Vietnam’s most ambitious US$67 billion North-South high-speed railway faces funding conundrum
Whether private firms can play a role in easing the state’s financial burden for this large-scale project remains uncertain
[HO CHI MINH CITY] Vietnam’s mammoth US$67 billion North–South high-speed railway is facing a crunch point as plans to roll out the decade-long project in 2026 collide with private investors’ unprecedented push for state-backed loans – a demand that regulators warn could pose risks to the country’s public debt safety and credit rating.
In a Nov 13 document – sent to the government and reviewed by The Business Times – summarising feedback from various regulators, the Ministry of Construction cautioned that the government would be exposed to major financial liabilities, from covering interest payments to absorbing default risks on the large loans private investors want in order to develop the infrastructure.
This comes after private-sector players filed bids to invest their own capital while borrowing the rest – 80 per cent of the project costs – from either the state Budget or credit institutions under government guarantees.
The contenders for developing the critical infrastructure, which will run the length of Vienam to connect its largest cities and metropolises, Hanoi and Ho Chi Minh City, include VinSpeed – the railway development arm of Vietnam’s largest private conglomerate Vingroup, and Truong Hai Group (Thaco) – a major Vietnamese industrial group backed by Singapore-listed Jardine Cycle & Carriage.
Thaco has proposed to raise 80 per cent of the project’s funding through loans from domestic and foreign credit institutions under government’s guarantees and full-interest subsidies over a 30-year loan period.
On the other hand, VinSpeed has said it would only participate if the state Budget provides a 30-year loan at zero interest rate covering 80 per cent of project costs.
Government’s lending offers
The document, accompanying a draft National Assembly resolution on special mechanisms for the high-speed railway project, points out the reality that no country has ever built a high-speed rail of this scale purely with private money. Large state support and incentives are always required.
With that in mind, the draft resolution lays out a financial mechanism allowing up to 80 per cent state capital participation under a public-private partnership (PPP) model, marking a shift from the original plan of complete public investment spanning over the next decade of development.
For a fully private investment model, the draft resolution allows the government to lend up to 80 per cent of the project’s approved cost using state Budget funds, at a minimum interest rate of zero and with repayment capped at 30 years from the first disbursement.
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However, if the state Budget must mobilise the funding through Official Development Assistance loans or government bonds, the investor is responsible for repaying interest.
Investors may back out
VinSpeed has reiterated recently that it would adhere to its original proposed financial scheme and opt out from the PPP model if it requires the company to raise 80 per cent of the capital itself.
In a Nov 24 interview with Thanh Nien, vice-chairman cum chief executive of Vingroup Nguyen Viet Quang argued that if VinSpeed invests directly, the state would recover its money in 30 years, instead of waiting 140 years or longer under a fully public investment model.
VinSpeed’s private management would also minimise cost overruns and delays, with a promise to put the rail line into operation within five years of development, instead of 10 as the state had original planned, he elaborated.
“We want to contribute, but our resources aren’t unlimited,” said Quang. “If the government chooses public investment or a PPP model, or assigns the project to another investor,... from a business perspective, it would certainly alleviate a great deal of pressure for us.”
He noted that despite the proposed state support, the company anticipates losses totalling tens of billions of dollars for the project.
The feasibility study for the railway indicates that the projected average annual revenue of US$5.6 billion over the first 30 years will be insufficient to cover operating costs and its debt to the state.
Quang outlined Vingroup founder Pham Nhat Vuong’s personal funding plan over the next decades: to use dividends from his companies, sell stakes in his private enterprises such as GSM, VinEnergo and V-Green, and if needed, divest part of his ownership at Vingroup.
He also dismissed speculation that VinSpeed’s interest in the railway project was driven by potential transit-oriented development (TOD) opportunities.
“That is completely untrue... We have proposed removing TOD from the project,” Quang clarified, emphasising that the station sites are not located in high-demand property areas, and that the company’s focus is on contributing to national growth rather than making profits.
VinSpeed is also set to begin construction on the US$3.3 billion metro line this December to connect downtown Ho Chi Minh City with Vingroup’s urban project in the coastal area of Can Gio, with plans to start commercial operations of the rail in 2028.
Regulators’ concerns
Vietnam’s ministries have raised concerns about the legal and fiscal implications of such large-scale state-back lending mechanisms proposed by private investors.
According to the 2017 Public Debt Management Law, there is currently no mechanism for the government to lend state Budget funds to private companies.
The government may also need to borrow funds and then on-lend to private enterprises, which also lacks a legal basis and corresponding risk management regulations.
Offering interest-free loans could also undermine the financial discipline of private investors, making it harder to recover the debt.
“Such a policy could run counter to principles of market-based debt management,” stated the document.
Meanwhile, government loan guarantees according to Thaco’s proposal have also raised some concerns. If private investors default on their loans, the government would be on the hook for the debt, which could strain the country’s finances and risk downgrading its credit rating, the report pointed out.
Additionally, government-guaranteed loans usually come with high-interest rates, shorter repayment periods and strict eligibility criteria, which few companies can meet. These conditions include a minimum equity requirement of 20 per cent of the total project cost – about US$12 billion – and a debt-to-equity ratio no higher than three.
Given these risks, the finance and construction ministries urged extreme caution and recommended limiting the use of such guarantees as much as possible, said the document.
The draft resolution, which also outlines special mechanisms for resettlement compensation, investment preparation and legal immunity for civil servants, is now under government review and is expected to reach the National Assembly for debate before the session ends in mid-December.
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