Finance Case

W13368

HAG’S SINGAPORE NOTE ISSUE1 Sundaravaradhan Venkatesh wrote this case solely to provide material for class discussion. The author does not intend to illustrate either effective or ineffective handling of a managerial situation. The author may have disguised certain names and other identifying information to protect confidentiality. This publication may not be transmitted, photocopied, digitized or otherwise reproduced in any form or by any means without the permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Western University, London, Ontario, Canada, N6G 0N1; (t) 519.661.3208; (e) [email protected]; www.iveycases.com. Copyright © 2013, Richard Ivey School of Business Foundation Version: 2013-08-19

In May 2011, Hoang Anh Gia Lai (HAG), a leading real estate company in Vietnam, was going to issue US$90 million of 9.875 senior notes (a debt instrument) in Singapore, due 2016. The company estimated the net proceeds from this offering, after deducting underwriting discounts, commissions and other estimated expenses payable in connection with the offering, to be approximately US$80.7 million. From the perspective of an analyst at a brokerage firm who was monitoring HAG, there were many questions of interest arising from the note issue.2 These included the cost of the debt and the reasons why HAG chose to raise the money in Singapore, and not in Vietnam.

What was the cost at which HAG was borrowing through the Singapore note issue? Was the level of borrowing of HAG, after the note issue, going beyond the optimal level of borrowing? What was the likelihood that HAG would be downgraded within a year from its B rating from Standard and Poor’s? How would the risk to HAG’s equity be affected as a result of the issue? Would the stock prices go down? Was it time to offload the brokerage firm’s equity holding in HAG? THE COMPANY HAG was listed on stock exchanges in Vietnam. Its primary business was real estate, with a focus on developing residential and commercial properties mainly in Ho Chi Minh City (formerly named Saigon), and also in Danang and Can Tho. The company’s other lines of business included hydroelectric power, rubber plantations, wooden furniture and granite stones. At the time of the bond issue, the company was also diversifying into coal mining. Geographically, the company’s business was concentrated in Vietnam, and it had projects in Cambodia, Laos and Thailand. Key financial data for the company are presented in Exhibit 1.

1 This case has been written on the basis of published sources only. Consequently, the interpretation and perspectives presented in this case are not necessarily those of Hoang Anh Gia Lai or any of its employees. 2 Most of the information provided in this case is from the Confidential Offering Circular that the company issued pursuant to requirements for listing on the Singapore stock exchange. Financial statements of HAG are from the Saigon Securities Inc. website, www.ssi.com.vn, accessed August 12, 2012.

For the exclusive use of R. Ghulam, 2015.

This document is authorized for use only by Razan Ghulam in International Finance taught by Daniel Tompkins, Niagara University from February 2015 to May 2015.

Page 2 9B13N004 Growth in the company’s revenues and profits was characteristic of fast-growing companies in emerging economies like Vietnam: some years of phenomenally high growth and other years of very modest growth. Profits were, in most years, much more than cash flows from operations. In the year ended December 31, 2010, profits were VND 2,222,077 million, but cash flows from operations were a mere VND 1,061,866 million.3 The gap between profits and cash flows was characteristic of real estate companies in Vietnam. Revenues on sales of apartments and on construction contracts were recognized “when significant risks and rewards of ownership” were passed to the buyer. Revenues from apartments under construction and from construction contracts were recognized on the basis of “fulfillment of obligations” by the company. Implied in the revenue recognition policy was the possibility that there could be significant lags between revenue and profit recognition and cash flows from operations. This was borne out by the significant increase in accounts receivable over the years. For a real estate business operating in markets such as Vietnam, cash flows from operations were more reliable as a measure of operating performance compared to income. Even though the company had diversified business interests, a bulk of its revenues was from the real estate business. The real estate business also accounted for a bulk of the company’s assets. Revenues and profits in the real estate business were earned in the local currency, the Vietnamese dong. Segmental results and assets as at the end of December 31, 2010, are presented in Exhibit 2. Project cycles were long, involving long periods of waiting following the acquisition of land, in order to obtain the necessary regulatory clearances and permissions to build. This resulted in inventory build-ups. The company required financing, mostly through debt, to finance the build-ups in inventories and accounts receivables. Emphasizing the importance of the real estate business to the overall business portfolio of the company, the management observed:

Our real estate business has and will continue to represent a significant percentage of our revenues and costs. For the three years ended December 31, 2010, revenues from the sale of apartments as a percentage of our total revenues from sale of goods and rendering of services was 65.3 per cent, 77.2 per cent and 62.6 per cent, respectively, and the cost of apartments sold as a percentage of our total cost of goods sold and services rendered was 49.0 per cent, 71.3 per cent and 64.8 per cent, respectively. While we anticipate that our new businesses will account for an increasing share of revenues and costs over time, we expect our real estate business to continue to be the primary driver of our financial performance at least in the near term.

ECONOMY AND INDUSTRY4 Vietnam was one of the fastest-growing economies in Southeast Asia. Despite the global economic slowdown of 2008 and 2009, Vietnam continued to record strong year-on-year gross domestic product (GDP) growth of 6.3 per cent in 2008, 5.3 per cent in 2009 and 6.7 per cent in 2010. With a population of approximately 89.6 million as of July 2010, it was the second most populous country in Southeast Asia.

3 1 U.S. dollar = approximately 20,000 Vietnamese dong (VND). 4 http://search.worldbank.org/data?qterm=Vietnam+GDP&language=&format=World Bank, accessed August 13, 2012; www.oanda.com/currency/historical-rates/, accessed August 13, 2012; www.sbv.gov.vn/portal/faces/en/enm/enpages_home/monetarypolicy/interestrates?loailaisuatID=1&_afrLoop=54881086728 29300&_afrWindowMode=0&_afrWindowId=swj7t0ble_1#%40%3FloailaisuatID%3D1%26_afrWindowId%3Dswj7t0ble_1%2 6_afrLoop%3D5488108672829300%26_afrWindowMode%3D0%26_adf.ctrl-state%3Dswj7t0ble_197, accessed August 13, 2012.

For the exclusive use of R. Ghulam, 2015.

This document is authorized for use only by Razan Ghulam in International Finance taught by Daniel Tompkins, Niagara University from February 2015 to May 2015.

Page 3 9B13N004 Vietnam had one of the lowest levels of urbanization in Asia and had a young population, with approximately 61 per cent of the population under the age of 35. On May 10, 2011, the exchange rate of the Vietnamese dong against the U.S. dollar was US$1 to VND 20,625, based on the closing rate for U.S. dollars in New York City on this date, as published by Bloomberg. On February 11, 2011, the State Bank of Vietnam set an inter-bank exchange rate of VND 20,693 to US$1, after the closing rate the previous day was VND 19,490 to US$1, and further narrowed the trading band of the Vietnamese dong against the U.S. dollar from 3.0 per cent to 1.0 per cent. This devaluation was one of the largest since 1993 and was the fourth devaluation in 15 months. Exhibit 3 provides data on some select indicators of the Vietnamese economy. According to Vietnammarkets.com on March 29, 2010, U.S. dollar deposits in Vietnam earned four per cent per annum. According to the same source on April 14, 2009, Vietnamese companies could borrow from local banks in U.S. dollars at 6.5 per cent. Construction and real estate was one of the fastest-growing industries in Vietnam. The compounded annual growth rate of this sector between 2005 and 2010 was 8.7 per cent.5 Growth had been characterized by sharp fluctuations. Overall, the market for real estate was volatile, as measured in the average price per square meter. Much of HAG’s real estate business was concentrated in Ho Chi Minh City. The real estate market was traditionally classified as residential and office, i.e., commercial.6 The property boom in Ho Chi Minh City started around the year 2000. After the early days of high prices for poor quality, there was a shift in preferences towards better quality. In October 2010, Savills, a real estate service provider, estimated that the total primary supply of residential property in Ho Chi Minh City was approximately 16,400 apartments, representing a 52 per cent increase over the primary supply7 in October 2009. At the same time, the total secondary supply was approximately 51,400 apartments. According to Savills, the average selling price of apartments across all grades in the primary market increased from US$1,338 per square meter in 2007 to US$1,565 per square meter in 2008. As of October 2009, the average selling price had declined to US$1,200 per square meter, but by October 2010, it had risen again to US$1,455 per square meter. The first foreign-developed office building in Ho Chi Minh City that was up to international standards opened in 1995 and highlighted the beginning of the modern office market. Due to low supply and strong demand during these initial years, rents climbed significantly and occupancy rates remained above 85 per cent across all grades. As of October 2010, according to Savills, Grade A and B8 office space totaled approximately 592,800 square meters, with Grade A space representing 10 per cent of the total supply and Grade B space representing 50 per cent of the total supply. Grade A and B office space in Ho Chi Minh City was commonly occupied by international financial companies, life insurance companies, consumer goods companies, manufacturing companies and energy producers. As Vietnam continued to liberalize the

5 Marco Breu, Richard Dobbs, Jaana Remes, David Skilling, and Jinwook Kim, “Sustaining Vietnams growth: the productivity challenge,” McKinsey Global Institute, February 2012. 6 Information on real estate is from the company’s Confidential Offering Circular. It is based on reports by Savills Vietnam Ltd., a real estate service provider. 7 The primary market connected developers and builders to buyers. The secondary markets connected buyers to other buyers. 8 Grades refer to the quality of the office space, with Grade A being the best.

For the exclusive use of R. Ghulam, 2015.

This document is authorized for use only by Razan Ghulam in International Finance taught by Daniel Tompkins, Niagara University from February 2015 to May 2015.

Page 4 9B13N004 banking environment in 2010, international banks were expected to expand operations in Ho Chi Minh City. According to Savills, Grade A average occupancy rates declined from 100 per cent in 2007 to 81 per cent in 2009, but had risen to 90 per cent by October 2010. Grade B average occupancy rates similarly declined from 100 per cent in 2007 to 86 per cent in 2009 and had risen to 91 per cent by mid-2010. According to the McKinsey Global Institute Report,9 Vietnam’s gross domestic product in 2010 was VND 552 trillion, at constant 1994 prices. Of this, real estate and construction accounted for VND 72 trillion, i.e., 13 per cent. The real estate sector also accounted for 21 per cent of foreign direct investment into Vietnam in 2009. Accurate figures on the proportion of bank loans to the real estate and construction sector in Vietnam were difficult to obtain. In an effort to curb inflation, the State Bank of Vietnam (SBV), the country’s central bank, issued a regulation (popularly called Regulation 11) on March 1, 2011. Among other things, the directive sought to limit credit growth. For the real estate industry, the following section of the regulation on controlling credit growth was of importance:

...Reducing the pace and amount of loans for the non-productive sector as compared to 2010, especially the real estate and securities industries so as to keep the total amount of loans for the non-productive sector accounting for 22 per cent of the total loans outstanding by June 30, 2011, and 16 per cent by December 31, 2011. In cases where credit institutions which have not been able to comply with this Directive, they will be forced to make their reserve requirement ratios twice higher than the applicable common ratio and to narrow their operational scope in the second half of 2011 and 2012. Additionally, by June 30, 2011, if credit growth exceeds the target as stipulated in Resolution No. 11/NQ-CP, SBV will take necessary measures to control credit operations in compliance with law.10

The impact of Regulation 11 on the real estate industry was reported by Truoi Tre, the country’s leading newspaper, on February 19, 2012:

Local real estate firms are facing a shortage of capital as they can’t easily access bank loans or borrow from their customers like before. The majority of property firms only have about 20 per cent of invested capital by using their own equities when developing fresh projects. This means they have to borrow money from banks and customers to cover the remaining necessary capital, with the ratio of banking loans accounting for the majority. Due to this huge reliance on mobilized funds, the property market is especially vulnerable upon (sic) any monetary policy change, as seen in the current situation. Credit applications from industry players are now not accepted by lenders, who themselves are having difficulty recovering debts from realty projects. Due to the weak liquidity of the market, mobilizing capital from customers for new schemes is no longer easy either. Meanwhile, attracting funds via the stock market has faced the same difficulty. Several realty businesses that in 2009 and 2010 had decided to list shares failed to attract any fund from this channel last year as a result of the gloomy stock market. A series of property firms were forced to cancel share issuance plans after failing to attract buyers. The execution of many real estate projects has thus been suspended for lack of funds.11

9 Breu, Dobbs, Remes, Skilling and Kim, February 2012. 10 Regulation 11, State Bank of Vietnam (SBV) Directive No. 01/CT-NHNN, March 1, 2011. 11 “Realty Industry Hindered by Capital Shortage,” Tuoitrenews.vn, February 19, 2012, accessed August 12, 2012.

For the exclusive use of R. Ghulam, 2015.

This document is authorized for use only by Razan Ghulam in International Finance taught by Daniel Tompkins, Niagara University from February 2015 to May 2015.

Page 5 9B13N004 HAG’S FINANCING Reflecting the growth in the Vietnamese economy and in the real estate sector within, HAG’s balance sheet grew in size from VND 6,334 billion in 2007 to VND 19,071 billion in 2010. Much of this was funded through borrowings. Short-term borrowings grew from VND 649 billion to VND 3,092 billion, and long-term borrowings grew from VND 813 billion to VND 2,782 billion. Increases in reserves were not matched by increases in cash flows. Cash from operations was much less than net income in every year. The company borrowed from a diverse set of sources. Vietnamese Bank Loans These loans typically were secured project loans to finance investment projects, including the construction of property projects and hydropower projects, and had terms ranging from one year to 72 months. As of December 31, 2010, the interest rate on Vietnamese bank loans normally ranged from 13.5 per cent to 16.5 per cent per annum with respect to Vietnamese Dong-denominated loans, and from 6.5 per cent to 9.2 per cent per annum with respect to U.S. dollar-denominated loans. 2008 Straight Bonds In September 2008, the company issued VND straight bonds with a principal amount of VND 650 billion, which consisted of 650 units with par value being VND 1 billion each. The straight bonds were issued in two tranches. One tranche had a principal amount of VND 550 billion and this had been fully repaid as of December 31, 2010. Another tranche, with a principal amount of VND 100 billion, was redeemable at par value by September 30, 2011. This tranche bore interest at a rate equivalent to 21 per cent per annum in the first interest payment period, which fell on March 30, 2009, and at a rate equivalent to 150 per cent of the base rate announced by the State Bank of Vietnam (SBV) in the following periods. Interest was payable on a semi- annual basis. Between 2005 and 2010, the base rate fluctuated between seven per cent and 14 per cent. In December 2008, the company issued VND straight bonds with a principal amount of VND 350 billion, which consisted of 350 units with a par value of VND 1 billion each. The straight bonds were issued in two tranches. One tranche had a principal amount of VND 100 billion, which the company had fully repaid. Another tranche had a principal amount of VND 250 billion and was redeemable at par value by December 31, 2011. It bore interest at a rate equivalent to 12.75 per cent per annum in the first interest payment period, and at a floating rate equivalent to 150 per cent of the base rate per annum announced by the SBV in the following periods. Interest was payable on a semi-annual basis. Bond markets, especially corporate bond markets, were not well developed in Vietnam. According to sources in the banking industry, these bonds had no liquidity and were issued to a single buyer, usually a bank. The ostensible reason for such a bond issue in preference to a straight loan was to avoid regulatory restrictions, which limited loans to a single borrower and required specific assets as security for such loans.

For the exclusive use of R. Ghulam, 2015.

This document is authorized for use only by Razan Ghulam in International Finance taught by Daniel Tompkins, Niagara University from February 2015 to May 2015.

Page 6 9B13N004 2010 Straight Bonds On October 8, 2010, the company issued straight bonds with an aggregate principal amount of VND 530 billion at par value of VND 1 billion per unit in Vietnam. These bonds were redeemable at par value on or before October 8, 2013. The bonds bore interest at a rate of 15.2 per cent per annum in the first year and at an average 12-month saving deposit rate applicable to individuals of four local banks, plus a margin of 4.2 per cent per annum in the following periods. 2010 Convertible Bonds On August 19, 2010, the company placed zero-coupon convertible bonds with a principal amount of VND 1,100 billion with Northbrooks Investments (Mauritius) Pte Ltd., an affiliate of Temasek Holdings Pte Ltd., Singapore. The 2010 convertible bonds consisted of 1,100,000 units with a face value of VND 1,000,000 per unit. The 2010 convertible bonds were issued such that they were convertible into ordinary shares of the company at a conversion price of VND 67,375 per unit within one year from the issue date. If fully converted, 16.32 million ordinary shares would have to be issued, representing approximately 5.29 per cent of the total outstanding shares at the time of the placement. Bonds that were not converted within the first year would bear a coupon determined by the average one- year saving deposit interest rates for individuals quoted by the Asia Commercial Joint Stock Bank, Sai Gon Thuong Tin Commercial Joint Stock Bank, Vietnam Technological and Commercial Joint Stock Bank, and Vietnam Commercial Joint Stock Export-Import Bank, plus a margin of three per cent per annum. Typically, deposit rates around this time were about 12 per cent per annum. As of December 31, 2010, no convertible bond had been converted to ordinary shares. Details of the capital structure of the company before and after putting the proposed bond issue into effect are provided in Exhibit 4. THE NOTES Exhibit 5 provides a summary of the key features of the notes. The company planned to raise US$90 million on the aggregate through issue of the notes. It intended to use approximately US$75.7 million of the net proceeds to finance the development of its hydropower and rubber plantation businesses and the balance for operating expenses. All amounts payable in respect of the notes would be paid to investors in U.S. dollars. The net amount raised was only US$80.7 million. The balance was underwriting commissions and discounts and other expenses related to the offering. Such costs, at 10 per cent of the issue size, were high but to be expected of companies from less developed markets that were making international issues. The relatively small size of the issue also pushed up the issue costs as a percentage of issue proceeds. The coupon rate was 9.875 per cent, payable in U.S. dollars. Since interest was payable every half-year, the effective interest rate would be higher. The effective cost in the local currency depended on how the Vietnamese dong to U.S. dollar exchange rate developed in the future. The company’s credit rating of B was an important factor in determining the cost at which it raised funds through this note issue. According to Standard and Poor’s data, nearly 55 per cent of Asian corporate

For the exclusive use of R. Ghulam, 2015.

This document is authorized for use only by Razan Ghulam in International Finance taught by Daniel Tompkins, Niagara University from February 2015 to May 2015.

Page 7 9B13N004 issuers were rated as speculative grade in 2010. Exhibit 6 provides data on Standard and Poor’s five-year Asian rating history. Among the key risk factors affecting the notes issued were the volatility of the company’s cash flows and the outlook for the real estate market in Vietnam. According to the company management, as stated in the offer document, “The size of the capital outlay and the number of parties involved in a real estate development mean that real estate development plans, once set, cannot easily be changed. As a result, real estate developers, like us, may encounter difficulties when trying to adjust their plans or reallocate resources to adapt to changing market conditions.” There were several possibilities with respect to redemption of the notes. Under the base case, the company would redeem US$18 million of principal on May 20, 2014, and another US$18 million on May 20, 2015. The remaining amount of the principal would be redeemed on May 20, 2016. With each redemption, the interest payment would be correspondingly reduced. Some of the other probable scenarios for early redemption are listed below: Scenario 1: At any time prior to May 20, 2014, the company could redeem up to 35 per cent of the aggregate principal amount of notes issued at a redemption price equal to 109.875 per cent of the principal amount of the notes. Scenario 2: On or after May 20, 2014, the company may on any one or more occasion redeem all or part of the notes, at the redemption prices (expressed as percentages of the principal amount) set forth below: Year Percentage 2014.............................................................. .........104.9375% 2015 and thereafter.................................................102.4688% Scenario 3: Upon the occurrence of a rating decline, each holder of notes will have the right to require the company to repurchase all or any part of that holder’s notes. HAG will have to offer in cash the equivalent of 101 per cent of the aggregate principal amount of notes repurchased. Scenario 3 in particular was critical to HAG as a borrower. While rating agencies considered a combination of financial and non-financial characteristics of a borrower in deciding on a rating, predictions of rating changes could be made with some certainty based on financial data. Among the ratios considered by Standard and Poor’s were EBIT interest cover (broadly defined as earnings before interest and tax / interest), EBITDA interest cover (earnings before interest, tax, depreciation and amortization / interest) and total debt / capital (sum of long-term and short-term debt / equity). Median values of these ratios were 0.8, 1.8 and 74.8 per cent for a sample of firms with a B rating on the Standard and Poor’s scale. Interest cover as computed by Standard and Poor’s included capitalized interest costs. HAG’s annual report for the year ended December 31, 2010, includes a note: “During the year, the Company has capitalized borrowing costs amounting to VND 375,372 million (31 December 2009: VND 151,513 million). These are costs incurred on the bank loans and bonds used to finance the construction and development of fixed assets and apartment projects.” The amount of interest used in coverage computations would be VND 216,598 million, plus the capitalized interest of VND 375,372 million.

For the exclusive use of R. Ghulam, 2015.

This document is authorized for use only by Razan Ghulam in International Finance taught by Daniel Tompkins, Niagara University from February 2015 to May 2015.

Page 8 9B13N004

EXHIBIT 1: BALANCE SHEETS

UNIT: MILLION VND 2007 2008 2009 2010

Cash and cash equivalents 1,290,908 531,085 1,944,229 3,788,758

Short-term investments 115,203 0 157,571 81,783

Accounts receivable 1,117,126 1,984,810 2,956,114 3,599,721

Inventories 1,370,091 1,852,155 2,213,151 3,798,429

Other current assets 118,353 156,743 132,490 236,133

CURRENT ASSETS 4,011,681 4,524,793 7,403,555 11,504,824

Long-term trade receivables 1,800 0 0 0

Fixed assets 705,583 1,870,421 2,517,310 4,409,785

Long-term investments 1,306,448 2,090,737 2,061,446 2,855,493

Other long-term assets 309,310 385,609 213,901 233,782

LONG-TERM ASSETS 2,323,141 4,346,767 4,792,657 7,499,060

TOTAL ASSETS 6,334,822 8,871,560 12,196,212 19,003,884

Short-term borrowings 649,474 1,203,109 2,991,798 3,092,741

Trade accounts payable 98,829 373,886 197,538 667,297

Advances from customers 512,816 98,426 44,397 1,501,129

Taxes and other payable to state budget

142,704 152,270 265,774 491,201

Payable to employees 9,238 31,555 17,811 22,397

Accrued expenses 286,060 367,849 644,984 409,723

Other payables 77,121 308,083 132,540 304,798

Provision for short-term liabilities 0 0 0 21,481

CURRENT LIABILITIES 1,776,242 2,535,178 4,294,842 6,510,767

Other long-term payables 10,179 4,319 23,992 23,719

Long-term borrowings 813,385 1,893,644 2,248,707 2,782,060

Deferred income tax liabilities 98,702 234,725 499,210 505,737

Provision for severance 1,597 4,488 1,805 1,433

LONG-TERM LIABILITIES 923,863 2,137,176 2,773,714 3,312,949

TOTAL LIABILITIES 2,700,105 4,672,354 7,068,556 9,823,716

Capital and reserves 3,389,056 3,728,928 4,694,917 8,481,377

Budget sources and other funds 13,347 18,569 16,585 0

OWNER’S EQUITY 3,402,403 3,747,497 4,711,502 8,481,377

MINORITY INTERESTS 232,314 451,709 416,154 698,791

TOTAL RESOURCES 6,334,822 8,871,560 12,196,212 19,003,884

0 0 0 0

For the exclusive use of R. Ghulam, 2015.

This document is authorized for use only by Razan Ghulam in International Finance taught by Daniel Tompkins, Niagara University from February 2015 to May 2015.

Page 9 9B13N004

EXHIBIT 1 (CONTINUED): INCOME STATEMENTS

UNIT: MILLION VND 2007 2008 2009 2010

Sales 1,589,430 1,885,146 4,370,252 4,526,469

Sales deductions -1,400 -4,401 -4,943 -1,591

Net sales 1,588,030 1,880,744 4,365,309 4,524,878

Cost of sales -991,086 -990,632 -2,358,547 -2,232,775

Gross profit 596,944 890,112 2,006,762 2,292,103

Selling expenses -39,150 -75,252 -108,523 -133,031

General and admin. expenses -50,018 -125,209 -162,416 -190,206

Operating profit/(loss) 507,776 689,651 1,735,823 1,968,866

Financial income 438,619 438,619 199,382 1,262,054

Other incomes 29,463 12,718 48,462 24,923

Financial and interest expense -102,359 -184,299 -213,430 -216,598

Other expenses -24,314 -39,032 -26,731 -21,283

Net accounting profit/(loss) before tax 849,185 917,657 1,743,506 3,017,962

Business income tax expenses 247,370 240,816 456,606 795,333

Net profit/(loss) after tax 601,815 676,841 1,286,900 2,222,629

For the exclusive use of R. Ghulam, 2015.

This document is authorized for use only by Razan Ghulam in International Finance taught by Daniel Tompkins, Niagara University from February 2015 to May 2015.

Page 10 9B13N004

EXHIBIT 1 (CONTINUED): CASH FLOW STATEMENTS

UNIT: MILLION VND 2007 2008 2009 2010

Operating profit/(loss) before changes in WC 535,941 783,962 1,914,581 2,034,056

(Increase)/decrease in receivables -857,271 -520,253 -339,054 -1,372,345

(Increase)/decrease in inventories -1,538,647 -482,063 -168,205 23,112

Increase/(decrease) in payables 714,705 150,487 37,845 211,651

(Increase)/decrease in prepaid expenses -281,087 -96,993 66,934 -41,440

Interest paid -41,363 -195,474 -189,042 -192,430

Business income tax paid -49,793 -149,058 -212,870 -286,345

Other receipts from operating activities 0 0 0 0

Other payments on operating activities -8,903 -29,882 -26,879 -81,818

Net cash inflows/(outflows) from operating activities

-1,526,418 -539,274 1,083,310 294,441

Purchases of fixed assets and other long-term assets

-146,783 -1,056,650 -1,357,529 -2,302,665

Proceeds from disposal of fixed assets 0 127,905 32,965 10,164

Loans granted, purchases of debt instruments 0 0 -568,354 0

Collection of loans, proceeds from sales of debt instruments

0 0 134,000 0

Investments in other entities -397,475 -778,090 0 -1,350,429

Proceeds from divestments in other entities 0 23,363 85,997 1,691,967

Dividends and interest received 144,853 0 0 165,233

Net cash inflows/(outflows) from investing activities

-399,405 -1,683,472 -1,672,921 -1,785,730

Proceeds from issue of shares 2,594,121 0 248,393 757,185

Payments for share returns and repurchases -221,650 -327,980 -30,092 0

Proceeds from borrowings -663,125 -1,061,691 -2,577,048 -3,054,596

Repayment of borrowings 1,411,390 2,695,584 4,720,801 5,142,575

Finance lease principal payments -572 0 -356,649 0

Dividends paid -36,232 -1 0 -292,008

Dividends and interest received 144,853 0 0 165,233 Net cash inflows/(outflows) from financing activities

3,083,932 1,460,270 2,005,405 2,553,156

Net increase in cash and cash equivalents 1,158,109 -762,476 1,415,794 1,061,867

Cash and cash equivalents at the beginning of period

132,797 1,290,908 528,432 1,944,229

Cash and cash equivalents at the end of period 1,290,906 528,432 1,944,226 3,006,096

Source: Company annual reports.

For the exclusive use of R. Ghulam, 2015.

This document is authorized for use only by Razan Ghulam in International Finance taught by Daniel Tompkins, Niagara University from February 2015 to May 2015.

Page 11 9B13N004

EXHIBIT 2: HAG: SEGMENTAL RESULTS (YEAR ENDED DECEMBER 31, 2010)

VND Billion Real Estate Production Trading Construction Football Power

Revenue 2,833 1,431 161 1,000 40 22

Operating Profits

1,387 386 58 439 4 16

Assets 8,123 512 324 1,058 57 1,648

Note: Mining and plantation have assets of VND 563 billion and VND 1,511 billion, respectively. They have no revenues or profits. Source: Company annual reports.

EXHIBIT 3: VIETNAM ECONOMIC DATA

2007 2008 2009 2010

Real GDP Growth %* 8.45 6.31 5.32 6.78 VND/USD** 16,010 17,433 18,472 19,495

Base Interest Rate (VND) %*** 8.25% 8.2% to 14% 7% to 8% 8% to 10%

Source: http://search.worldbank.org/data?qterm=Vietnam+GDP&language=&format=World Bank; www.oanda.com/currency/historical-rates/; www.sbv.gov.vn/portal/faces/en/enm/enpages_home/monetarypolicy/interestrates?loailaisuatID=1&_afrLoop=54881086728 29300&_afrWindowMode=0&_afrWindowId=swj7t0ble_1#%40%3FloailaisuatID%3D1%26_afrWindowId%3Dswj7t0ble_1%2 6_afrLoop%3D5488108672829300%26_afrWindowMode%3D0%26_adf.ctrl-state%3Dswj7t0ble_197, accessed August 13, 2012.

EXHIBIT 4: HAG: CAPITAL STRUCTURE

VND Billion As at December 31, 2010

After the Issue

Cash 3,977 5,551

Convertible Bonds 1,100 1,100

Short-term Loans 1,733 1,733

Long-term Notes 1,573

Long-term VND Bonds 1,630 1,630

Bank Loans 1,800 1,800

Total Borrowing 6,263 7,836

Equity 9,158 9,158

Source: Company annual report.

For the exclusive use of R. Ghulam, 2015.

This document is authorized for use only by Razan Ghulam in International Finance taught by Daniel Tompkins, Niagara University from February 2015 to May 2015.

Page 12 9B13N004

EXHIBIT 5: THE OFFERING

The following summary contains basic information about the notes and is not intended to be complete. It does not contain all the information that is important to investors. Issuer.......................... Hoang Anh Gia Lai Joint Stock Company. The Notes....................... US$90 million aggregate principal amount of 9.875% Senior Notes due 2016. Issue Price ...................... 96.181% of principal amount. Maturity Date.................... May 20, 2016. Interest Payment Dates ............. May 20 and November 20, commencing November 20, 2011. Amortization.....................The principal amount of the notes will be amortized as follows: Payment Date Amortization Amount May 20, 2014 US$18,000,000 May 20, 2015 US$18,000,000 May 20, 2016 The remaining principal amount of the notes. See “Description of the Notes — Amortization of Principal.” Optional Redemption............... At any time prior to May 20, 2014, we may redeem up to 35% of the aggregate principal amount of the notes with the proceeds of specified equity offerings at a redemption price equal to 109.875% of the principal amount of the notes redeemed, plus accrued and unpaid interest, if any, to the date of redemption. At any time prior to May 20, 2014, we may redeem all or part of the notes at a redemption price equal to 100% of the principal amount of the notes plus a “make-whole” premium. At any time on or after May 20, 2014, we may redeem all or part of the notes at the redemption prices set forth in this offering circular, plus accrued and unpaid interest, if any, to the date of redemption. Subject to certain exceptions, we may redeem the notes, in whole but not in part, at a redemption price equal to the principal amount thereof, plus accrued and unpaid interest, if any, to the date of redemption, upon a change in tax law increasing the rate of withholding taxes on amounts payable under the notes or the guarantees provided by us or the guarantors. Repurchase at the Option of Holders . . . The occurrence of a change of control and a rating decline will be a triggering event requiring us to offer to purchase all or a portion of the notes at a price equal to 101% of their aggregate principal amount, plus accrued and unpaid interest, if any, to the date of purchase. The notes will be issued in denominations of US$100,000 or integral multiples of US$1,000 in excess thereof. Transfer Restrictions; Absence of Public Market for the Notes; Listing . . . .

For the exclusive use of R. Ghulam, 2015.

This document is authorized for use only by Razan Ghulam in International Finance taught by Daniel Tompkins, Niagara University from February 2015 to May 2015.

Page 13 9B13N004

EXHIBIT 5 (CONTINUED) The notes have not been and will not be registered under the U.S. Securities Act and are subject to restrictions on transferability and resale. For more information, see “Transfer Restrictions.” The notes are a new issue of securities and there is currently no established trading market for the notes. Accordingly, there can be no assurance as to the development or liquidity of any market for the notes. We have received approval-in-principle for the listing of the notes on the SGX-ST. The notes will be traded on the SGX-ST in a minimum board lot size of US$200,000 or equivalent in foreign currencies. The initial purchaser has advised us that it intends to make a market in the notes as permitted by applicable law. It is not obligated, however, to make a market in the notes and any market-making may be discontinued at any time at its sole discretion. Use of Proceeds................... We intend to use the net proceeds of this offering to finance the development of our hydropower and rubber plantations businesses and for operating expenses. Ratings......................... The notes have been rated “B” by Standard & Poor’s Ratings Services and “B” by Fitch Ratings. A rating is not a recommendation to buy, sell, or hold securities and may be subject to revision, suspension, or withdrawal at any time by the assigning rating organization. Governing Law................... The indenture, the notes, and the guarantees will be governed by the laws of the State of New York. The pledges of capital stock will be governed by the laws of Vietnam. Risk Factors ..................... In evaluating an investment in the notes, prospective investors should carefully consider, along with the other information in this offering circular, the specific factors for risks involved with an investment in the notes. Source: Reproduced from the offer document.

EXHIBIT 6: STANDARD AND POOR’S RATING HISTORY OF ASIAN CORPORATE BONDS (2006 TO 2010)

AAA AA A BBB BB B below B 2006 0 1 6 14 25 27 0

2007 0 0 13 16 10 25 1

2008 0 1 14 19 15 10 0

2009 1 0 4 7 4 5 3

2010 0 1 4 16 9 15 1

Total 1 3 41 72 63 82 5

“AAA” — Extremely strong capacity to meet financial commitments; highest rating. “BBB” — Considered lowest investment grade by market participants; any rating below this is considered a speculative grade. “B” — More vulnerable to adverse business, financial and economic conditions, but currently has the capacity to meet financial commitments. Source: 2010 Annual Asian Corporate Default Study and Rating Transitions, Standard and Poor’s, www.standardandpoors.com/ratings/articles/en/us/?assetID=1245302233627.

For the exclusive use of R. Ghulam, 2015.

This document is authorized for use only by Razan Ghulam in International Finance taught by Daniel Tompkins, Niagara University from February 2015 to May 2015.