Solutions for Vietnam Cement Industry

Facing such difficult situation, cement enterprises are forced to restructure. According to the VAFI, in the past 3 years, there have been approximately 10 Merges and Acquisitions in this sector. Poorly governed cement enterprises which are burdened with more debt and falling into bankruptcy, have to be sold to strategic investors who have greater financial resources and greater administrative capacity. There are many other cases such as the case of cement plants of major private corporations such as Hoa Phat Cement Plant. They do not fall into financial difficulties but have low business efficiency, thus their parent companies decided to divest to focus resources on core business segments. In particular, in the current situation, many investors want to exit the cement sector to "remove the burden" but it is not an easy thing to do.

 

However, currently, investment in the cement industry is not easy. To financial investors and stock investors, the cement manufacturing sector remains risky, investing in cement stocks now appears cheaper but it is unpredictable when a new business is capable of paying off the principal capital and interest to pay dividends to shareholders. As for the businesses not specializing in cement industry, the sector seems unattractive and risky.

 

In fact, in this context, perhaps there is no domestic strategic investment with strong financial resources to be able to purchase weak cement factories. Vissai cement producer which is effective in the industry has been actively looking for large export markets for its factory sector and recently bought some cement plants. However, its financial resources are limited. Vietnam Cement Industry Corporation (Vicem) is also in a difficult situation because many affiliates invest more in cement production lines in recent years, while the total debt to Vicem is approximately four times as high as the total equity capital. Therefore, Vicem cannot invest in ailing businesses.

 

According to statistics from the VAFI, in quite a few merges and acquisitions, there recently appeared investors from ASEAN countries. The Asian financial crisis in the 1997 - 2001 period has taught ASEAN investors a lesson which is to invest cautiously with the motto of following the market demand. Besides, in the ASEAN market, there is currently domestic supply shortage. Under policies to promote domestic consumption of countries like Thailand, Malaysia, Indonesia, the Philippines, those countries’ stock markets are experiencing continuous growth in recent years, which means that businesses in those countries can easily attract cheap equity. Those are the reasons why ASEAN investors are paying attention to Vietnam’s cement industry.

 

It's the merger and acquisition cases in the cement industry that have attracted hundreds of millions of dollars of equity. For example, Thang Long cement project attracted nearly VND5,000 billion, Cam Pha cement project is expected to attract over VND3,000 billion, etc. This capital has structured financial situation to help investors escape huge debt burden, which also means the settlement of about US$1 billion of bad debt not only in the field of cement manufacturing businesses but also in other areas of two domestic investors.

 

In addition, those cases also help improve corporation governance capacity, open additional export markets for cement industry and reduce tense competition in the domestic market.

 

Besides, that FDI investors have a distribution system in the country makes price of cement exports from FDI investors higher and more easily to consume than domestic firms making export products. Also their products are facing anti-dumping less than those of domestic firms.

 

As predicted by VAFI, if the cement industry actively attracts more business, the number of business will increase by about seven (similar to Thang Long cement plant). Meanwhile, cement exports could increase by 10 million tonnes a year in the coming years, basically solving the problems output, bad debt for the cement industry. Also the credit from the banking system and the state will be preserved.

 

According to VAFI, Vietnam should have solutions to accelerate the practice of merger and acquisition cases of FDI investors. Vicem has to restructure the financial situation in the member units. Specifically, it is crucial to promote the equitisation of the member units and of Vicem itself. Units facing financial difficulty should not maintain the perspective that Vicem has to hold the majority of stock. The priority is to save businesses, at the same time save the cement industry through mergers and acquisitions with FDI investors.

 

For listed companies in the insensitive fields of business, the state should have unrestricted policies on ownership of foreign investors (such as unlisted sector) in order to easily attract FDI investors.

 

Listed cement companies wanting to quickly get financial restructuring and expand export markets should attract FDI investors to invest in their business. They can sell majority or dominant shares. In case of problems, they should voluntarily delist, which benefits the shareholders and the economy.