Debt Burdens

The stock market is experienced the tough time as two primary bourses nosedived on the police custody of banking mogul Nguyen Duc Kien, also known as impresario Kien, for his wrongdoings in running businesses. The stock market is too harsh for most investors in the past few years but it boosts transparency of listed companies.

 

Hundreds of companies reported losses, inventories are appallingly high, and debts are wrecking on many companies. Half-year financial reports released by listed companies on the Hochiminh Stock Exchange (HOSE) and the Hanoi Stock Exchange (HNX) showed that 16 companies incurred short-term loans of over VND1,000 billion, with the biggest amount exceeding VND3,000 billion.

 

Short-term loans cause heaviest pressures on companies. Many enterprises were found to have used short-term loans for long-term investment.

 

Many high-profile companies were reported to bear huge debts. Hoa Phat Group (HPG) led listed companies with VND3,856 billion on the list, accounting for more than one-third of its owner equity. Remarkably, bank loans exceeded VND3,728 billion, up nearly 97 percent of its debts. At the start of the year, the value was higher at VND4,555 billion.

 

For the time being, the owner’s equity capital of HOSE-listed Hoa Phat Group (HPG) is VND8,005 billion and its total assets amounted VND17,716 billion.

PetroVietnam Gas Corporation (GAS), PetroVietnam Technical Services Corporation (PVS), Hung Vuong Corporation (HVG), and PetroVietnam Drilling and Well Services Joint Stock Company (PVD) reported to be burdened with over VND2,000 billion of debts each.

 

Without the support of the name “PetroVietnam”, Huong Vuong Corporation worsened its shareholders’ concerns as it operates in a risky industry and has witnessed many peers to go bust. As of June 30, 2012, HVG’s short-term debts amounted at VND2,441 billion, an increase of nearly 5 percent from a year ago, of which short-term loans accounted for VND2,431 billion, or 99.6 percent of the total, and long-term loans were just VND10.3 billion.

 

Another worrying name is Viet An Joint Stock Company. According to its half-year financial statements, it incurred a debt of VND1,200 billion (US$60 million) in the first six months while its owner’s equity was only VND417 million (US$200,000) and total assets were worth more than VND1,700 billion, smaller than short-term liabilities.

Worryingly, 99 percent of its debts were subjected to short-term debentures. Only VND15 billion were long-term liabilities.

 

The list of companies owing more than VND1,000 billion also included Vietnam Construction and Import-Export Joint Stock Corporation (VCG), PetroVietnam Construction Corporation (PVX), Petrolimex Petrochemical Joint Stock Company (PLC), PetroVietnam General Service Joint Stock Corporation (PET), Ha Tien 1 Cement Joint Stock Company (HT1), Viet Nam – Italy Steel Joint Stock Company (VIS), Dabaco Vietnam Group (DBC), and Hoa Sen Group (HSG).

 

Although the amount of debt is not as important as its correlation to profitability, companies have not revived production and business activities since 2008 because of slow sales, growing inventories and rising debts.

 

Many high-profile companies are now struggling for survival because they are fraught with huge debts. Bianfishco is a vivid example. Despite its efforts to pay debts for buying fish to farmers, on August 18, some creditors continued to wave banners demanding debt payment at the head office of Bianfishco. Farmers and staffs have camped before its campus for nearly 20 days, hoping to force debt repayment.

 

In the meantime, many banks released Bianfishco’s mortgaged shares, allowing it to register a new business entity and banks are its unwilling shareholders. Debt Trading Company affiliated to the Ministry of Finance got involved in a private company for the first time in its history. But, Bianfishco is still put under huge pressures from farmers.

 

Thai Hoa Vietnam Group (THV) is believed to be delisted from HNX because of its operating losses. In its audit statement, auditor warned THV of its short-term debts of VND1,051 billion, much higher than VND263 billion worth of short-term assets. Markedly, most short-term debts to banks were overdue. And, its accumulative loss surged to VND320 billion as of June 30.

 

Audit remarks raised concerns over the delisting of THV shares. Nevertheless, Thai Hoa Vietnam Group’s President Nguyen Van An assured that “THV delisting is impossible” because its owner’s equity was VND577.5 billion, nearly doubling its debts.

 

Thai Hoa Vietnam Group floated its shares on HNX on December 3, 2010. The closing price on the first day on the northern exchange was VND16,900 per share but the value was just VND1,800 on August 20, 2012.

 

Many heavily indebted companies are struggling between the line of life and death. According to experts, the root of this abject misery is unfocused investment and weak administration. Nguyen Nam Son, Managing Director of Vietnam Capital Partners Fund, said: “Companies fell into trouble because they excessively invested in noncore businesses. Noticeably, many big companies invested in banks, securities companies and real estate projects.

 

The real estate market is estimated to melt down further, leading the collapse of many property firms in the next two years, he added. The stock market also witnessed the bankruptcy of many securities brokerage companies in the past few years.

 

Master Nguyen Xuan Thanh, Public Policy Manager at Fulbright Economics Teaching Programme, said: The ratio of liabilities to equity of 167 non-financial companies listed on the two stock exchanges, HNX and HOSE, is 1.53 times. This is a high rate in comparison with other economies, both developed and emerging. Construction and real estate sectors have the highest ratio of liabilities to equity, more than 2 times.

 

Many magnates are not keen on showing off their personalities and wealth at this time. Doan Nguyen Duc, President of Hoang Anh Gia Lai Group (HAG), said: Now, no one dares to stand out and say “I am totally strong.” The harsh condition in the past four years has forced many weak companies to go to the wall.

 

Some tycoons have announced plans to sell assets to pay debts. Nguyen Thi Nhu Loan, Chairwoman and CEO of Quoc Cuong Gia Lai Group (QCG), said that despite lower prices than previously, Quoc Cuong Gia Lai had to sell property assets to reduce outstanding debts and trim borrowing costs.

 

The amount of bad debts is huge but it is forecast to spiral up in the coming time when many investors liquidate bad assets to banks and keep only likely profitable ones. Bad debts will thus skyrocket in 2013.