Why Does Vinaconex Make Aggressive Divestments?

Vinaconex’s three-time reduction of offering prices from VND29,220 per share to VND16,000 share demonstrated the corporation’s resolve to sell the stakes in Vinaconex Hoang Thanh Joint Stock Company as well as the pressure of completing corporate reshuffle plan.

 

The public offering of 3.75 million shares in Vinaconex Hoang Thanh Joint Stock Company is just one out of many offerings of HNX-listed Vinaconex (VCG) since 2011. Giving reasons to recent divestments, a VCG official said the corporation will focus on two core businesses fields, construction and real estate, citing the resolution ratified by the Annual General Meeting of Shareholders. Accelerating divestiture in companies branded unnecessary to core businesses are aimed to perform its corporate restructuring strategy and improve its financial capacity for business operations. By 2016, VCG will finish its restructuring process and build a system of member companies in support of core business operations, namely construction and real estate.

 

Since 2008, the corporation performed restructuring of 35 member units, taking back VND1,698 billion and enjoying a net profit of VND636 billion. According to the roadmap approved by the shareholders, VCG will keep stakes in 22 out of 66 companies. The divestment process with be made through 2016.

 

The VCG official also gave explanations to two major concerns of investors about the divestiture. One, why are the offering prices usually higher than market prices? Two, are member companies forced to buy divested capital?

 

Offering prices of shares are determined by hired consultants. Transfer prices are usually higher than initial investment prices to ensure a margin for the corporation.

“Vinaconex must concentrate financial resources to promote the development of core business fields. Thus, the capital restructuring is stepped up to enhance the financial capacity and focus on core businesses,” said the official.

 

As regards equity selling, VCG affirmed that the transfer is made on the voluntary basis for both sides and in line with the laws. The corporation transferred many of 35 million shares to domestic and foreign investors. VCG transferred the stakes to member companies because they are good for each other. There are no forced buys.

 

As a parent company, VCG’s capital sources are mainly used to support its 58 member companies. However, many are local poor-performing businesses admitted to be the corporation’s members before it went public. Existing financial problems originated at the time of being a State-run enterprise have not been resolved, thus leaving financial burdens now.

 

In addition to good-performing companies, weak companies and newly established ones for undertaking new investment projects have left huge pressures on VCG. The corporation had to meet capital-raising needs for its member companies to expand business scales on the one hand and provide financial supports for its member companies to settle bank loans which undertook new projects. For instance, Cam Pha Cement Joint Stock Company received Cam Pha cement plant investment project, Vinaconex Water Corporation accepted Song Da - Hanoi water supply system investment project.

 

The biggest debt levied on VCG came from Cam Pha Cement Joint Stock Company. To date, VCG funded VND2,365 billion to the cement producer to pay bank debts. Over the past years, VCG’s equity has always been used for capital investment with the purpose of holding controlling power at member companies. For example, according to the financial statements ended December 31, 2011, the corporation’s equity was VND4,195 billion but the amount of capital invested in member companies reached VND4,792 billion. And, the debt-to-equity ratio was 9.5 times in 2009.

 

After three years of restructuring, as of July 31, 2012, VCG had completed restructuring in 32 units, with absolute withdrawal from 26 units. Reshuffled companies mainly operated in ineffective noncore businesses. Besides, VCG adopted many measures to improve financial capabilities and bring financial leverages to safety zones. As of June 2012, financial leverage ratio was 1.85 times (a safe level within the international practices), compared with nearly 10 times before restructuring. This was a huge change.

 

In answer to a question on the corporation’s ability to improve quick ratio - a fast-falling ratio over the past year - as well as financial tensions in its member companies raised by the Dau Tu Chung Khoan (Securities Investment), VCG said it is carrying out many solutions like performing tightened financial policies, reducing unnecessary spending and investments, ending investment in ineffective projects, restructuring investment portfolios for capital recovery.