Rates drive knife into firms

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Up to 54 per cent out of 436 listed firms which had released their first quarter business results were underperformed compared to the same period in 2010. Volatile dong-dollar exchange rates and soaring input costs were core factors casting adverse impacts on companies’ performance.

Phuong Nam Cultural Joint Stock Corporation (PNC) incurred a decline of 77 per cent in its first quarter after-tax profits.

Escalating lending rates cast big impacts on the firm operations, according to PNC’s deputy general director Nguyen Huu Hoat.

Accordingly, augmenting lending rate raised PNC’s borrowing cost from VND1.35 billion ($65,000) in the first quarter of 2010 to VND3.63 billion ($175,300) in the same period in 2011.

Similarly, the borrowing cost of Bac Viet Steel Joint Stock Company (BVG) tripled within a year from VND2.3 billion ($110,000) in the first quarter of 2010 to VND7.5 billion ($362,300) one year later, partly making BVG to incur losses of VND2.4 billion in the first quarter of 2011.

High lending rates had driven businesses which are big debtors like Ha Tien 1 Cement Joint Stock Company (HT1) into a predicament.

With lending rates of 17-18 per cent per year, the borrowing cost of HT1 came to VND202 billion ($9.7 million) in the first quarter of 2011, 10-fold over the same period in 2010. In fact, HT1 incurred losses of more than VND56 billion ($2.7 million) in quarter 1 chiefly due to high borrowing cost.

Current lending rates to businesses range from 20 to 22 per cent, per year on average. With such rates, a Basa Joint Stock Company representative said the firm would continue running at losses in the second quarter.

Deputy general director of Tien Len Steel Joint Stock Company (TLH) Duong Quang Binh said expensive borrowing costs had cast a big dent on enterprises’ profit margins.

In this situation, TLH, like many other firms, decided on restricting investment, launching cost-saving measures and quickening capital circulation to minimise adverse impacts of escalating borrowing costs.

Seafood exporter Agifish confronted the tough time by altering the way it invests in material growing area. Accordingly, instead of buying up 80 hectares for shrimp farming, the firm decided on leasing the land to save costs, said general director Nguyen Van Ky.

To keep production running and further expanding businesses have no other alternative than borrowing from banks since other capital mobilisation channels such as bond and stock issuances did not work on the back of economic vulnerabilities, Binh said.

For instances, TLH borrowed VND16.7 billion ($8 billion) more from banks compared to early year. Corresponding figures were VND49.5 billion ($24 million) for Cuu Long An Giang Seafood Export Import Joint Stock Company (ACL) and VND63 billion ($30.4 million) for Construction and Materials Trading Joint Stock Company (CNT).

Businesses’ profit margins in the second and remaining quarters of 2011 may not be upbeat since current high lending rates are forecast to further augment.