State Capital Investment Corporation is putting its shares in Civil Engineering Construction Corporation No. 5 (Cienco 5) on auction on March 20, with little information available and a price many feel flies way over its worth.
|SCIC will auction off its shares in Cienco 5 on March 20 |
The auction of 17.56 million Cienco 5 shares owned by State Capital Investment Corporation (SCIC) will take place at the Hanoi Stock Exchange, with the starting price set at VND19,300 (84 US cents) a share.
Investors (if any) who replace SCIC in Cienco 5 need to spend at least VND339 billion ($14.74 million). Although SCIC is the shareholder with the highest ownership rate, Hai Phat Group has more than 51 per cent ownership in the company, divided in two subsidiaries (Hai Phat Invest and Hai Phat Tu Do Investment JSC) and has hence dominated decision-making in the firm.
This came to the fore in early 2019, when consulting shareholders about a potential co-operation between Cienco 5 and Hai Phat Real Estate JSC (55:45) to jointly implement the second phase of a build-transfer (BT) project and Phu My Hung Urban Area. SCIC did not approve, but the decision still made it through with Hai Phat Group's subsidiaries acting in concert.
SCIC's announcement of the auction contained absolutely no financial information of Cienco 5 in 2019, citing the fact that the 2019 audited consolidated financial statements have yet to be issued.
In addition, investors interested in Cienco 5 also have to put up with a high starting price, nearly double the starting price set by the MoT several years ago. In the 2018 fiscal year, Cienco 5 earned only VND307 million. Compared to the scale of its charter capital, earnings per share (EPS) has not reached VND7, which makes the VND19,000 ($0.84) starting price rather unrealistic.
Cienco 5 is not required to be listed like other equitised SOEs because it does not satisfy public company conditions. Because of this reason, information on its business activities is hard to access. The business situation of this corporation was only revealed by SCIC's disclosure until 2018. The published information paints a picture of difficulties in recent years, particularly a major hardship stemming from the equitisation process itself.
“Prior to implementing equitisation at the parent company, Cienco 5 equitised its subsidiaries with the ownership rate falling below the majority level. All resources of equipment, labour, technology are in the associated companies. The corporation has only an executive management apparatus at the office, a number of fixed assets for management, and a minor portion of contributed capital in associated companies,” read the SCIC statement.
This means that about half of Cienco 5's VND151 billion ($6.56 million) capital has been invested in associated companies, many of which are rolling massive amounts of debts with little prospects of repayment.
According to the representative of Unistars International Auditing Company, the unit responsible for auditing Cienco 5, some of the companies Cienco 5 holds a share in did not send financial statements or confirm their debts. Stagnant equity is also the reason why Cienco 5 needs to borrow more as it is preparing for new projects, leading to increased financial costs and reduced corporate profits.
By Thuy Duong