Firms need to get back to core tasks

Nguyen Nam Son, managing partner of Vietnam Capital Partners, said investments in non-core business were bringing significant failures, especially to companies that were opportunistic without building core competencies.

“Those companies are mainly operating under limited long-term market and strategic planning and lack of long-term financial planning,” Son told the Investment Conference 2012 held by Nhip Cau Dau Tu magazine in Hanoi last week.

He said Vietnam real estate companies have the highest leverage rates in Asia and could not survive in this downturn when the banks are slowing lending due to bad debt fears.

As a result, many groups are restructuring their portfolios and withdrawing from the real estate field.

Since 2011 Hoa Sen Group has withdrawn from three big real estate projects to come back to its core business of steel manufacturing.

PetroVietnam, the state’s flag on oil and gas sector champion, also withdrew from many real estate projects, to come back to its core field.

According to Vietnam Capital Partners figures, 90 per cent of securities companies will shut down in the next two years, only up to seven will survive in the long term. Meanwhile, many real estate companies will be bankrupt in the next two years. The origin of the mistakes starts at the top are the ineffective board of directors, ineffective management teams, no long term market, strategic and financial planning as well as no sustainable core competencies.

Most companies do not have long-term market analysis from three to five years, meanwhile real estate companies need five year planning.

Furthermore, most companies follow the market rather than lead the market. “They hope that things will improve rather than act before the market, most companies do not study other markets in order to have experiences,” Son said.

Last but not least, Son said companies have relied on bank loans, do not have access to international investors “because local markets are too cyclical.”

The limited long-term planning can be seen in the excessive supply of offices for lease in Hanoi’s market. The capital city now has very high vacancy of 33 per cent and expected to be increased to 42 per cent in 2014.

The apartment segment is also facing a serious oversupply with prices dropping and a lot of stocks remaining unsold.

Restructuring is the most important factor to help Vietnamese companies to survive.
Marc Townsend, managing director of CBRE Vietnam, said that in order to exit the real estate investment with smallest damage, companies must need recalibration of capital value, rents, prices, yields and corporate.

Other factors would be disposal, recapitalisation or restructuring the portfolios. “Vietnamese real estate companies must know that timing is now the most important factor to withdraw from crisis, but not location as previously,” Townsend said.