A Life of Negotiation
Chapter 7: Banks, Confidential Refuge
No actor is more important than the bank in any major negotiation.
Even if you simply go to buy a motorbike,
you will be more secure
if there is a bank willing
to lend you half the price of the car,
sometimes even lending the full price.
Then if you are offered a low interest rate,
even lower than inflation,
and a long repayment period,
then buying your car is a must.
When funding is available,
you will enjoy the freedom of choice:
you can buy a low-priced car for a short installment;
or you still want to own an expensive car,
and the debt to the bank will be higher…
But in any case you will definitely have a car to use right away.
Bank money solves a lot of your problems,
allowing you to invest early
and then allowing you to slow down your debt repayments.
More than ever,
money has helped you buy a very meaningful item,
and the bank also gives you a great service.
The motorbike is still the same,
let alone buying a house.
This dish is much larger,
approximately several billion dong.
If you didn’t have a bank,
you would have had to save up for years
before you had enough money to buy a small apartment.
So not only have to delay the investment for many years,
rent a temporary house while waiting,
but when you can afford to buy,
the house has also increased in price in the past time.
But if the bank follows your high salary
and is willing to lend you a lot of money,
you will have an early opportunity to buy the house
you like right away,
meeting the needs of your family.
At that time,
monthly payments were reduced to an obligation
that soon became a routine.
In negotiations on a large project,
the role of the bank is much broader and more complex.
Not only will they act as project cash flow managers,
will advance to pay staff salaries
or buy necessary tools for construction,
but sometimes they will also be directly involved in financing project.
They will help customers
or investors disburse,
will follow the spending needs
according to the progress of the project.
Then they also opened personal accounts for the employees.
they are in the middle of every project’s cash flow,
from the big expenditures to the smallest details,
meeting every need.
Whenever there is a good cash flow,
there is a bank behind to mobilize,
manage and guarantee.
the bank will take a commission on each working cash flow,
but in return they also take on a lot of risk.
Advance money sounds sweet,
and the sweetest is for investors,
but just try to stand in the position of the CEO of the bank,
what do you think if you have to advance 100 million dollars?
Are you sure the advance will return to your safe?
Bank risk is a very difficult fact to manage,
and I will return to this key issue in the following paragraphs.
Friends, suppose an important person intends
to borrow a huge amount of money,
to implement a large-scale real estate project.
As a banker,
would you approve or decline when the market is healthy?
You know better than anyone that
when you lend money for decades,
the market turns around sometimes.
Until that character finished building a project of thousands of houses
and couldn’t sell any,
could the bank play a debt collection game
when he knew that
the investor had no money left in his pocket?
But if there is repayment,
the investor has only one way to
hand over the whole project to the bank.
This is a very “funny” case but also “sobs”,
because all of a sudden the bank will cry
while holding a giant but empty project in hand.
What to do?
Is it possible that the bank replaces the real estate owner
to sell promotional houses,
Is that the main job of the bank?
The bank must be a friend,
but it is not because of the friendship
that they are willing to run after the spear others launch.
Thus, the banker knows better than anyone
the art of refusing to go on an adventure.
At the same time,
investors who are too subjective will not be alert
to estimate the real risk of the project!
But even in the case that the bank is willing to rush,
you can imagine the negotiation
to convince them will be very difficult and laborious.
What’s the matter,
lending money is no joke,
as well as capital of the pillars of the economy,
is also limited.
there are hundreds of private individuals
with thousands of projects that need to be financed,
all of which need very low interest rates
and a very long repayment period.
Bank wide road selection.
They often like to continue following the route of people
who have been successful,
highly reputable and especially cautious.
In the business world there is a saying
“Banks only lend money to the rich”,
sometimes thinking that there is injustice.
If the rich are already rich,
why lend them more?
It’s all a matter of psychology:
rich people know how to use money,
know how to invest,
they know how to make more money
and then they will be able to repay their debts!
But this is not always right.
There are a lot of rich people who can’t afford
to pay their debts after borrowing money
because they are used to investing “splash”
and then throw javelins.
How many banks have struggled
because of the work of these characters.
many economic crises seem to stem
from credit abuse or indiscriminate investment.
The crisis in the United States in the years
2007 – 2008 made most banks shackled,
and if the US government had not intervened boldly
there would not be many banks alive today.
In the end, only Lehman Brothers had to be dissolved
while the shares of Bank of America and Citi Bank,
at the same time,
were close to zero,
could not be any closer.
This is to let readers understand
that a bank’s bankruptcy,
no matter how big,
is not very unlikely.
Therefore, when negotiating with the project owner,
you must not forget that there will be a negotiation phase
with the bank waiting for you,
as well as with subcontractors and other partners.
They will be equally difficult and challenging,
even though they will be your supporting partners later on.
Warm support place
An important actor in business,
but the bank always likes to lie in the dark.
Do not assume that when the bank is not an investor,
is not a project construction company,
is not a consultant… they are nothing.
Do you remember how many times you went to the bank
when you started bidding or managing a project?
After purchasing the auction listing,
you must submit a bid bond when posting your bid.
Then it’s time for you to negotiate the contract,
sign the documents between the contractor and the investor,
then move to the project construction management stage,
with how many times have to overcome the risks to the project.
Only then will you realize
how necessary the presence of an excellent bank by your side is.
And how valuable is the service provided by the bank.
my corporation decided
to invest heavily in the Chinese market.
In those years,
Mr. Li Peng was also the current Vice Premier of China,
who was very sympathetic to our Alstom electric company.
The reason is that before holding this position,
he presided over all of China’s electricity policy,
including the policy of building power plants using nuclear technology.
The French Republic mastered this technology,
so it helped him quite effectively.
China’s electricity market was not strong at that time,
and the reason China wanted to invest a lot in this industry was
because they were preparing
for a large-scale industrial development policy.
In those years (1986-1995),
China bought power plants one by one,
bidding for sometimes two,
or four plants at a time,
each from several hundred million dollars.
They call it a crash program.
Admittedly we were lucky back then to have Paribas Bank by our side,
and they also won the hearts of China.
You can’t imagine how warm the presence of Paribas Bank is for our work,
it’s like having wings to fly faster.
the representative of Paribas is a French-Chinese
who speaks fluently in his mother’s language,
so the Chinese love him very much.
And this “home” bank plays many other roles.
Their first credit is to help us assess the risks early.
Friends, doing business is about knowing how to measure risk.
who can’t measure his hands will surely break his forehead one day.
Imagine if there is a company
that assesses business risk better than a bank
when their job is to collect and spend money,
each time you give money to anyone,
you have to evaluate the risk,
sometimes you have to do this a thousand times every day…
So when working in any country,
we always use the bank’s services,
which are familiar with that country’s custom.
Not to mention the bank itself has professional partners in place,
and these people often illuminate
the dark areas of the local economy.
And of course,
when your bank intends to withdraw from the market,
you should follow that example.
a bank is more than just a thermometer or barometer.
I remember during my years of working,
always a bank that let me know early on cabinet changes
and ministerial positions in many countries.
Knowing the information in advance,
I have time to get to know these people
when they have not yet taken office,
so that’s valuable.
The bank also always informs us in advance
of changes in exchange rate and interest rates.
For a project worth a few hundred million dollars,
you can at least save a few million
by managing foreign currency in a sharp and agile manner.
the assumption of exchange is precisely a powerful weapon.
Those who work permanently in the import-export industry understand this better.
Accurately forecasting the exchange rate is not a game,
because by the end of the year
the difference can be in the millions of dollars.
In addition to “reporting dreams”,
banks also play many other roles.
The first is that during the construction period,
your company lacks money to pay subcontractors,
the bank may have just helped a part of the payment.
Asian Development) for example (called co-financing).
Having them in the negotiation only complicates things.
These banks never invest in the whole project,
fearing the risk to bear alone,
so they only contribute a little.
But although they contribute only a little,
they have the demands of the ambitious,
forcing all procedures to be approved by them.
They coldly analyze the project,
often in meetings they only reread the documents
that have been approved internally,
They let you play around with the institutions they propose.
In my experience,
much of their presence in a large project often leads
to a negotiation that drags on for months or even years.
I think that the presence of world
or regional development banks is only beneficial
when the project is too complicated
and needs a judge to share a meal at the same table.
The World Bank is nothing like judges
but they are respected,
and if there is a side with nefarious intentions in the project,
they will not dare to make it public.
Banks play a key role in this.
the feasibility of projects is always considered loosely
and optimistically by the investor’s consultant,
because the project proponent cannot resist the desire for achievement.
Then the bank will help you look at the project rigorously
They must also re-evaluate the project
with an independent eye,
because they and no one else will have to finance and take the risks.
the bank will act as a critic,
at least in a completely impartial way,
and that will help you believe in the real possibility.
The bank also plays a role in illuminating the financing modalities.
Here, I also want to have a separate comment on the methods
of project funding based on my own experience.
There is a much debated format is B.O.T.,
which means Build (build),
and Transfer (transfer).
A richer format is the B.O.O.T.
there is an additional letter O which means Operate.
To put it simply,
a state assigns a project to a private entity,
asks the entity to build the project with its own funding,
then lets them own the project for a while,
and finally handed over to the state.
And if there is an operation,
the state also relies on the private sector,
asking them to promote the operation for order,
and then hand over a completed project,
hired staff and organized personnel,
and has entered the period of good operation.
The state only plays the role of “picking flowers
that have already bloomed”.
Usually, the state allows the private sector to operate
for 20 or 30 years
so that they can recover their capital and make some profit.
the cost to the state is very little.
Just looking at a BOT project,
it’s always beautiful and especially smart!
Because the state doesn’t have to do much,
it is only obliged to issue some permits,
and at most it is only responsible for clearing the ground.
that is also true of the ability of state ministries,
because they are hardly able to build projects,
hire consultants, and collect funding.
And the same is true of private capacity.
However, if you look more closely,
the BOT format has many shortcomings and uncertainties.
Among the weak points is the enormous risk the state poses
to the private sector.
You spend money,
you bear all the responsibility,
and if there is a loss in operation,
you also bear it!
He only remembered that after 20 years
he had to return the project to the state,
The state’s demand is a bit excessive,
the state is in a hurry and can’t wait for long:
people ask for 30 years of operation,
they only give 20 years,
25 years at most.
The second disadvantage is that
when the private sector has to gather funding for the project,
they only receive hard conditions
(high interest rates,
short repayment terms, etc.)
but never enjoy soft loans (soft credit). ),
only for government projects (ODA for example).
For these reasons,
the project will be more expensive than intended
and of course the economic viability will be less;
this is also another good reason
to let the private sector enjoy a longer operating life.
It’s not as simple as that.
The state does not even allow the private sector
to sell the project’s products at any price.
If it is a toll highway,
the state does not allow private tolls beyond a certain amount.
If it is a factory that produces
and distributes filtered water,
the state limits the selling price of a block of water.
If so, where does private profit come from?
Like any private,
of course they only participate in the project
if there is a chance to make a profit.
And the return should be high enough to encourage them
to take all the risks of the project
and operate for the duration of the contract.
All art lies in finding a balance for the interests of both parties,
private and public.
Today, people still have a specific name for that form,
collectively referred to as a public/private partnership (PPP).
There are many books that talk about PPP in detail,
as well as many websites that comment on the recipe in detail.
Experience shows that
the success of a PPP project depends on many factors
into the economic field.
If the project is a toll highway or a power plant,
many private groups will want to bid
because it is easy to make a profit.
If it is a metro project,
the possibility of profit and loss is very precarious,
but the investment capital is extremely high,
so it will be difficult to find any private person willing
to sacrifice the project.
Then people also realized
that with projects with a very sensitive social character
because people are the direct consumers or users
(eg filtered water, or metro),
not overnight that
the government easily accepts an increase in the price of water
or metro tickets.
And even if the promises
and commitments on rates were written into the contract,
I have never seen a government
dare to execute a signed contract
when the public opinion was not favorable
and there was still a stir.
In such cases the private sector will be severely disadvantaged.
The French have a saying “Only eyes to cry!”.
Indeed, because not only was the contract unenforceable,
but no one in the government
or society knew in advance
when the contract would be normalized again!
In all these difficult cases,
the advisory role of the bank is extremely valuable.
If you have doubts about the important role of the bank in the negotiation,
please keep in mind that the words bid bond,
etc. scheduled payments),
down payment (deposit),
or cash advances (cash advance) are still them.
Perhaps there is no need to prolong the list,
but always remember that without a bank next to you,
you will not go far,
but with them sitting next to you,
you will feel warm from negotiation to project implementation.
It is the warmth of money,
when we need it most,
whether it is the owner of the project
or the slave of the user.
And you can be sure that with the bank,
the warmth of money will be very discreet,
Things to remember
Banks are an inevitable actor in all investment
as well as commercial projects.
A good bank will not only provide many quality services,
but also be a consultant for investors to properly measure risks,
and choose an effective cash flow strategy.
In some cases the role of banks goes much further than that.
Banks can play the role of coordinating sponsors
and participating banks,
helping investors optimize capital flow.
The subject of the loan is always the investor.
However, each faction has its own bank to advise.
When funding comes from abroad,
the offshore bank selected
by the main contractor often plays the role
of funding manager
and mobilizes other banks to participate.
Banking is a valuable consulting channel.
They help keep them informed,
advance money when needed,
and enlighten companies on the complexities of complex funding models.
With models of BOT, BOOT, BT, PPP,
banks can lead companies
that are not very familiar with these methods,
and of course help them reduce risks.
When your company has to choose a main bank for a project,
it should always look to a bank
that has a strong base in the locality,
has a large and wide acquaintance in that locality.
If the project is overseas,
it is advisable to choose a bank with senior staff
who are local people and are fluent in the native language.
Usually every project gets stuck at some point,
the bank itself will be able to troubleshoot,
and the local staff will play a key role in those situations.