WHAT SOLUTIONS TO AVOID PRICE RISKS IN PROJECT INVESTMENT?

Investment project appraisal is a very complicated job, it requires always perfecting through practice, not just stopping at theory. Therefore, it is essential to constantly improve the quality of investment project appraisal for banks to minimize risks and maximize their operational efficiency...

Here are some key risks that SunValue analyzes and summarizes:

• Policy mechanism risks:

This risk is considered to include all financial and policy uncertainties of the place or location of the project, including new taxes, restrictions and transfers, nationalization, privatization or laws, resolutions, decrees, and other sanctions related to the projects cash flow.

This type of risk can be mitigated in several ways:

- When appraising the project, the compliance level of the project must be considered (according to the project file), to ensure strict compliance with applicable laws and regulations related to the project.

- Investors should have their preferential contracts on this issue.

- Specific foreign exchange supply guarantees will help limit the projects negative impacts.

- Credit insurance, export...

• Risks on construction and completion progress:

This risk is seen as a failure to complete the project on time, not by the standards and performance parameters. This type of risk is beyond the ability of the bank to regulate and control, but it can be minimized by proposing to the investor to implement the following measures:

- Select a reputable construction contractor with financial strength and experience.

- Strictly implement the contract performance guarantee, and work quality guarantee.

- Close supervision during construction.

- Support from competent authorities, a financial reserve of science in case of exceeding the estimate.

- Clearly define responsibilities, compensation, and site clearance issues.

- Fixed price or turnkey contract with a clear division of obligations of each party.

• Market risk, collection, and payment:

This risk includes: The market does not accept or not have enough demand for the output products and services of the project; Due to competitive pressure, the selling price of the product is not enough to cover the costs of the project;…

This type of risk can be minimized by:

- Market research, market analysis assessment, and market share carefully.

- Forecast supply and demand cautiously, should not have overly optimistic forecasts.

- Analyze the solvency, goodwill, and behavior of consumers

- Reviewing long-term product off-take contracts with financially capable parties.

- Support for government product consumption

- Flexibility of the structure of output products and services.

• Supply risks:

This is the risk when the project does not have the source of raw materials (inputs) with the expected quantity, price, and quality to operate the project, create stable cash flow, and ensure the ability to repay the loan. invest.

This type of risk can be minimized by:

- During the project review process, the appraiser must carefully study and evaluate the reports on the quality and quantity of input materials in the project file. Make judgments right from the beginning in calculating and determining the financial efficiency of the project.

- Studying the competition between raw material suppliers.

- Flexibility in time and quantity of purchased materials.

- Agreements with the end-user pass-through mechanism.

- Long-term contracts to supply raw materials with reputable suppliers.

• Technical, operational, and maintenance risks:

These are the risks of the project being unable to operate and maintain at a level consistent with the original design specifications.

This type of risk can be minimized by the investor by taking some of the following measures:

- Use proven technology

- The project operation department must be well-trained and experienced.

- Operation and maintenance contracts can be signed with clear incentives and penalties for violations.

- Insurance for natural force majeure events such as floods, earthquakes, wars...

- Control budget and operating plan.

- The right to replace the operator due to non-fulfillment of obligations.

• Environmental and social risks:

This risk represents the projects negative impacts on the environment and surrounding people.

This type of risk can be minimized by the following measures:

- The environmental impact assessment report must be objective and comprehensive, and approved in writing by the competent authority.

- The participation of stakeholders such as environmental management agencies and local authorities should be involved, from the beginning of project implementation.

- Comply with environmental regulations.

• Macroeconomic risks:

These risks arise from the macroeconomic environment, including exchange rates, inflation, and interest rates.

This type of risk can be minimized by:

- Analysis of basic macroeconomic conditions.

Use market instruments such as swaps and hedging.

- Protection in contracts such as indexing, price escalation, force majeure...

- State guarantee on currency devaluation and foreign exchange supply (if possible).

WHAT SOLUTIONS TO AVOID PRICE RISKS IN PROJECT INVESTMENT?

There are many reliable appraisals addresses customers can knock on such as SunValue - Vietnams Leading Real Estate Appraisal, Vietnams Leading Brand 2023, Strong Asian Brand 2021, and National Brand Closed Actively contributing to the development of the appraisal industry in Vietnam with a system of nearly 50 branches and transaction offices across the country.

As a reputable, independent valuation unit with 21 years of establishment and development, pioneering in technology application in valuation, helping to monitor real estate price fluctuations, and completing price data to support development. Vietnam and international real estate market.

With a fast implementation process, quality, free consulting services, appropriate appraisal costs, confidential information, along with a reliable source of price data will bring the best experience to customers.

Contact SunValue now for questions and consultation!

SunValue – National brand that has actively contributed to the development of the appraisal industry in Vietnam.