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Vina Payment Network Joint Stock Company
Summary of Proposed Investment
This Summary of Proposed Investment is prepared and distributed to the public in advance of the IFC Board of Directors’ consideration of the proposed transaction. Its purpose is to enhance the transparency of IFC’s activities, and this document should not be construed as presuming the outcome of the Board decision. Board dates are estimates only.
VINA PAYMENT NETWORK JSC
Date SPI disclosed
December 17, 2008
Projected board date
January 19, 2009
Invested: July 17, 2009
Signed: June 1, 2009
Approved: April 29, 2009
) is a Vietnamese joint stock company set up in November 2006. The company vision is to become the leading payment network services provider in Vietnam with innovative/ non-traditional payment solutions.
With approximately 36 million mobile phone subscribers and roughly 6 million bank accounts, Paynet sees the 30 million gap as a clear immediate target market segment and the whole population of 80 million people in Vietnam as a long term future for alternative payment solution services, mainly via mobile phone, the main product Paynet is offering.
Paynet’s business comprises of 5 key lines:
- Prepaid payment processing, mainly mobile phone airtime top-up and e-voucher/ e-code for other services/products such as game online, cinema etc. Paynet has connected with all the 6 operating telcos in Vietnam.
- Postpaid bill payment processing for utilities services providers such as ADSL, electricity, water, insurance etc. Payment can be made via internet, mobile phone, ATM, POS. Paynet has set up alliance with An Binh Bank, who has Electricity of Vietnam as shareholder and as such has potential access to the mass untapped electricity payment market (electricity payments are currently by cash collection at large).
- Online Payment gateway & E-commerce
- Outsourcing and hosting: including EFT switches hosting, card personalization for banks
- Other software solutions.
The proposed investment involves Paynet’s share purchase in an amount up to US $ 1 million in Paynet and not more than 15% of Paynet’s equity. Paynet’s existing shareholders have paid in US$ 2.1 million and plan to double the capital by end 2008 by issuing new shares to strategic partners, including IFC and VN Post, for up to 25% of its equity. The price is to be discussed and decided after the due diligence, the investment amount of US $ 1 million for up to 15% equity stake implies a purchase price of Paynet’s new issued shares at 2.0 to 2.5 times of par value.
The shareholding structure of Paynet if with VN Post and IFC investments, post money, would look like:
Paynet existing shareholders: 70 – 75%
VN Post : 10 – 15%
IFC : 10 – 15%
Paynet plans an aggressive capital increase plan in order to meet the investment needed for the supernormal growth period from 2007 to 2011. Accordingly, if IFC commits to this equity investment of $1 million, we are expected to have option to make further equity investment via right issue of up to another $2 million, before the company’s planned IPO by end 2010.
Capital increase plan (in US$ thousands)
The investments will be complemented by comprehensive advisory packages which will comprise of:
Policy advocacy: continued enabling legal framework alternative/ electronic payment is key in ensuring successful operation of Paynet.
Implementation support: Paynet has passed the initial set up period and may need less implementation support in terms of set up than to the PCB. But it would need professional business/ financial advice to prepare the company for its plan IPO/listing in local stock exchange by 2010 as its shareholders currently plan.
Fit with World Bank Group Strategy and IFC Role:
The project fits well with World Bank Group and IFC’s strategy of developing financial infrastructure to enable better access to finance. Financial infrastructure is high impact, as it touches at least every 5
person in emerging markets, with potential to help many more. Since 2001, IFC has supported credit bureau development in over 45 countries and monitored development of credit reporting in 178 countries via Doing Business. The World Bank is the leading institution worldwide in reforming payment, remittance and securities settlement systems. Over the past 12 years, the WB has supported reforms of National Payment Systems in over 100 countries and is actively involved in the implementation of the General Principles for International Remittance Services to reduce the cost of these services.
Particularly in Vietnam, the Project fits well with World Bank Group’s strategy in Vietnam to support strengthening central bank function while promoting private sector initiatives to participate in small/micro retail payment systems development and operation. The World Bank has been actively supporting the development of inter-bank large volume payment system and has suggested IFC to consider supporting the development of retail/ micro payment system. IFC Advisory is supporting the State Bank of Vietnam to develop a national automated clearing system for retail payments, initially funding a feasibility study. The proposed investment and advisory services in Paynet fits well with both World Bank and IFC’s strategy.
Additionality & IFC Role:
Retail payment processing (including mobile phone banking) is a highly dynamic industry that has undergone drastic technological and business model changes over the past 5-6 years. Change continues to come from many fronts, such as banks and microfinance companies, telecom operators and other types of dynamic and independent entrants.
In Vietnam, the sector is just emerging and currently, there is no dominant player. Some of the private sector players are keen to acquire the international expertise and knowledge that IFC brings in this sector. IFC’s global presence and knowledge, its understanding of winning business models and technological trends, combined with the mandate of promoting private sector development through increasing access to financial services makes it uniquely qualified to help spearhead this emerging industry. IFC has invested in a mobile bank operator in Africa (Wizzit), a payment processor in the Gulf (Eastnets), and is exploring a regional partnership in this field with ANZ (Wing).
IFC Advisory Services is evaluating a payment sector advisory program, under which technical support for Paynet would be provided primarily in two areas:
Policy advocacy: where IFC will continue to support the enabling legal framework. Currently the State Bank of Vietnam (“SBV”) is working on regulations for all third party non bank payment operators/companies. IFC-MPDF is currently supporting the SBV with a feasibility study for an automatic clearing house for commercial payments; and
Implementation support: Paynet is in the initial set up period and needs implementation support in the areas of strategy, network and products development. IFC’s Advisory Services is looking to provide support in term of developing a cohesive strategy to support the company’s ambitious growth plan, especially expansion into other market segments such as postpaid utilities payments (electricity, water, ADSL etc.), e-commerce payment gateway for suppliers, and ATM & POS networks outsourcing and maintenance for commercial banks. In terms of network support, while Paynet has achieved substantial results in expanding its retail network (currently, 2,000 points of presence), it is going to further expand aggressively further, most notably the planned integration with the VN Post network (of more than 15,000 points) by end 2008/ early 2009. Advisory Services would look into providing Paynet with support to ensure such milestone integration would be successful. In terms of products, Paynet is in the process of piloting many new products such as NetCash (e-wallet), mPay (payment via Mobile phone), domestic remittance etc. These products need specialist knowledge and Paynet could benefit greatly from IFC's advisory support.
IFC’s investment and advisory services package to Paynet will help the company access global knowledge and expertise and thereby, rapidly increase capacity in order to serve the growing market demand for electronic payment products in Vietnam. The demonstration of a successful model of emerging alternative payment platforms in Vietnam is expected to provide a tremendous boost and thereby, to provide the necessary attention to lift the alternative payment platform sector.
Project Strengths, Risks and Issues:
Strong and committed sponsor/ management team
Paynet’s shareholders and management team are experienced and reputable businessman/ professionals, who have been very committed to Paynet’s business.
our initial assessment (thru advisory services where an international CEO of a mobile phone company in Africa came in and did a quick market diagnostic) realizes that Paynet’s business model has high chance of success. It’s open-loop (vs. close loop) technology infrastructure allows connection with multiple telcos and financial institutions, making the economies of scale and accordingly high profitability possible.
Relatively high upside potential
Paynet is a small technology driven company, which requires relatively small initial paid in capital and with fast growing market demand, it offers relatively high upside potential.
Vietnam untapped retail and micro payment market is huge and offers Paynet a large potential business for years to come.
Financial reporting and transparency
Set up as a small company with very lean structure, Paynet has not yet paid attention to proper financial reporting and transparency. The company’s account is un-audited. However, if we consider investment, we can demand international audit as precondition.
his lucrative business attracts increasing competition, although Paynet was the first company and has the advantage of first mover, overtime competition will impact the company’s profitability. Most dangerous competition will come from telcos who possess network and clients. Paynet’s upcoming alliance with VN Post is seen as a risk mitigant but only to some extent.
if the company grows as expected, it must successfully increase and implement additional resources to support its operation. The company’s success will be dependent on its ability to continue to increase its revenue by signing up more customers to use its services to achieve economies of scale needed to make the project commercially viable long term.
Macro and regulatory environment:
electronic payment regulatory framework in Vietnam is still in early stage of development and is evolving fast, adverse changes would affect the company’s business. The current economic downturn in Vietnam, if prolonged, would also affect the company’s
Technology & Intellectual Property:
he industry in which the company operates is subject to rapid and substantial technology changes. The introduction of new technologies, new industry standards or practice could render the company’s products and services obsolete and unmarketable. Investing in and keeping abreast of technological developments may require exceptionally high levels of investment which the company may not be able to commit if relying on only existing sponsors.
Project sponsor and major shareholders of project company
Paynet main sponsors are well-known private businessman in Vietnam and are as follows:
Mr Ngo Thanh Son (25% of the equity):
Mr. Ngo Thanh Son was born in 1968. He graduated from Hochiminh Polytechnique University. Mr. Son had 15 years of working experience in telecommunication for State-run, foreign-invested and entrepreneurial telecommunication companies. He started his career with SEATIC, one of the first software company in Vietnam. He then moved to VNPT (state owned largest fixed and mobile operator, owns the two largest mobile operator Mobilephone and Vinaphone) and then worked as technical supervisor in VNPT joint-venture with LG (Vina-GSC), finally with Nortel before setting up his own business. In 1997, he founded ADTEC, which has now developed into a telecom and high tech service provider group with 5 affiliates and more than 200 employees. He is still the Chairman of Paynet (holding 25% of the company). He also founded and is holding 50% of MediaNet (an affiliate of ADTEC group), which is now the number 4
internet service provider in Vietnam. He is also a shareholder (more than 5% but less than 30%) of Duong Lam mineral company, which exploits and processes titanium for export.
Mr Tran Quang Duc (42% of the equity)
Mr Tran Quang Duc, Founder, Vice Chairman of the Board, Representative from Amigo Investment Holding:
Mr Duc was born in 1977. He graduated from Warsaw University in 2001 majoring in telecommunication. Mr Duc founded SEAme telecommunication company in Australia that invented the SMS solution which was eventually sold to Telstra – Australia’s largest mobile phone operator, which is how he made his first wealth. Since this niche market can not be expanded, in 2003, Mr Duc returned to Vietnam to set up EasyNet Ltd company. In 2005, EasyNet Ltd joint-ventured with CFTD Holdings Ltd and became CFTD Information Services Ltd., which changed legally into Amigo Technology in June 2008. With his telecommunication background, he is involved in Amigo Technology day to day operation.
(10% of the equity):
Founding shareholder (10%), Member of the board, CEO.
Mr. Nguyen Chien Thang, CEO, was born in 1974. He graduated from Banking Institute in 1995 and has 10 years of working experience in the banking and finance sector. He had worked as Assistant to the CEO of Maritime Bank, Department Head of Product development, and later Manager of Card operations Center of Vietnam International Bank (VIB) before he co-found Paynet and become its CEO.
Total project cost and amount and nature of IFC's investment
The proposed IFC investment in Paynet entails an equity investment of up to US$1.5 million in the form of redeemable, convertible preferred shares for an ownership of approximately 16.7% of the Company, on a fully converted basis.
IFC investment as approved by Board
1.5 million (USD)
IFC Investment (million USD)
* These investment figures are indicative
Location of project and description of site
The company has offices located in Hanoi and Ho Chi Minh city, Vietnam. Investment is not location specific since this is an electronic (not physical) payment processing project.
Anticipated development impact of the project
The proposed project is expected to provide needed support for private sector in developing alternative payment systems/ platforms for retail/ micro payments in Vietnam which is expected to bring about huge developmental impact via reducing cash transactions and float in the system and making basic financial services available to the large currently un-banked population.
IFC's expected development contribution
The alternative payment systems (mobile phone banking) is newly emerging and no other institution has been able to establish good practices in this area. Private sector players are keenly looking for international expertise and knowledge which IFC is well positioned to provide. With global presence and the mandate of promoting private sector development via increasing access to financial services, IFC is in a good position to spearhead this quickly emerging initiative.
Without the proposed IFC’s investment and advisory services package, Paynet still will continue its operation, however the chance to access international knowledge and expertise to quickly improve capacity in order to serve skyrocketing market demand would be impacted, thus challenging its success and even existence.
Environmental and social issues - Category C
This project entails IFC’s support for development of privately-owned financial infrastructure institutions in Vietnam and has been classified as a Category C project according to IFC’s Environmental and Social Review Procedures. No further review is required. The project is required to inform IFC in the event of any change in nature or scope of its business or operations.
For inquiries about the project, contact:
Mr. Nguyen Chien Thang
Chief Executive Director
10th Floor, Harec Building
4A Lang Ha Streeet
Phone: 84 4 7724 889
Fax: 84 4 7724 880
For inquiries and comments about IFC, contact:
General IFC Inquiries
IFC Corporate Relations
2121 Pennsylvania Avenue, NW
Washington DC 20433