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Businesses grapple with debt

Update: August, 17/2012 - 09:38

by Thuy Anh

 

Abandoned villas worth billions of dong in Nam Tu Son New Urban Area in northern Bac Ninh Province. Overdevelopment in the property market has been highlighted as one of the factors leading to a growing debt burden among Vietnamese firms. — VNA/VNS Photo Hoang Lam
HCM CITY — Many Vietnamese companies are deep in debt, after years of dependence on debt financing, excessive business diversification and property overdevelopment, according to experts.

"Financial reports for the second quarter show that the average ratio of total liabilities to equity of 647 non-financial Vietnamese companies listed on the country's two stock exchanges (using book values) stands at 1.53, a high ratio compared to other economies," said Nguyen Xuan Thanh, public policy director for the Fulbright Economics Teaching Programme in Viet Nam, affiliated with the Harvard Kennedy School.

Construction and real estate companies have the highest ratio of 2.07. Last year, the figures were 1.2 for listed companies in the US and 1.06 for those in China.

Thanh spoke yesterday at a conference organised by Nhip Cau Dau Tu (Investment Bridge) magazine in HCM City. Participants discussed the theme, "The Decade of Disease for Vietnamese Companies".

Thanh said the ratio of total liabilities to equity was much higher among State-owned enterprises, with Song Da Corp topping the list at 8.85, followed by Hanoi Urban Development (HUD) at 6.36 and Petrolimex at 6.29.

As of the end of April, State-owned enterprises represented more than 77 per cent of total outstanding loans.

Speaking at the conference, Son Nam Nguyen, managing partner of Vietnam Capital Partners, noted that far too many companies had diversified operations by investing in non-core businesses.

"Many companies have diversified into banks, securities companies and the real estate sector," he said.

Nguyen said that 90 per cent of the country's more than 100 securities companies would shut down in the next two years, leaving five to seven survivors.

In addition, most real-estate companies are expected to go bankrupt if the market does not improve.

Ineffective management and lack of a long-term strategy as well as poor financial planning were the reasons behind the failures, according to Nguyen.

To handle the debt problem, Thanh said that state-owned enterprises should be treated first through equitisation, since they hold the biggest debt.

If they have already gone through equitisation, then selling some assets would be one way of paying debt. This would enable banks to expand credit and have a positive impact on the economy.

In addition, setting up institutions to trade debts and assets would help debtors in the non-state owned sector.

Marc Townsend, CEO of CBRE Vietnam, said it was important for companies to exit real-estate investments with the smallest amount of damage.

He suggested that companies review all ownership documents and paperwork, estimate the value of each site in the current market, assess the likelihood of a successful deal in the open market, and assess the best method of disposal, through tender, private treaty or auction. They should also outline the terms and conditions of sale.

Dominic Price, CEO for J.P. Morgan Vietnam, said that companies could also try to access more foreign capital through strategic sales, equity private placement, convertible bonds and secured or unsecured bank loans.

Foreign investors, however, consider transparency a critical factor when they make decisions, and many Vietnamese companies do not meet this criterion, according to Price.

Good corporate governance, a long-term development strategy and an ability to execute business strategies are other factors that foreign investors would consider.

Leading companies such as Binh Minh Plastic, Vincom and Vietcombank have successfully attracted foreign investment.—VNS

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