Construction Companies Seeking Opportunities in Tough Times

The Institute of Construction Economics under the Ministry of Construction said the debt to equity ratio of construction companies remains high, especially State-run enterprises are always unable to use their owner’s equity for debt payment. Loss-making construction companies account for a significant proportion, especially SOEs.

Director of T.H Construction Company in Thu Duc District, Ho Chi Minh City said: His company suffered a net loss of nearly VND700 million in 2011 because of material pricing and credit crunch. Construction material prices were quite low at bidding time but surged at the back of construction commencement. Wages also increased as a result. His company built two State-owned schools, costing over VND2 billion each. However, it has not received any pence from investors after nearly two years of construction because these projects are subjected to investment reduction.

 

Mr Lai Duc Thanh, President and Director of Yen Bai Transport Construction Joint Stock Company, said his company went public in 2001 and had no State-owned stake in 2010. The firm now has 211 employees. It is forecast to face enormous difficulties in 2012 because it mainly undertakes State-funded projects. Unfortunately, the State is reducing public investment in accordance with the Resolution 11. Worse, it got no new contracts since the start of this year. Without jobs, it could not pay even insurance fees for employees.

 

He added that his company was unable to collect money from investors but it had to pay banks interest rates for the money it borrowed to carry ut their projects. Currently, its working capital is running out. Without money, it can pay insurance fees for white-collar workers while blue-collar workers have to do this on their own.

Many projects are left uncompleted because of capital shortage. Many real estate companies are struggling to pay exorbitant interest rates and soaring input prices. In the past two years, many companies have to slash selling prices and applying promotion programmes to boost sales, said Mr Le Chi Hieu, President of Thuduc House.

 

The recovery of the construction industry is not equally shared by all companies, said Prof Dang Hung Vo. Small companies may rely on the private housing segment but it is a small bite in the overall industry picture. Project contractors will face tenser pressures and competition.

 

He added that the crisis arranged the ‘map’ of construction companies and revealed real capacity and quality of contractors. Therefore, the advantage is somewhat inclined to highly adaptable contractors in 2012. This adaptation is accrued from professionalism, personnel and technological process.

 

Mr Minh Tuan, General Director of Thanh Hoa province-based Minh Tuan Construction Company, said: “According to our experience, in the context of economic difficulties, the best solution is to keep personnel.” He said his company had to carry out austerity measures last year to survive. Salaries of managers were reduced to have money to pay inflation allowances for normal workers. Indeed, personnel shortage is a worse situation for any company when the market revives, Tuan said.

 

Deputy Construction Minister Nguyen Tran Nam warned companies to stay away from non-core businesses and ineffective investments. They should focus on potential, affordable projects. They also need to restructure their operations, grasp opportunities, conduct market surveys, maintain product and service quality to meet growing demand of customers.

 

Mr Le Van Dinh, President and CEO of Thang Cong Construction Material Production Company, said information clarity and transparency is an important factor that helps enterprises overcome this tough time. He thus proposed State management agencies and banks provide information timely, accurately and consistently; economic regulation solutions be carried out synchronously, considered carefully, and scheduled meticulously to avoid shocking businesses or sending them to dilemma.

 

Sharing the standpoint, Ms Chau Thi Thu Nga, Chairwoman of Housing Construction Investment Group, said State management policies are impracticable and even hampering the development of construction and real estate companies. For example, the tax rate of 2 percent on future housing purchase value is unsuitable. When the market is lacklustre, the Decree 69/2009/ND-CP is making land-use money collection maxed. In Ho Chi Minh City, housing authorities are perplexed in determining market prices while land-use money amount is unaffordable for many property companies. Currently, many developers have sold their apartments but they still do not pay land-use fees because they will suffer losses if selling prices five years ago are used.

 

On this basis, many construction companies have asked authorities to amend legal documents to create an equally competitive environment to enhance operating efficiency and boost sustained development of enterprises.