Sao Vang Rubber Company falling on hard times

In 2015, SRC revealed its plan to construct a shopping mall and luxury apartment complex on a 62,400-square metre area in Thanh Xuan district, Hanoi and relocate its existing factory to a new area. The plan propelled the company’s share value to VND34,200 ($1.5) per share during the transaction session on November 24, 2015. However, the delay in implementing the plan brought shares down to VND28,300 ($1.2) per share.

SRC will cooperate with Hoanh Son Joint Stock Company from the central province of Ha Tinh, which operates in the trade, transportation, mineral, and construction sectors, to establish Sao Vang-Hoanh Son Joint Stock Company with a chartered capital of VND1.67 trillion ($74.5 million) to provide support for relocating its radial tyre factory to Chau Son Industrial Park in Ha Nam province.

In October 2015, SRC and Vietnam Bank for Industry and Trade (VietinBank) signed an agreement for the relocation project. According to the agreement, VietinBank pledged to arrange a credit limit of VND3.1 trillion ($138.3 million), or 80 per cent of the project’s capital.

SRC has been harbouring the plan for four years, however, the plan has been delayed because a large majority of SRC’s shareholders disagree with the choice of Hoanh Son Joint Stock Company as a strategic partner.

The delay in developing the radial tyre factory costs SRC in the competition with domestic rivals, namely Southern Rubber Industry Joint Stock Company (CSM) and Danang Rubber Joint Stock Company (DRC).

SRC, together with CSM and DRC, is a 50 per cent-owned subsidiary of Vietnam National Chemical Group (Vinachem).

The total output of the three companies currently makes up 68 per cent of the tyre and tube supply in Vietnam. 10 per cent of this is produced by SRC, 33 per cent by CSM, and 25 per cent by DRC, with the remaining 32 per cent made up of imported products.

SRC is strong in manufacturing tyres and tubes for bicycles, motorcycles, and small-sized cars and CSM produces mostly for motorcycles and medium-sized cars, while DRC targets trucks and specialised cars.

Regarding the radial tyre sector, in 2015 locally-produced radial tyres met only between 60 and 62 per cent of the domestic demand. The figure will increase to between 65 and 67 per cent by 2020, once DRC and CSM increase their maximum capacities to 600,000 and 1,000,000 items annually, respectively.

In the context of the rapid increase of demand for radial tyres, as well as CSM’s and DRC’s expansion plans, SRC has fallen behind in capital and key products. Notably, both rivals’ chartered capital exceeds VND1 trillion ($44.6 million) and are strong in manufacturing tyres for medium-sized cars and trucks, while SRC’s chartered capital is VND182 billion ($8.1 million) only.