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Risk warning against investment cooperation in Vietnam

Risk warning against investment cooperation in Vietnam

Thursday 13, 07 2023
Experts recommend that retail investors need to be alert when participating in investment cooperation contracts, especially paying attention to their ability to secure their capital, to avoid suffering from losses.

Risks behind big profits

It is very difficult to resist the attraction of promised profits in investment cooperation contracts. The minimum profit that the investment cooperation contracts are currently offering is over 30%/year. In the case of a large profit, the figure could be 70% - 100%, which is huge.

Vietnamcredit upheavals in the financial sector

In fact, after a period full of upheavals in the financial sector, such as corporate bond failures (Tan Hoang Minh, An Dong – SCB), confidence in the financial investment market fell very low. Most investors turned to a defensive state, saving in banks to enjoy double-digit deposit interest rates. However, when interest rates fell to single-digit, these investors who had already been used to high returns began to succumb.

There should be a way out

Due to the great attraction of committed profits in investment cooperation contracts, to ensure safety, experts recommend that the first thing investors need to do is control their own greed and not to make themselves become “moth” rushing into the fire of profit. Facing a high level of committed profit, investors need to carefully evaluate the feasibility of the business plan. If the plan is vague and unclear, the expectation of achieving the committed profit is just like picking flowers in the mirror, and giving money to businesses to call for capital is like releasing chickens to chase.

In addition, investors need to pay special attention to security measures in the contract, so that one can avoid capital loss, and secondly, they can earn profits as committed. Accordingly, the contract needs to have a security asset, with the value of the collateral having to reach from 170% to 200% of the value of the invested capital. If the collateral is only 50% - 100% of the value of the invested capital, the risk of capital loss still exists and this risk is higher if the value of the collateral is lower.

Vietnamcredit Collateral

Collateral must also meet necessary conditions such as being legal, having liquidity, being specific products (such as certificates of land use rights, housing works, etc.). Collateral should not a project because it is very complicated, and difficult to solve in the short to medium term. Moreover, there is even a risk of not being able to solve if the project still has problems with legal procedures or disputes or related to illegal cases.

In case of investment cooperation to purchase assets, the party contributing capital to the investment needs to hold the papers of that asset. The president of a unit specializing in investment cooperation shared that his company's method is to mobilize capital from people, use that capital to invest with third parties to buy assets. His company holds all the property documents, after selling the property, the cooperation interest is collected. In the repo contract (the purchase and sale of assets with a buyback clause), the buyer also has the advantage of buying the asset at a price usually only 50% - 60% of the asset value, so the safety is further strengthened.

In addition to the above issues, experts also recommend that investors should pay attention to the provisions in investment cooperation contracts that must be clear about the purpose of capital use, have capital control terms, for example, the recipient must provide a statement of cash flows or periodic reports on the use of funds. In particular, investors need to exclude unfavorable terms imposed from the calling enterprise such as the requirement not to sue, because when a dispute occurs, the parties will only base on the provisions of the contract to solve.

For a healthy investment cooperation market

The need for investment cooperation is always present in the economy and is especially useful in the current situation where many businesses are thirsty for capital. However, due to many hidden risks, and in fact many unfortunate cases have arisen, this form of investment cooperation can become the "black sheep" of the financial market.

Vietnamcredit investment cooperation

In order for investment cooperation to become healthy, experts believe that it is necessary to have a legal corridor for investment cooperation contracts, especially contracts related to real estate, to ensure system safety, and prevent risks.

On the side of businesses calling for capital, it is necessary to be transparent about information, to have assets to secure the mobilized capital, to ensure the interests of investors, thus reinforcing trust, maintaining attractiveness as well as helping the market become sustainable, avoiding disruptions.

Source: vietnamfinance

Compiled by VietnamCredit

Banking & Finance

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