Firms pushed against the wall

Last week, under-performing Viet Hai Shipping and Real Properties Corporation (VSP) saw its shares offloaded from the Hanoi Stock Exchange (HNX).

Falling shipping fees and investment ventures into non-core areas made VSP incur losses in three consecutive years with accrued losses exceeding VND800 billion ($38 million) and long-term debts surpassing VND1,700 billion ($80.9 million).  
At this time, it was extremely hard for VSP to source new investment capital, except selling its assets. By late of 2012’s first quarter, its fixed assets worth more than VND1,138 billion ($54.2 million). Even when the company sells ships, this money is reportedly only enough for it to pay the interest, but not on the original loans.  

Several other listed firms like Viky Plastic Company (VKP), Cadovimex (CAD) face the same fate as these firms also ran at losses for three consecutive years.

Several years ago, Bach Tuyet Cotton JSC (BBT) had to de-list due to losses.

These are just the tip of an iceberg since these firms were all listed and had to follow information disclosure obligations and submit tax reports.

Ministry of Planning and Investment figures show that as of May 31, 2012 21,800 firms were in critical state with retrenched production. Around 50,000 firms were forecast to either shut up shop or go bust within this year.

“The amount of shares having to be offloaded from Vietnam’s stock exchanges is no  surprise since macroeconomic management difficulties were yet to be radically tackled,” said HDBank deputy general director Pham Thien Long.

“The low capital usage efficiency of small- and medium-sized firms is one of core reasons why banks turn their back on these firms’ capital demands,” Long added.

Vietnam Chamber of Commerce and Industry’s Institute for Business Development research head Pham Thi Thu Hang said: “Some banks pulled down short-term lending rate to regulated ceiling 12 per cent per year to priority area customers but I think not many firms qualify enough to such lending.”

“For banks to loosen pulse-strings to firms, more attention should be paid to measure groups which could help firms raise capital usage efficiency,” Hang noted.

Parallel to enhancing firms’ inner strength, senior economist Le Dang Doanh assumed the government needed to consider buying firms’ bad debts to help them access new loans for business and production needs.

“State bank bills can be used in this case to avoid causing inflation in the future since it mainly came from commercial banks with ample capital sources,” said Doanh.