Welcome to the September 2012 issue of the Vietnam Resort Report. After a month break, we are back to give investors critical information they need when considering investing in Vietnam s coastal tourism industry. Due to a busy summer schedule and Vietnam s changing macro-economic situation, we decided to delay publishing our study of arbitrage opportunities in the cost of capital until next month. Instead, we focus on one of Vietnam s unknown, under-appreciated provinces located directly in the center of the southeast tourism triangle. We use the structure in our 2 nd part of Vietnam s Coastal Tourism Growth is Inevitable report to break-down the competitive advantages and disadvantages. MGT Management has watched closely as this hidden investment gem has begun being uncovered in the last few months. To keep this email relatively short, we attached a business plan for an investment opportunity in the province that contains more information about Ninh Thuan Province than this report contains. We know of several other opportunities in the area; please contact us for more information. I will also be in Singapore at the beginning of October discussing Vietnam s tourism potential. If anyone would like to meet and discuss, please send me an e-mail. -- Mark Gwyther, Director, MGT Management Consulting, -- mark@mgtmanagement.com Introduction The Vietnam Resort Report September 2012 In May 2012, Michael Ryan owner of award winning Silverfin Development (www.silverfin.ky) and Bob Livingston, Director of Livingston Group came to Vietnam to scout resort locations and potential investment sites. After touring several provinces in Vietnam including Phu Quoc Island, both men signed Memos of Understanding with the Ninh Thuan Provincial Government to develop tourism projects in Ninh Thuan (Silverfin) and encourage investment in the province (Livingston). Up to this point, only three foreign invested tourism projects have begun. Representatives from the Livingston Group returned to Ninh Thuan in July to continue discussions about locations. Silverfin is expected to develop a Ritz-Carleton style resort on 466 hectares of land near Vinh Hy Bay. Vinh Hy Bay is also the location of the new, Aman Vinh Hy Bay Resort (opening 1 st quarter 2013) developed and managed by the prestigious resort group of the same name (www.amanresorts.com). Intercontinental Hotel Group is another foreign invested project opening a 5-star integrated resort, just up the coast in Binh Tien. So why are some of the world s most successful resort developers coming to Ninh Thuan while plenty of investment opportunities exist in more well-known locations? We use the criteria described in Part II of our series on Vietnam Coastal Resorts to provide the answers.
Climate/Beach/Ocean Ninh Thuan s most important competitive advantage over every other location in Vietnam is the weather. When discussing perfect vacation weather, a clear correlation exists between locations that grow grapes made for wine, and tourism. In Vietnam, 95% of all grapes grown for wine come from the province. The climate has the least amount of rain, the least amount of days with rain, and the most sunny days of any province in Vietnam. Just as important, the raining season is from mid-october to mid-december, the low season for international arrivals. Despite sharing the same airport as Nha Trang, the capital, Phan Rang, receives nearly 20% less rain. For water sports enthusiasts, the province also has more wind than Phan Thiet/Mui Ne (PT/MN) and Nha Trang. The fact that Ninh Thuan Province is relatively undeveloped and unknown has allowed its beaches to escape the environmental damage that the first generation resort cities of Nha Trang and PT/MN have undergone. Those first generation resort locations now have algae bloom problems due to untreated waste water. Learning from these problems, the Ninh Thuan s Provincial Government is in process of developing a large treatment plant with help from the Dutch. The beaches in the north part of the province have been isolated from development by even local Vietnamese, so they are very pristine. Tourism Infrastructure, Cultural Activities, and Entertainment Ninh Thuan s biggest competitive disadvantage has always been the lack of infrastructure and entertainment activities. When the main North/South highway was constructed, it was built inland of the Nui Chua National Forest in northern Ninh Thuan, leaving a significant amount of prime beach land inaccessible. In fact, over half the beaches on the coast have had no road access. That changes later in the year, and it is the main reason why investors are looking to develop in the province. The government is nearly finished building a 116km coastal highway. It opens the northern coast for the first time and widens the existing roads in the middle and southern parts of the province to at least four lanes and in places, six. Now, rather than being inaccessible, Ninh Thuan beaches will be easier to drive to from the Cam Ranh International Airport than Nha Trang is!
Ninh Thuan Museum / Ninh Thuan Hospital / Theatre of Dreams (will host the 2012 Miss Earth Contest), Phan Rang Ninh Thuan Province is the traditional Cham capital and has several of the most recognized ancient Cham temples near its beaches. They have not been wellmaintained, but that is also changing as the provincial government has begun to recognize the importance of traditional culture in tourism. At this time, the area also has the advantage of not being too touristy. As shown in Mexico s resort development lifecycle, integrating a high-end resort with local culture is the hallmark of the 3 rd generation resort. Another exciting project is the re-opening of the Phan Rang to Dalat railroad, expected to happen in the next few years. Phan Rang will become the gateway to the south
central highlands. Tourists that want to experience both mountains and beach can take a two hour scenic train trip. With that being said, very little entertainment options for nightlife and fun in the province exist. Only one western restaurant has opened, and that is the fast food Lotteria located in Phan Rang. Nha Trang s nightlife is one and a half hour drive to the north. Provincial Government s Policies and Performance Prior to 1992, Ninh Thuan did not exist as a province. The area was split from Binh Thuan (Phan Thiet) and Khanh Hoa (Nha Trang). Its slow development can be partially attributed to this factor. As we mentioned in our previous reports, being close to a provincial capital is key to receiving infrastructure and support on projects. In 2010, Ninh Thuan became the first Vietnam province to hire foreign consultants when they brought in the world-famous Monitor Group (Michael Porters company) to develop a 10 year plan and also establish a one-stop government department for investors, called the Economic Development Office (EDO). The plan focuses the province to develop renewable, green energy and high-end resort tourism. The EDO office was designed to facilitate and coordinate with local, provincial, and central government agencies on behalf of the investor. From our experience and recent results, the EDO has done a terrific job. In addition to the MoU s signed by Silverfin and Livingston Group, other projects announced in just the last six months are: $65 million high tech waste water treatment plant that converts waste to energy $11 million manufacturing plant that builds high quality motors for appliances $28 million environmentally friendly, heat resistant brick manufacturing facility $214 million Saigon Beer Brewery A waste water treatment plant in Phan Rang that produces water for irrigation from over 25,000 households and 300 businesses. It will be co-developed with the help of Holland s government One other advantage to investing in Ninh Thuan is the preferential policies for domestic and foreign investment. Corporate tax rates can be as low as 10% for 15 years and many locations receive 11 years of no land lease payments. Other Considerations Two situations may greatly change the province and must be considered before investing. U.S. Defense Secretary Leon Panetta visited Cam Ranh Bay in June. It is widely rumored that Vietnam may allow U.S. Naval ships and Navy personnel to be stationed in the bay as a step to counter the Chinese move on disputed nearby islands. The U.S.
already uses the bay for repairing cargo ships, but the addition of thousands of U.S. sailors will have a large effect on Cam Ranh, Nha Trang, and Ninh Thuan. Our guess is that it will change Nha Trang the most, as they will begin frequenting the bars and restaurants in that city first. However, they may drive the tourists who are looking for quiet beaches and relaxing vacations to the new Cam Ranh and Ninh Thuan resorts. It is very unclear now what may or may not happen, but we see the addition of thousands of potential customers in the area as a net positive for Ninh Thuan Province, which is located less than 30 minutes to the south. The second important issue is the development of one or two nuclear power plants in the province. The first will be a $10 billion project led by Russians, located in the south of the province. Construction begins in 2014 and it is expected to open in 2020. The second $10 billion plant is planned in the northern part of the province and led by Japanese. It is planned to begin a year or two later, but right now we have heard very little about it. It would not surprise us if it was significantly delayed or even cancelled. At first, it would seem this is a huge negative. However, with the right business plan (see attached), the addition of hundreds of expat workers, billions of dollars in the local economy, and eventually over 1,400 highly paid workers may increase the customer base for a business substantially. We have studied this issue in great detail and believe these power plants should not discourage investment in the province; The evacuation radius of Fukushima was 25 km. However, the contaminated land along the coast was less than 10km due to wind blowing in from the ocean. The Ninh Thuan nuclear power plants will use the newest technology, while Fukushima s reactors were built during the 1960 s. The locations were chosen because they are the least likely coastal areas in Vietnam to be hit by a tsunami. The reduced risk of tsunamis in Ninh Thuan more than makes up for the added risk of a nuclear mishap. The San Luis Obispo nuclear reactor in southern California is within 30km of some of the most expensive beach real estate in the U.S. Conclusion Our belief is that Ninh Thuan Province has significant competitive advantages over many locations in Vietnam while at the same time being much cheaper and easier to acquire land. Land prices are nearly half of Mui Ne (6 hour drive from Saigon, no airport, polluted), and Phu Quoc (no labor force, terrible government, six months of monsoon, high electricity and development costs, only accessible by air). Prices are three to four times cheaper than Nha Trang, despite being the same distance from the airport. Of course this is due to a lack of recognition and a lower number of tourists, but we don t feel any permanent reasons exist. Awareness is an easy obstacle to overcome in the long-term.
The opening of the new coastal highway nearly eliminates all the disadvantages of the province. Unlike other undiscovered and undeveloped locations, it also has an urban population of over 200,000 people in Phan Rang ready to provide a willing labor force. We also think the re-opening of the Dalat to Phan Rang railroad will create a situation that has made Bali one of the most popular tourist destinations in Asia. Aman Resort Group has seen the potential of the province. When they open the Vinh Hy Bay resort in early 2013, it will become the first, third generation resort in Vietnam. It integrates luxury accommodations with traditional Vietnamese culture in an undiscovered paradise. If you are looking to invest in Vietnam s coastal tourism, we highly recommend Ninh Thuan. In fact, MGT Management is in the process of building its permanent office in Phan Rang.