Temasek sees no way out from falling debtor

On February 20, the board of directors of Hoang Anh Gia Lai (HoSE: HAG) approved the plan to swap VND200 billion ($8.77 million) worth of HAG exchangeable bonds for HNG stocks.

The swap is expected to be finished in March 2017. With the converting price of VND10,000 (44 US cent), higher than the VND8,600 (38 US cent) that HNG ended at on February 24. Temasek will then hold 20 million HNG shares, equal to 2.6 per cent of its current share volume in circulation.

The move pretty much takes the company out of the frying pan and into the fire, as both HAG and HNG are making huge losses. Moreover, there is no information as to how Temasek and HAG are going to do away with the remaining HAG bonds in Temasek’s holding.

According to the 2016 annual report released recently by the company, HAG had a 2016 revenue of VND6.46 trillion ($283 million), up 3.3 per cent on–year. However, the company reported VND1.415 trillion ($62 million) in net after-tax losses, compared to last year’s profit of VND602.36 billion ($26.4 million).

Meanwhile, HNG reported a net loss of VND989 billion ($43.35 million), compared to last year’s net profit of VND744 billion ($32.6 million).

The VND200 billion ($8.77 million) exchangeable bonds are part of the VND1.13 trillion ($49.5 million) bond package issued on July 15, 2011 to Northbrooks Investment (Mauritius) Pte., Ltd., a subsidiary of the Singaporean government’s investment company Temasek Holdings. As agreed, the buyer can exchange some or all of these bonds to HNG stocks before the day of maturity, which is July 14, 2017.

After the swap, besides the remaining exchangeable bond volume, Temasek would still be holding VND1.1 trillion ($48.21 million) in convertible bonds that can be converted into HAG stocks. These bonds were issued on August 31, 2010 and will mature on August 31, 2018. These bonds are convertible at a price between VND5,200 (23 US cent) and VND19,645 (86 US cent) a share, as negotiated. The current price of HAG shares was VND7,580 (34 US cent) at the end of the trading session on February 24.

HAG is in the process of divesting its hydropower projects in Laos and its whole sugar business to settle some of its debts. Talking to newswire VnExpress, Vo Truong Son, CEO of HAG, said the sales are expected to be completed in the first quarter of this year.

“The sale of these operations aims to facilitate restructuring the company and decreasing the debts related to our hydropower and sugar business lines. After the sales are completed in the first quarter of this year, the debt of the company is going to decrease significantly,” he said.

According to the annual report, as of the end of 2016, HAG had received VND1.94 trillion ($85 million) as an advance payment from purchasers of its hydropower projects, which means that the company received VND500 billion ($22 million) only in the fourth quarter.

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