According to a recent announcement of Thanh Cong Textile Garment Investment Trading JSC (TCM), its foreign business partner Sears Holdings has filed for bankruptcy. Two of Sears Holdings’ member units – Sears and Kmart – regularly make transactions with TCM and contribute about 7 per cent of the latter’s revenue. VIR talks with Tran Nhu Tung, member of TCM’s board of management, about potential impacts on TCM.
|Tran Nhu Tung |
The information about Sears Holding filing for bankruptcy has cast affected investors’ confidence as this foreign partner still owes TCM about VND95 billion ($4.1 million) in current debt. What will TCM do to recover the debt?
After TCM received information about Sears Holding filing for bankruptcy following Chapter 11 of the US Bankruptcy Code, we have been working with lawyers in Vietnam, South Korea, and the US to learn more about the law and what we must do to recover as much of the debt as possible.
Filing for bankruptcy under Chapter 11 does not mean that Sears Holdings will go bust under US Bankruptcy Code, but it will enclose a restructuring plan to help the company gradually get rid of difficulties and resume operation.
The plan’s feasibility would be evaluated by the New York court and a panel consisting of Sears’ major creditors. If assessed positively, maybe the creditors would provide further loans to Sears to help it continue operations. If not, an official bankruptcy announcement will follow and bankruptcy procedures often take several months.
|From our side, TCM has completed all necessary procedures under instructions from the New York-based court and Sears, and closely followed the case in order to minimise losses. |
As far as we know, Sears has received $300 million support from a partner to continue operation. The company has also downsized the number of its outlets to save costs and only retained its most profitable shops.
From our side, TCM has completed all necessary procedures under instructions from the New York-based court and Sears, and closely follow the case in order to minimise losses.
We are in negotiations with Sears to shift the payment mode from post-paid to letter of credit (LC) or cash in advance (CIA) format and will develop further orders with Sears in 2019 in case TCM continues to be the US partner’s important supplier in the forthcoming year.
What provisions will TCM make for Sears’ debt and how will this affect TCM’s operations?
With respect to provisioning, we have been working with TCM’s auditing unit because we need to wait for the final decision from the court regarding whether Sears will go bankrupt or continue operating.
Under the current regulations, provisioning will be made based on the debt scheduling. For example, provisioning rate is to set at 30 per cent for receivables from six months to one year.
Sears has filed for bankruptcy on October 15, and based on the signed contracts between TCM and Sears, the receivables are below six months, so on principle TCM does not need to make provisioning for these receivables this year.
However, to reduce pressures in 2019, the company’s management might consider provisioning right this year and the actual amount will be set after we receive more information about the money we could take back from Sears in case the US court allows Sears to go bankrupt.
Besides, I want to add that Chapter 11 in the US Bankruptcy Code has various regulations to protect suppliers.
For example, for orders delivered within 20 days before Sears lodges its application for going bankrupt, and those that are still en-route to Sears’ warehouses, there is a 75-100 per cent possibility for us to get the bill paid.
For orders delivered earlier, the possibility hovers at around 30-50 per cent, according to global statistics. Our possible losses, therefore, will not be big and we will make provisioning on an annual basis in the upcoming time.
Sears currently contributes about 7 per cent to TCM’s revenue. Will the filing for bankruptcy affect TCM’s business operation in the rest of 2018 and 2019, and what will the company do to overcome the downfall?
As I have said above, if TCM and Sears reach an accord over payment method and Sears continues operating in the upcoming time, TCM could develop orders with them. The company’s management, however, has been trying to find other customers to supplement orders and increase transactions with other existing customers.
In addition, the anticipated upcoming approval of the CPTPP by the National Assembly is expected to bring Vietnam many other orders next year and the EVFTA will also help Vietnam boost order intake from the EU. We, therefore, expect that this incident will only affect TCM’s revenue in the short term and our long-term development prospects still remain upbeat.
Sears Holdings, the parent company of Sears and Kmart, was once the US’ largest retailer and its largest employer. Looking back on a history of 132 years, the once-dominant retail chain that changed how Americans shopped and lived, has been struggling for several years and is drowning in debts.
As of the filing, about 700 stores remained open and the company employed 68,000 workers, which is 1,000 stores and 89,000 employees fewer than in this February.