have any effect on the Group’s consolidated the fact that net investment hedging relates to differences the Revised IFRS 3 will require contingent consideration to financial statements. in functional currency not presentation currency, and be measured at fair value, with subsequent changes therein hedging instruments may be held anywhere in the group. recognised in profit or loss and transaction costs, other than IFRIC 13 Customer Loyalty Programmes addresses the The requirements of IAS 21, the effects of changes in foreign share and debt issue costs, to be expensed as incurred. The accounting by entities that operate, or otherwise participate exchange rates, do apply to the hedged items. The adoption revised IFRS 3 will also require any pre-existing interest in the in, customer loyalty programmes under which the customer of IFRIC 16 is not expected to have any effect on the Group’s acquiree to be measured at fair value with the gain or loss can redeem credits for awards such as free or discounted consolidated financial statements. recognised in profit or loss and any non-controlling (minority) goods or services. IFRIC 13, which is effective for financial interest to be measured at either fair value, or at statements for periods beginning on or after 1 July 2008, Revised IAS 1 Presentation of Financial Statements (2007), its proportionate interest in the identifiable assets and is not expected to have any effect on the Group’s consolidated which is effective for financial statements for periods liabilities of the acquiree, on a transaction-by-transaction financial statements. beginning on or after 1 January 2009, introduces the term basis. The Group is required to adopt Revised IFRS 3 for total comprehensive income, which represents changes in IFRIC 14 IAS 19 – The Limit on a Defined Benefit Asset, business combinations which the acquisition date is on or after equity during a period other than those changes resulting from Minimum Funding Requirements and their Interaction clarifies 1 April 2010, with prospective application required. transactions with owners in their capacity as owners. Total when refunds or reductions in future contributions in relation comprehensive income may be presented in either a single Amended IAS 27 Consolidated and Separate Financial to defined benefit assets should be regarded as available statement of comprehensive income (effectively combining Statements (2008) requires accounting for changes in and provides guidance on the impact of minimum funding both the statement of income and all non-owner changes in ownership interests by the Group in a subsidiary, while requirements (MFR) on such assets. It also addresses when equity in a single statement), or in a statement of income and maintaining control, to be recognised as an equity transaction. a MFR might give rise to a liability. IFRIC 14 is effective for a separate statement of comprehensive income. The adoption When the Group loses control of a subsidiary, any interest financial statements for periods beginning on or after of Revised IAS 1 is expected to have a significant impact on the retained in the former subsidiary will be measured at fair 1 January 2008, with retrospective application required. The presentation of the Group’s consolidated financial statements. value with the gain or loss recognised in profit or loss. The adoption of IFRIC 14 is not expected to have any effect on the amendments to IAS 27 are effective for financial statements Group’s consolidated financial statements. Amendments to IAS 32 Financial Instruments: Presentation for periods beginning on or after 1 July 2009. The Directors and IAS 1 Presentation of Financial Statements – Puttable IFRIC 15 Agreements for construction of real estates, which have not assessed the effect of this amended standard on the Financial Instruments and Obligations Arising on Liquidation is effective for financial statements for periods beginning on Group’s consolidated financial statements. requires puttable instruments, and instruments that impose or after 1 January 2009, clarifies whether IAS 18, Revenue, or on the entity an obligation to deliver to another party a pro Amendment to IFRS 2 Share-based Payment – Vesting IAS 11, Construction contracts, should be applied to particular rata share of the net assets of the entity only on liquidation, Conditions and Cancellations clarifies the definition of vesting transactions. It is likely to result in IAS 18 being applied to a to be classified as equity if certain conditions are met. The conditions, introduces the concept of non-vesting conditions, wider range of transactions. The Directors have not assessed amendments, which are effective for financial statements requires non-vesting conditions to be reflected in grant-date
  • 33. VNI 2008 Annual Report 31fair value and provides the accounting treatment for 4. Segment reportingnon-vesting conditions and cancellations. The Group is Segment information is presented in respect to therequired to adopt amendments to IFRS 2 for financial Group’s investment and geographical segments. The primarystatements for periods beginning on 1 April 2009. The format, investment segments, is based on the investmentadoption of amendments to IFRS 2 is not expected to have manager’s management and monitoring of investments.any effect on the Group’s consolidated financial statements. Investments are allocated into the following main segments: energy, property and infrastructure developers,2.19 Segment reporting telecommunications, aviation, other sectors and cashAn investment segment is a group of assets that are subject (including term deposits and bonds). The Group’s secondaryto risks and returns that are different from those of other reporting format, geographical segments, includes Vietnambusiness segments. and the Asia Pacific region.A geographical segment is a particular economic environmentthat is subject to risks and returns that are different fromthose of segments operating in other economic environments.3. Critical accounting estimates and judgementsWhen preparing the financial information the Group makesestimates and assumptions concerning the future. Theresulting accounting estimates will, by definition, seldom equal 30 June 2008the related actual results. The estimates and assumptions Vietnam Asia Pacific Totalthat have a significant risk of causing a material adjustment to USD’000 USD’000 USD’000the carrying amounts of assets and liabilities within the next Total assetsfinancial period are discussed below: Investment – energy 26,203 - 26,203 Investment – property and infrastructure developers 70,828 - 70,828Impairment of trade and other receivablesThe Group’s management determines the provision for Investment – telecommunications 7,005 - 7,005impairment of trade and other receivables on a regular basis. Investment – aviation 19,219 - 19,219This estimate is based on the credit history of its customers Investment – other sectorsand prevailing market conditions. - Securities 2,226 - 2,226 - Bonds 7,808 - 7,808Fair value of financial instruments - Others 1,375 - 1,375The fair value of financial instruments that are not traded in an Othersactive market (for example, unlisted securities) is determined by Trade and other receivables 6,008 - 6,008using valuation techniques. The Group uses its judgement to selecta variety of methods and make assumptions that are mainly based Cash and other short term investments 102,015 95,061 197,076on market conditions existing at each balance sheet date. 242,687 95,061 337,748
  • 34. 32 VNI 2008 Annual Report 5. Subsidiaries and associates 30 June 2008 Acquisition of Bellport Developments Limited Vietnam Asia Pacific Total The Group acquired a 100% interest in Bellport Developments Limited on 31 March 2008, which owns 80% in Long An Port USD’000 USD’000 USD’000 project. The total cost of the acquisitions was USD6,389,000. Capital expenditure The purchase price was settled in cash. Investment – property and infrastructure developers 16,288 - 16,288 The fair value amount recognised in the acquiree’s Investment – other sectors 1,682 - 1,682 property, plant and equipment at the acquisition date was 17,970 - 17,970 USD6,389,000. Income Bellport Developments Limited has not contributed any Investment – energy (31,840) - (31,840) profit/loss to the consolidated loss for the period from 31 Investment – property and infrastructure developers (17,659) - (17,659) March 2008 to the balance sheet date. Investment – telecommunications 77 - 77 Acquisition of Reckon Developments Limited Investment – aviation (314) - (314) The Group acquired a 100% interest in Reckon Developments Investment – other sectors: Limited on 31 March 2008, which owns 60% in Long An - Securities (1,959) - (1,959) Industrial Services project. The total cost of the acquisitions - Bonds (2,165) - (2,165) was USD7,087,000. The purchase price was settled in cash. Others (1,347) - (1,347) The fair value amount recognised in the acquiree’s Cash 4,962 6,628 11,590 property, plant and equipment at the acquisition date was (*) (50,245) 6,628 (43,617) USD7,999,000. Expenses Reckon Developments Limited has not contributed any Unallocated expenses (9,750) (9,750) profit/loss to the consolidated loss for the period from (9,750) - (9,750) 31 March 2008 to the balance sheet date. Net loss (59,995) 6,628 (53,367) Acquisition of VinaCapital LongAn Industry Limited The Group acquired a 100% interest in VinaCapital LongAn To determine the geographical segments for assets the following rules have been applied: Industry Limited on 31 March 2008, which owns 60% in Long • Listed shares − place of primary listing; An Industrial Park project. The total cost of the acquisitions was USD3,524,000. The purchase price was settled in cash. • Unlisted shares − place of incorporation of the issuer; • Cash − place of deposit; The fair value amount recognised in the acquiree’s property, plant and equipment at the acquisition date was • Bond − place of incorporation of the issuer. USD3,524,000. Segmental liabilities were not disclosed as they were not material. Segmental assets and income at 30 June 2007 were attributable VinaCapital LongAn Industry Limited contributed a loss of to cash and cash equivalents in Asia Pacific. USD15,000 to the consolidated loss for the period from 31 March 2008 to the balance sheet date. (*) including net foreign exchange losses of USD15,491
  • 35. VNI 2008 Annual Report 33The acquisitions had the following effect on the Groups’ assets Significant subsidiariesand liabilities on acquisition date: Nominal value of issued Percentage Recognised values share capital/registered interest on acquisition Place of incorporation/ capital held by the Principal USD’000 Name operations USD Company activities Property, plant and equipment 17,912 VIL Investment Ltd BVI 100 100% Investment Other assets - Vietnam Infrastructure Investment Ltd BVI 100 100% Investment Net identifiable assets and liabilities 17,912 Vietnam Infrastructure Development Ltd BVI 100 100% Investment Goodwill on acquisition - Vietnam Infrastructure Enterprise Ltd BVI 100 100% Investment Consideration paid 17,912 Vietnam Infrastructure Holding Ltd BVI 100 100% Investment Less cash acquired (912) Vietnam Infrastructure Strategic Ltd BVI 100 100% Investment Cash flows on acquisitions, net of cash Vietnam Infrastructure Privilege Ltd BVI 100 100% Investment 17,000 acquired Vietnam Infrastructure Heritage Ltd BVI 100 100% Investment Vietnam Infrastructure Espero Ltd BVI 100 100% Investment VIL Glorious Investment Ltd BVI 100 100% Investment Coastal Pacific Ltd BVI 100 100% Investment Goldrise Global Ltd BVI 100 100% Investment Richluck International Ltd BVI 100 100% Investment Scepter Asia Ltd BVI 1 100% Investment Fairson Ventures Ltd BVI 1 100% Investment Vietnam Infrastructure Civilis Ltd BVI 1 100% Investment Vietnam Infrastructure Pyramid Ltd BVI 1 100% Investment Vietnam Infrastructure Conventus Ltd BVI 1 100% Investment Bellport Developments Limited BVI 1 100% Investment Reckon Developments Limited BVI 1 100% Investment VinaCapital Long An Industry Limited BVI 1 100% Investment Long An S.E.A Industrial Park Development Company Ltd Long An, Vietnam 10,000,000 60% Real estate Vina - CPK Ltd Company Vinh Phuc, Vietnam 80% Construction
  • 36. 34 VNI 2008 Annual Report Associates 7. Trade and other receivables Nominal value 30 June 2008 of issued USD’000 share capital/ Prepayments 1,016 Place of Percentage registered capital incorporation/ interest held by Principal Interest receivables 4,992 Name operations USD the Company activities 6,008 Global Infrastructure Mobile phone Ho Chi Minh Investment 3,125,000 49% Infrastructure The carrying value of trade and other receivables is considered a reasonable approximation of City, Vietnam Company Ltd their fair value as at balance sheet date. Mobile Mobile phone Infrastructure Infrastructure 8. Financial assets at fair value through profit and loss Hanoi, Vietnam 10,000,000 49% Development Company Ltd 30 June 2008 USD’000 Financial information of the associates as of and for the year ended 30 June 2008 is disclosed Financial assets at fair value through profit or loss: as below: Ordinary shares – listed 69,737 Ordinary shares – unlisted 35,335 Assets Liabilities Revenues Net profit Corporate bonds 7,808 Name USD’000 USD’000 USD’000 USD’000 112,880 Global Infrastructure (30) 721 8 - Investment Company Ltd Included in investments in unlisted ordinary shares were investments in equity instruments of Mobile Infrastructure (204) USD22.9 million which were measured at cost because the fair value of these investments could 3,262 49 - not be reliably assessed as at 30 June 2008. The Directors have assessed the impairment impact Development Company Ltd of these investments and believe that these investments were not impaired as at 30 June 2008. 6. Property, plant and equipment 9. Investments in equity accounted investees Land and buildings 30 June 2008 30 June 2008 USD’000 USD’000 Opening balance - Opening balance - Land compensation costs acquired through acquisition of subsidiaries 16,288 Addition from acquisition of equity accounted investees 3,929 Other related costs acquired through acquisition of subsidiaries 1,682 Share of loss of equity accounted investees, net (115) Closing balance 17,970 Closing balance 3,814
  • 37. VNI 2008 Annual Report 3510. Bank deposits 12. Share capital Number of shares USD’000 Authorised Ordinary shares at par value of USD0.01 each 10,000,000,000 100,000 30 June 2008 USD’000 Issued and fully paid Bank deposits 61,828 At 30 June 2007 402,100,000 4,021 At 30 June 2008 402,100,000 4,021The Group has deposited VND1,041 million (equivalent to USD62 million) with a bank. The de-posit is repayable within one year and earns interest at the rate of 13% per annum. The deposit The Company was incorporated on 18 January 2007 with the issuance of 1 share, of USD0.01 paris restricted from use for purposes other than its intended purpose described in Note 23 to the value. The Company’s issued share capital was increased to 402.1 million shares on 28 June 2007consolidated financial statements. The bank has guaranteed to ensure the full repayment of the of USD0.01 par value each.deposit and associated accrued interest thereon to the Group in VND upon the expiry of thedeposit term. 13. Share premiumThe carrying value of the deposit is considered a reasonable approximation of its fair value as at Share premium represents the excess of consideration received over the par value of sharesbalance sheet date. issued after deducting placing fees and other incremental costs directly related to the share issuance.11. Cash and cash equivalents 30 June 2008 30 June 2007 14. Minority interest USD’000 USD’000 Cash at bank 4,783 402,100 30 June 2008 Money market instruments (*) 130,465 - USD’000 135,248 402,100 Opening balance - Movements during the year of the minority share capital 912(*) Money market instruments are term deposits with banks, with original terms to maturity Share of loss of attributable to minority shareholders (6)of less than three months and bearing interest at rates ranging from 10.5% to 17.5% for VNDdeposits and 2.1% for USD deposits during the year ended 30 June 2008. Closing balance 906
  • 38. 36 VNI 2008 Annual Report 15. Payables to related parties 18. Administration expenses 30 June 2008 30 June 2007 Year ended Period from 18 January 2007 USD’000 USD’000 30 June 2008 to 30 June 2007 VinaCapital Investment Management Ltd – USD’000 USD’000 573 11,712 management and placement fees Management fees (see Note 21) 7,935 - Other payables to VinaCapital Investment Management Ltd 37 - VinaLand Limited 217 - Professional fees 500 - 827 11,712 Custodian fees 599 - Directors’ fees 130 - General administration expenses 253 851 16. Net changes in fair value on financial assets Other expenses 333 - at fair value through profit or loss 9,750 851 Year ended 30 June 2008 USD’000 19. Income tax Vietnam Infrastructure Limited is domiciled in the Cayman Islands. Under the current laws of the Unrealised losses 46,405 Cayman Islands, there is no income, State, corporation, capital gains or other taxes payable by Realised gains (17) the Company. 46,388 The majority of the Group’s subsidiaries are domiciled in the British Virgin Islands (BVI) and so have a tax exempt status. A number of subsidiaries are established in Vietnam and are subject to corporate income tax in Vietnam. The Vietnam subsidiaries have not yet started commercial 17. Other investment income operations nor generated taxable income, therefore no provision for current tax have been made for the period from 18 January 2007 (date of establishment) to 30 June 2007 and for the year ended 30 June 2008. Year ended 30 June 2008 Deferred tax was not recognised as the temporary differences and tax losses were not material. USD’000 Dividend income 427 Interest income 17,834 Other income 1 18,262
  • 39. VNI 2008 Annual Report 3720. Earnings per share and net asset value per share 21. Related party transactions Management fees The Group is managed by VinaCapital Investment Management Limited (the “Investment Manager”), an investment management company incorporated in the British Virgin Islands 30 June 2008 30 June 2007 (“BVI”), under a management agreement dated 29 June 2007 (the “Management Agreement”). The Investment Manager receives a fee based on the net asset value of the Group, payable Net asset value (USD’000) 335,332 389,537 monthly in arrears, at an annual rate of 2%. Number of outstanding ordinary shares 401,169,300 402,100,000 Total management fees for the year ended 30 June 2008 amounted to USD7,935,454 Net asset value per share (USD/share) 0.84 0.97 (Period from 18 January 2007 to 30 June 2007: Nil), with USD573,143 in outstanding accrued fees due to the Investment Manager at 30 June 2008 (30 June 2007: Nil). Period from Performance fees Year ended 18 January 2007 In accordance with the Management Agreement, the Investment Manager is also entitled to a 30 June 2008 To 30 June 2007 performance fee equal to 20% of the realised returns over an annualised compounding hurdle Number of outstanding ordinary shares rate of 8%. Number of ordinary shares at the beginning of the There was no performance fees for the year ended 30 June 2008 (Period from 18 January 2007 402,100,000 - year/period to 30 June 2007: Nil), with no outstanding accrued fees due to the Investment Manager as at the Issued during the year - 402,100,000 balance sheet dates. Treasury shares (930,700) - Placement fees Number of ordinary shares at the end of the year/ When raising capital through the issuance of new ordinary shares a commission equal to 3% 401,169,300 402,100,000 of the subscription price multiplied by the total number of the shares allotted by the Company period on admission is payable by the Group to the Investment Manager. The Investment Manager is Weighted average number of ordinary shares responsible for paying placing agents that are engaged in respect to such subscriptions. The net Issued ordinary shares at the beginning of the year/ proceeds of share subscriptions is recorded after netting off placement fees. 402,100,000 - period There was no placement fees for the year ended 30 June 2008 (Period from 18 January 2007 Effect of ordinary shares issued during the period - 402,100,000 to 30 June 2007: USD11,711,650), with no outstanding accrued fees due to the Investment Effect of treasury shares (77,558) - Manager at 30 June 2008 (30 June 2007: USD11,711,650). Weighted average number of ordinary share at the Director fees 402,022,442 402,100,000 The aggregate director fee payable to the directors of the Company for the year ended 30 June end of the year/period 2008 was USD130,000 (Period from 18 January 2007 to 30 June 2007: Nil). Losses attributable to ordinary shareholders (53,476) (851) (USD’000) Weighted average number of shares 402,022,442 402,100,000 Losses per share (USD/share) (0.13) (0.002)
  • 40. 38 VNI 2008 Annual Report Acquisitions of subsidiaries from related parties. expect any losses arising from the non-performance of these financial institutions. During the year, the Group acquired the following subsidiaries from VinaLand Limited (VNL) and The Group also limits its exposure to credit risk by only investing in corporate bonds issued by Vietnam Opportunity Fund Limited (VOF): entities with sound profiles and the management does not expect these entities to fail to meet their obligations. Paid to VNL Paid to VOF Total Name of subsidiaries The maximum exposure to credit risk of cash and cash equivalents, deposits, investments in USD’000 USD’000 USD’000 bonds and other receivables is equal to the carrying amounts stated in the balance sheet. Bellport Developments Limited 4,792 1,597 6,389 Liquidity risk Reckon Developments Limited 5,087 2000 7,087 Liquidity risk is defined as the risk that the Group may not be able to settle or meet its obligations on VinaCapital Long An Industry Limited 2,643 881 3,524 time or at a reasonable price. The Group adopts its risk management guidelines which are designed to 12,522 4,478 17,000 minimize its liquidity risk through: • Monitoring its exposure to illiquid or thinly traded investments and financial instrument, and Other related party transactions and balances • Applying limits to ensure there is no concentration of liquidity risk to a particular counterparty Other related parties balances are disclosed in Note 15 to the consolidated financial statements. or market. The Group also regularly monitors current and expected liquidity requirements to ensure that 22. Financial risk management objectives and policies the Group maintains sufficient reserves of cash to meet its liquidity requirements in the short The Group primarily invests in bank deposits, bonds, listed and unlisted securities and private and longer term. equity investments in Vietnam and is exposed to credit risk, liquidity risk and market risk arising from the financial instruments it holds. The Group has formulated risk management policies and As at 30 June 2008 and 2007 the contractual maturities of non-derivative financial liabilities were guidelines which govern its overall business strategies and its general risk management policies, as follows: and has established processes to monitor and control transactions in a timely and accurate Carrying Undiscounted manner. In essence, the Group and its Investment Manager practice portfolio diversification and Within 1 year Over 1 year Amount contractual cash flow adopt a range of appropriate restrictions and policies. Nevertheless, the market can provide no USD’000 USD’000 USD’000 USD’000 assurance that the Group will not suffer a loss as a result of one or more of the risks described 30 June 2008 above, or as a result of other risks not currently identified by the Group. Payables to related The nature and extent of the financial instruments outstanding at the reporting date and the risk parties and other 1,510 1,510 1,510 - management policies employed by the Group are discussed below. liabilities Credit risk 30 June 2007 Credit risk is the risk of financial loss to the Group if an issuer or counterparty fails to meet a Other liabilities 12,563 12,563 12,563 - commitment that it has entered into with the Group. The Group’s assets will only be traded on or subject to the rules of a recognised stock exchange Market risk or with counterparties which have, or whose parent company has, a specified credit rating. All Market risk is the risk that changes in market prices, such as equity prices, interest rates and foreign transactions in listed and unlisted securities are settled/paid for upon delivery using approved exchange rates will affect the Group’s income or the value of its holdings of financial instruments. brokers. The risk of default is considered minimal since the delivery of securities sold is made The objective of market risk management is to manage and control market risk exposures within only once the broker has received payment. A purchase payment is only made once the acceptable parameters, while optimizing the return. securities have been received by the broker. If either party fails to meet their obligations, the (i) Equity price risk trade will fail. Equity price risk is the risk that the fair values of equities decrease as a result of changes in As at 30 June 2008 and 2007 the Group’s credit risk arose principally from the Group’s other the levels of the equity indices and the values of individual stocks. The trading equity price risk receivables, bank deposits, investments in bonds and cash and cash equivalents. exposure arises from the Group’s investment portfolio. The Group is exposed to equity price risk on all of its listed investments and certain unlisted investments for which an active over-the- Other receivables mainly comprised interest income on time deposits. All time deposits were counter market exists. The Group’s overall market positions are monitored on a daily basis by the placed with high quality financial institutions with no significant credit risk. The Group does not Investment Manager.
  • 41. VNI 2008 Annual Report 39(ii) Interest rate riskThe Group’s exposure to interest rate risk is related to interest bearing financial assets and As at 30 June 2008 and 2007 the Group’s exposure to foreign currency risk was as follows:financial liabilities.Interest bearing financial assets VNDCash and cash equivalents, bank deposits and bonds are subject to interest at fixed rates. USD’000They are exposed to fair value changes due to interest rate changes. 30 June 2008Interest bearing financial liabilities Trade and other receivables 5,987The Group had no interest bearing financial liabilities as at 30 June 2008. Financial assets at fair value through profit or loss 99,740As at 30 June 2008 and 2007 the interest rate profile of the Group’s interest bearing financial Bank deposits 61,828instruments was: Cash and cash equivalents 36,746 Payables to related parties - 30 June 2008 30 June 2007 Other liabilities (229) USD’000 USD’000 Gross balance sheet exposure 204,072Fixed rate instrumentsFinancial assets As at 30 June 2007 the Group did not have exposure to foreign currency risk.Cash and cash equivalents 135,248 402,100 Sensitivity analysis to a reasonably possible change in exchange ratesBank deposits 61,828 - A 4% weakening of the VND against USD at the end of the year ended 30 June 2008 would haveBonds 7,808 - increased the loss (net of taxation) of the Group equity by the amount shown below. This analysis assumes that all other variables, in particular interest rates, remain constant.Fair value sensitivity analysis for fixed rate instrumentsAs at 30 June 2007 the Group did not hold any fixed rate financial assets or financial liabilitiesaccounted for at fair value through profit or loss. Therefore a change in interest rates at that date Profit (net of taxation)would not affect profit or loss and equity. USD’000As at 30 June 2008 fixed rate financial assets accounted for at fair value through profit or loss VND 7,975included bonds.Fair value sensitivity analysis for bonds was not disclosed as it was not material.(iii) Currency riskEach entity within the Group is exposed to foreign currency risk on sales and purchases of its A 4% strengthening of the VND against USD would have had the equal but opposite effect to theinvestments that are denominated in a currency other than its functional currency. The currency amount shown above, on the basis that all other variables remain rise to this risk is primarily VND. Sensitivity analysis for the period from 18 January 2007 to 30 June 2007 was not prepared as theThe Group ensures that the net exposure to this risk is kept to an acceptable level by buying or Group was not exposed to foreign currency risk.selling foreign currencies at spot rates to address short-term imbalances where necessary.
  • 42. 40 VNI 2008 Annual Report (iv) Price risk sensitivity analysis • The amount of tax that may be payable, if the income is subject to tax. The Group invests in listed and unlisted equity securities and is exposed to market price risk of The implementation and enforcement of tax regulations in Vietnam can vary depending on these securities. If the prices of the securities were to fluctuate by 50%, the impact on profit or numerous factors, including the identity of the tax authority involved. The administration of laws loss and equity would amount to approximately USD41 million. The Group was not exposed to and regulations by government agencies may be subject to considerable discretion, and in many price risk for the period from 18 January 2007 to 30 June 2007. areas, the legal framework is vague, contradictory and subject to interpretation. Capital management The Directors believe that it is unlikely that the Company and/or the subsidiaries incorporated The Group considers the capital to be managed as equal to the net assets attributable to the in the Cayman Islands and the British Virgin Islands will be exposed to tax liabilities in Vietnam, holders of ordinary shares. The Group has engaged the Investment Manager to allocate the and in the worse case, if tax is imposed on income arising in Vietnam it will not be applied net assets in such a way so as to generate investment returns that are commensurate with the retrospectively. As at 30 June 2008, due to the uncertainties mentioned above, no liability in investment objectives outlined in the Group’s offering documents. relation to taxation has been recognised in the consolidated financial statements. 23. Contingent assets 25. Commitments Co-operation contract with Thai Thinh Capital There were no other contingent assets or liabilities or commitments as at 30 June 2008. In accordance with the co-operation contract dated 8 December 2007 between the Group and Thai Thinh Capital (“TTC”), a joint stock company, for which the Group has placed an amount of VND1,041 (equivalent to USD62 million) (Note 10) with a bank for lending to TTC, the Group has 26. Subsequent events Subsequent to the year ended 30 June 2008, global markets were sharply affected by the an option (“the Option”) to buy shares of TTC when TTC offers its share to public at a favourable collapse of Lehman Brothers and other financial institutions. As the extent of the credit crisis price which is 20% lower than the average initial public offer (“IPO”) price. became clear the market turmoil spread to Europe and emerging markets including the Vietnam As at 30 June 2008 the following information is uncertain: stock market. • Whether TTC will offer its share to the public in the foreseeable future; and As of the date of issuance of the financial statements, the aggregate fair value of the Group’s • The average IPO price, if TTC offers its shares to the public. financial assets at fair value through profit and loss has fallen by USD32.7 million to USD80.2 million from the aggregate fair value as of 30 June 2008. The details are as follows: As at 30 June 2008, due to the uncertainties as mentioned above, the fair value of the Option, which was not able to be determined reliably, has not been recognised in the consolidated financial statements. 24. Contingent liabilities Fair value Taxation 30 June 2008 28 October 2008 Movement Although the Company and some of its subsidiaries are incorporated in the Cayman Islands and USD’000 USD’000 USD’000 the British Virgin Islands where they are exempt from tax, the Group’s activities are primarily focused on Vietnam. In accordance with the prevailing tax regulations in Vietnam, if an entity Financial assets at fair value was treated as having a permanent establishment, or as otherwise being engaged in a trade through profit or loss or business in Vietnam, income attributable to or effectively connected with such permanent Ordinary shares – listed 69,737 37,585 (32,152) establishment or trade or business may be subject to tax in Vietnam. As at the date of this report the following information is uncertain: Ordinary shares – unlisted 35,335 34,520 (815) Corporate bonds 7,808 8,053 245 • Whether the Company and/or its subsidiaries are considered as having permanent establishments in Vietnam; and 112,880 80,158 (32,722)
  • 43. DirectoryVietnam Infrastructure Limited is listed on the AIM market of the London Stock Exchange plc. Share price information is available on Bloomberg and Reuters.AdministrationThe Company Broker Investment Manager AuditorsVietnam Infrastructure Limited LCF Edmond De Rothschild Securities Limited VinaCapital Investment Management Ltd KPMG (Vietnam) Ltd.P.O. Box 309GT 5 Upper St Martin’s Lane, Representative Office 10th & 14th Floor, Sunwah Tower,Ugland House London WC2H 9EA, 17th Floor, Sun Wah Tower 115 Nguyen Hue Blv., District 1,South Church Street, George Town United Kingdom 115 Nguyen Hue Boulevard Ho Chi Minh City, Vietnam.Grand Cayman, Cayman Islands District 1, Ho Chi Minh City, VietnamCustodian, Administrator, Legal Advisers Nominated Adviserand Registrar /Receiving Agent (English Law) Grant Thornton UK LLPHSBC Institutional Trust Services (Asia) Limited Lawrence Graham Solicitors 30 Finsbury Square, London EC2P 2YU,39/F Dorset House, Taikoo Place 4 More London Riverside, London, SE1 2AU United Kingdom979 Kings Road United KingdomHong Kong (Cayman Islands Law) Maples and Calder Ugland House P.O. Box 309GT South Church Street, George Town Grand Cayman Cayman Islands
  • 44. Ho Chi Minh City Hanoi Hong Kong17th Floor, Sun Wah Tower 5th Floor 16/F., St. John’s Building, 33 Garden Road,115 Nguyen Hue Bldv. Dist. 1, Ho Chi Minh City 13 Hai Ba Trung, Hai Ba Trung District, Hanoi Central, Hong Kong SARTel. + 84-8 3821 9930 Tel. + 84-4 3936 4630 Tel. + 852 2918 0088Fax. + 84-8 3821 9931 Fax. + 84-4 3936 4629 Fax. + 852 2918