Stakeholders setting precedent over control of Coteccons’ board

Kustocem first got involved with Coteccons nearly a decade ago, photo Le Toan

Coteccons, Vietnam’s largest construction conglomerate, entered 2020 in a not-so-positive manner, with the firm reporting a 53-per-cent fall in after-tax profits in 2019. The group cited challenges in the landscape such as pressure from competitors, longer-than-expected projects, and inflating fixed costs squeezing its profit margins.

Chairman Nguyen Ba Duong officially resigned this month after nearly two decades of dedication, citing health concerns – but the move to replace him with the head of a foreign group that owns over 18 per cent in Coteccons has raised allegations of an unfriendly takeover.

From being strategic partners, the relations of Coteccons and Singapore-based Kustocem became confrontational after the latter twice called for extraordinary general meetings in October 2019 and this June to elect a new board of directors and order special audits of management practices. Kustocem even wanted Duong to step down as chairman, according to local media.

Last year Kusto Vietnam, which became one of the first foreign investors of the group in 2012, raised doubts on the rationale behind Coteccons’ merger with another construction firm, Ricons, saying the benefits were “unclear”.

“The proposed merger with Ricons would not bring additional technical or operational capabilities that our company does not already have. Using the company’s shares to pay for the transaction does not make sense until the financial performance of Coteccons improves and the share price reaches the level that it deserves,” noted Kusto.

On the other hand, Duong previously revealed that Coteccons had to turn down many large construction deals due to lack of consensus from the board.

Moreover, the former board at Coteccons has accused the Singaporean shareholders of a “hostile takeover” without the consent or cooperation of the board.

Nguyen Quoc Hiep, a member of the Board of Directors of Coteccons Group and also president of the Vietnam Association of Construction Contractors, recently decided to step down from his role after four years.

“Since I first joined Coteccons, I have been confused and concerned about the attitudes from other board members who represented Kusto. It’s been surprising to witness them questioning and making unrealistic demands of other members, including attempts to reduce the credibility of others,” Hiep explained.

Other members of the Coteccons board including Vu Duy Lam, Vu Kien Hoa Nhan, and Tran Quy Viet Tuan also resigned.

On June 30, Coteccons announced the resignations of

Nguyen Sy Cong and Tran Quyet Thang, with representatives of Kusto Vietnam and The8th – another Singaporean investor with just over 10 per cent stake in the company – taking their seats. More recently, on October 5, the firm’s board elected Bolat Duisenov as the new chairman to replace Duong. Duisenov, a 39-year-old Kazakh national, is the founder and the general director of Kusto Vietnam.

“These actions come after many years of dialogue and unsuccessful attempts by Kusto and Coteccons’ board to resolve issues internally,” Kusto Vietnam explained in a statement. “Kusto has, in past years, raised questions on significant issues related to the conflict of interests, related party transactions, and the use of Coteccons’ resources, and demanded the board respect their duties to Coteccons and its shareholders.”

Former board member Hiep emphasised that Kusto’s way of handling business in recent months had put doubts in the minds of other key members who stood shoulder-to-shoulder with former chairman Duong over the past 17 years.

“Additionally, Coteccons will be an example cautioning other Vietnamese companies to guard control when raising capital in the future,” Hiep noted.

Tran Dang Manh, analyst at Bao Viet Securities told VIR, “Investors should no longer concern themselves with the company’s corporate governance and transfer pricing risk, given the consolidation of Kustocem’s influence over the company’s Board of Directors, operating activities, and growth strategies.”

He added that operations risk will now emerge. “The question now is whether Kustocem is able to secure new contracts and make Coteccons great again, given the company’s strong reputation and long-established relationship with top-tier real estate developers.”

“Vietnam’s real estate market is set to get firmer post pandemic, with investors looking for leading indicators from construction markets,” Manh said. “Vietnam’s construction activities are however envisaged to pick up respectably, providing sizable works for contractors, while easing competitive pressure in the overall market.”