A construction site of Hoà Bình Construction. — Photo hbcg.vn

HÀ NỘI — The 'dark cloud' hanging over the real estate sector has unwittingly plunged Hòa Bình Construction Group JSC into a tough spot, even forcing it to face delisting on the Hồ Chí Minh Stock Exchange (HoSE) from September 5.

Hoà Bình Construction (HBC), one of the leading enterprises in the construction industry, has been on a downward trend since 2022, when the real estate market descended into a prolonged gloom. 

Profit before tax was minus VNĐ2.3 trillion (US$93 million) in 2022 and minus VNĐ1.08 trillion in 2023, leading to a severe erosion of the company’s equity.

By the end of the first quarter of this year, its equity had plummeted to a mere VNĐ149 billion, down 93 per cent. While there has been a slight reduction in debt, it still lingers at relatively high levels, rendering Hoà Bình Construction’s current capital structure fragile. The debt-to-equity ratio in the first quarter stood at 30.1 times.

The challenges of the real estate market have significantly inflated the company's receivables. Despite a seven per cent decrease, receivables by the end of the first quarter for Hoà Bình Construction totalled VNĐ10.6 trillion, continuing an upward trajectory without signs of reversal. 

Moreover, the provision for bad receivable debts during the period surged to nearly VNĐ2.4 trillion, more than doubling from last year.

Despite HBC's active efforts, the collection process is still relatively slow. This presents a significant risk to the company’s business performance if outstanding receivables persist as bad debts, requiring the company to set aside provisions.

Vietcombank Securities Company (VCBS) noted that in 2024, it is highly likely that Hoà Bình Construction will need to continue making provisions, as real estate businesses show no clear signs of recovery, with uncertain demand in the real estate sector. 

Its operations involve recording receivables based on construction contract milestones, which means recognition occurs before the investor's approval and invoicing.

Consequently, receivables at Hoà Bình Construction typically experience a faster growth rate compared to businesses that recognise revenue based on completed work volumes. 

Workers at a construction site of Hoà Bình Construction. — Photo hbcg.vn

Delisting denial

HoSE announced the mandatory delisting of the company’s stocks (HBC) on July 26 as its retained earning in 2023 was minus VNĐ3.24 trillion, surpassing the charter capital of VNĐ2.74 trillion. 

In response, Hoà Bình Construction contested HoSE's rationale in a letter, citing two key points.

It highlighted the lack of specific guidelines in Decree 155/2020/ND-CP regarding the assessment of accumulated losses in financial statements. 

The company explained that the decree does not specify the evaluation of the accumulated loss condition in the consolidated financial statements or in the separate audited financial statements.

Its retained revenue in the separate audited statements for 2023 was minus VNĐ2.4 trillion, while that in the consolidated report was minus VNĐ3.24 trillion. 

As a result, its accumulated losses in the separate audited statements has not exceeded the charter capital and it does not meet the criteria for compulsory delisting.

In addition, HoSE's basis for considering the delisting of HBC shares by relying on past precedents is deemed incompatible with current legal frameworks. 

Previously, HoSE's listing regulations, issued alongside Decision 85/QD-SGDHCM on March 19, 2018, guided the evaluation of accumulated losses using consolidated financial statements for listed entities with subsidiaries, justifying historical delistings similar to Hoà Bình Construction’s cases.

On March 31, 2022, the Board of Directors of the Vietnam Stock Exchange (VNX) introduced new Listing and Trading Regulations alongside Decision 17/QD-HDTV, replacing the Stock Listing Regulations at HoSE. 

Notably, the new regulations have eliminated the provision mentioned in the previous guidelines.

HoSE's reliance on past practices or any other basis not in line with current legal regulations, is deemed legally inappropriate. 

According to the company’s representatives, the delisting of the stock directly impacts over 39,000 shareholders and thousands of employees, as well as more than 1,400 suppliers, subcontractors and workers associated with these businesses.

However, on August 9, HoSE announced the decision to delist 347.2 million HBC shares. Consequently, the final trading day for HBC on the HoSE bourse will be on September 5, concluding an 18-year presence on the HoSE.

Roadmap for recovery

Given its relatively fragile financial structure resulting from two years of accumulated losses, restructuring is crucial for Hoà Bình Construction. 

The initial step involves debt liquidation.

In 2023, it successfully offloaded nearly VNĐ300 billion in debt to a debt trading entity.

In the upcoming fourth quarter, the company is set to finalise the remaining debt liquidation, anticipated to bolster equity by approximately VNĐ258.7 billion. 

Following this, debt conversion is on the agenda. It has outlined a plan to issue 74 million shares at a rate of VNĐ10,000 per share to partners for debt conversion, slated for execution in 2024.

On June 28, the company disclosed the outcomes of the share issuance for debt conversion, encompassing over 73 million shares, which will enhance registered capital by VNĐ730.8 billion dong. 

Through a separate issuance approach, Hoà Bình Construction aims to publicly offer 200 million shares at VNĐ12,000 per share, with an expected yield of VNĐ2.4 trillion.

The property developer also plans to sell depreciated construction equipment, expecting to increase equity by VNĐ400 billion.

VCBS anticipates that successful implementation of these proposals will partially offset accumulated losses, bolstering the company's financial resilience and serving as a catalyst for recovery.

However, VCBS views this as a temporary measure lacking long-term sustainability. In a competitive construction industry, investors favour firms with stable financial frameworks.

To thrive, it must improve core operations, restore its market standing and attract major investors to expand project portfolios. — VNS