Developers reluctant to shake hands

The land at 55 Le Dai Hanh Street has lain idle since the Asian economic malaise in 1997 when the developer, a foreign-backed joint venture that had planned to use the property for an office tower, ran out of cash.
Now Hai Ba Trung Realty Joint Venture Company has managed to get funds to resume construction but the project is no closer to getting off the ground.
The land use rights are owned by the Hanoi-based Hai Ba Trung Restaurant and Tourist Service Company, the local partner in the joint venture. The foreign partner is the Hong Kong-registered Croesus Limited.
The joint venture was licensed in 1995 to build a $28-million office building for lease.
Croesus was to contribute a 70 per cent stake, or $3.36 million, to the joint venture’s chartered capital. The Vietnamese company was to have chipped in the other $1.44 million made up of the value land use rights for the 1,850 square metre piece of land, valued at just over $1 million, and the rest in cash.
International bidding for construction of the building was carried out in 1998.
However, just as the joint venture prepared construction on the building site the Asian economic crisis arrived and discouraged foreign banks from continuing to fund the project.
Implementing the project has been complicated since the Vietnamese partner was transformed from a state-owned entity into the Thang Long Tourist Trade Joint Stock Company in 1998.
Thang Long remained the Vietnamese representative in the joint venture until March last year when the Hanoi People’s Committee decided to replace it with a new Vietnamese company.
Both parties in the joint venture have rejected the decision, claiming they wanted to retain the partnership that has taken them years to build.
Hanoi authorities issued Letter 874/UB/KH&DT in March last year allowing the state-owned Hanoi Housing Investment, Construction and Development No.7 Company to be the new Vietnamese partner in the joint venture.
The authorities said the replacement was due to the fact that Hai Ba Trung Restaurant and Tourist Service Company had been transformed into a joint stock company with all the shares owned by non-state holders.
The land was not included in the value of the Thang Long joint stock company because the state contributed to the company’s chartered capital and the authorities therefore withdrew the land use right.
AIC Lawyers and Consultant Company managing lawyer, Le Thanh Son, argued that the exclusion of land use rights during equitisation did not mean that Thang Long would not inherit the land lease contract from the Hai Ba Trung Restaurant and Tourist Service Company.
Son said a joint stock company’s inheriting rights and the obligations of a state-owned company after the equitisation were clearly stated in the relevant laws.
He quoted the Circular 104/1998/TT-BTC of the Ministry of Finance dated July 18, 1998 as saying that “after the state-owned company changes into a joint stock company, the joint stock company shall inherit all rights and implement all obligations of the state-owned company”.
According to this circular Thang Long is the legal inheritor of the land lease contract that Hai Ba Trung Restaurant and Tourist Service signed with Hanoi Land Administration Department. Therefore, Thang Long was allowed to continue leasing the land and pay rental, Son said.
The lawyer said the inheritance right was also protected by the Decree 44/1998/ND-CP that states the land that a state-owned company is using would not be included in the asset value of the company when it was equitised. But after equitisation, the company would have to pay land rental annually.
Trieu Thi Huyen, director of Thang Long and former director of Hai Ba Trung Restaurant and Tourist Service Company said she was under pressure to sign a proposal amending the joint venture’s investment licence to allow a new Vietnamese partner in the venture.
Huyen said the Hanoi Authority for Planning and Investment on May 15 last year, sent a letter to the joint venture asking it to complete the necessary documents by the end of May and amend the investment licence, or face possible punishment.
Huyen said she had no rights or time to consult with her own company staff before she made the decision to sign the proposal to change local partner.
She said her decision was not supported by the board of directors of Thang Long company, or the workers and shareholders.
Huyen added that her signature meant that the rights of Hai Ba Trung Restaurant and Tourist Service company had been abolished at the expense of her staff and company’s shareholders.
“It has caused a very big loss, both material and spiritual, for the whole Vietnamese party. I feel very guilty for them,” Huyen said.
She accepted that she did not know much about equitisation when her company changed into a joint stock entity. She thought she should follow the request of Hanoi authorities first and could appeal later without knowing that her decision had complicated the joint venture.
And Huyen now wants to withdraw her signature and has asked for Thang Long company to remain as a local partner in the Hai Ba Trung Realty joint venture.
Huyen is supported by the foreign partner. Croesus executives said they did not want to partner with a new Vietnamese company they did not know anything about.
Croesus representative Le Thu Ha said her company had never had any contact with the new proposed partner, the Hanoi Housing Investment, Construction and Development No.7 company before it was proposed by Hanoi authorities.
Ha described the decision of the Hanoi People’s Committee as a “forced marriage with a new wife” and said the company was not happy with the new partner.
“We came here not to seek land but a reliable partner for the joint venture,” Ha said.
“The Hai Ba Trung Restaurant and Tourist Service company had stayed with us through a hard time and there is no reason for it to be kicked out when the project resumes construction,” she added.
The joint venture had submitted an appeal to the government and relevant authorities, asking that Thang Long company retain its partnership with Croesus.
The government office last week asked the Hanoi People’s Committee to handle the issue and to facilitate the participation of the former Vietnamese partner in the joint venture.
Ha said if the former ownership was retained, the joint venture would start construction on the building in July after Croesus had managed to negotiate a bank loan for the project. The firm opened a building tender last month and is expected to sign construction contract soon.
Croesus has pumped $1.8 million into the project so far to pay for land clearance, design and salaries. Ha said it would take 25 months to complete the 19-storey building that would provide 20,000 square meters of housing and office floor area for lease.