PetroVietnam Finance’s dramatic profit U-turn

PetroVietnam Finance Co. (PVFC) last week sent shareholders a letter for approval to reduce 2012’s profit target to VND50 billion ($2.4 million) from initial amount of VND519 billion ($24.9 million). The adjustment puts the target much lower than the reported realised profit for 2012’s first nine months of VND192 billion ($9.2 million).

Reasons for the dramatically lowered target included the possibility that a  number of “low-efficient” state-owned enterprises and groups will be unable to pay debts in time, rising provisions for financial investments and PVFC’s ongoing restructuring.

Revenue, meanwhile, is forecast as unchanged. Target reduction is one of  the biggest adjustments seen at financial institutions in Vietnam this year. It comes after a series of sinking business results of local financial institutions due to high provision for bad debts, among them Asia Commercial Bank (ACB) and Vietnam National Reinsurance (Vinare).

A major brokerage house Ho Chi Minh City Securities (HSC) forecasted that the reduction “can only be due to some aggressive provision booking in the fourth quarter.”

PVFC’s overdue loans rose 26.9 per cent during the year-to-date to VND5.2 trillion ($250 million), according to the company’s financial statement.

HSC emphasised that PVFC had loans totaling VND1.1 trillion ($52.9 million) and 1.7 trillion ($81.7 million) to Vinashin and Vinalines, respectively at the end of 2012’s first half.

As PVFC’s financial statement noted, the firm had kept the loan classification unchanged since they were lent in fiscal year 2009 and 2011, respectively, following instructions from governmental agencies.

Besides, PVFC also has total trust investment and repurchase agreement (repos) worth approximately VND24.4 trillion ($1.2 billion), which may “require significant provisioning and could weigh on their performance for some time,” HSC said.

In fact, HSC noted  “no provisions against other assets” which helped PVFC’s operating expenses drop 41 per cent year-on-year in 2012’s first nine months.

“Financial institutions will be more aggressive in declaring and writing off losses on non-performing loans or investments,” said Fiachra McCana, head of HSC’s research.