Phuong Nam wishes to divest all its CGV stakes at low price

Phuong Nam wishes to fully divest CGV for only 60 per cent of what the stake was worth seven years ago

Over the past seven years, CGV’s scale has expanded five-fold, from 68 cineplexes and VND597 billion ($26.4 million) in revenue in 2011 to 324 cineplexes and VND2.8 trillion ($123.9 million) in revenue in 2017. However, Phuong Nam, one of its shareholders, wishes to divest its stakes for only 60 per cent of what they were worth in 2010.

Last week, Phuong Nam announced divesting its remaining 7.5 per cent for VND101 billion after its previous divestment of 12.5 per cent for VND160 billion. Thus, the domestic book store chain will sell its total 20 per cent stake for VND261 billion ($11.55 million). This price is only 57.7 per cent of what Phuong Nam’s 20 per cent stake was worth back in 2010.

The Association of Vietnamese Film Distribution stated that this is an incomprehensible business transaction. Zing.vn quoted the representative of the association as asking why Phuong Nam wants to sell its shares at such a low price?

However, Phuong Nam currently holds a debt that has expired three months ago and is in urgent need for capital to pay up as soon as possible. In this light, the decision to sell its CGV stakes at such a sub-par price can be construed as a hard-made decision of giving up a prospective asset to cover this debt payment.

To clarify the issue, VIR has repeatedly called Phuong Nam at its hot line but received no answer. Calls to the two phone numbers on the firm's website are answered and immediately hung up.

At its first divestment in June, Phuong Nam sold 12.5 per cent for VND160 billion ($7 million) to Black Diamond Investment JSC, a firm established on April 26, 2018 with the charter capital of VND120 billion ($5.3 million).

The total proceeds from the divestment will be used to pay for the firm’s debts to Cross Junction Investment (CJI), to whom Phuong Nam needs to pay for $7 million of principal and VND18.5 billion ($818,584) of loan interest. The repayment deadline for this loan was June 30, 2018 and has not been extended.

According vneconomy.vn, CJI provided the loan for Phuong Nam in 2014 with the security of the latter’s contributed capital into the foreign cinema and the clause that Phuong Nam would not borrow from any other organisation or individual.

However, more surprisingly, according to the Singaporean government’s Accounting and Corporate Regulatory Authority, CJI is a subsidiary of Korean CJ Group, CGV’s parent company. The firm was established on March 21, 2014 with the charter capital of only $50.

Thus, Phuong Nam invested into the foreign cinema chain by borrowing capital from CJ Group itself.

CGV’s unexplained fall in performance

The Association of Vietnamese Film Distribution’s document sent to the Ministry of Finance (MoF) raise questions about the financial situation of the cinema giant. According to the document, there are numerous issues in CGV’s operations “that need to be clarified.”

Accordingly, in 2012, when CGV’s owner was changed from Enjoy Media Partner to CJ Group, CGV reported a profit of VND137 billion ($6 million). However, its profit in the following years was steadily reducing to VND118 billion ($5.2 million) in 2013, VND70 billion in 2014, and VND31.5 billion in 2015.

In 2016, CGV surprisingly recorded skyrocketing revenue with VND1.823 trillion ($80.66 million) and profit of VND93.36 billion ($4.14 million), tripling against 2015. The 2017 profit also reached VND140 billion ($6.2 million).

According to CGV, the main reasons behind the reduced profit were the firm’s aggressive expansion and heavy exchange rate fluctuations.

However, the association stated that in 2012-2014, CGV’s pace of opening cinemas was only one-third of the previous years, which makes the firm’s explanation doubtful.

Regarding the association's queries to CGV, the representative of CGV told VIR that currently, the firm is studying the association's document sent to the Ministry of Finance.

Selling the CGV stakes to repay the debt might be Phuong Nam's best option for now, even if the firm is not happy about selling the stakes due to their good prospects. CGV's stakes will definitely make a good investment for any individual or organisation because they are on sold at a reasonable price and promise great profitability.

This price promises Phuong Nam near 100 per cent certainty of success in divestment, whipping up the needed capital in a very short time, albeit at the expense of assets that carry great potential.