VNDirect explains large exposure to Trung Nam bond

June 19, 2023 | 14:53
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VNDirect, under scrutiny for its substantial exposure to Trung Nam, has clarified the reasons behind its significant investment while addressing the mounting risks and apprehensions of investors.
VNDirect explains large exposure to Trung Nam bond

At its 2023 AGM on June 17, VNDirect’s CEO Pham Minh Huong said that the brokerage has diversified its investment portfolio, focusing on sectors such as energy, infrastructure services, education, healthcare, tourism, technology, and food and beverages.

One standout venture in VNDirect's portfolio is Trung Nam, Vietnam’s prominent renewable energy firm. According to Huong, Trung Nam is a promising business, with the capability to execute development projects and also identify investment opportunities.

By securing external capital beyond traditional commercial funding, Trung Nam is seeking to establish a robust energy infrastructure that will ensure energy security for Vietnam during its socioeconomic development.

In addition to Trung Nam, VNDirect is actively investing in other enterprises, such as Cenland (real estate services), Cienco 4 (infrastructure), and Crystal Bay (tourism services). These companies possess the essential infrastructure prerequisites that align with their respective sectors' growth prospects.

Huong also shed light on the decision for VNDirect to co-guarantee Trung Nam's bond issuance alongside Vietcombank for its projects in Dak Lak and other capital mobilisation activities. However, Trung Nam's bonds, along with several others, face repercussions following the Van Thinh Phat - SCB incident.

“To safeguard individual investors during the Van Thinh Phat incident, VNDirect has had to repurchase a significant number of bonds, including Trung Nam's. Consequently, VNDirect's exposure to Trung Nam has grown substantially,” said Huong.

Nevertheless, Huong asserts that the current risk pertains mostly to temporary liquidity constraints rather than structural or economic risks. While policy risks exist, the company diligently evaluates them before engaging in bond guarantees.

“VNDirect encountered an unforeseen risk arising from investor sell-offs. Due to insufficient experience in managing such scenarios, our team had to repurchase a substantial quantity of bonds, including Trung Nam's, after the Van Thinh Phat incident. This led to a situation where the bonds were undervalued during the sale, raising concerns regarding investor comprehension and market protection,” she explained.

Huong also revealed that Trung Nam is currently grappling with challenges related to the Thuan Nam project, a wind power initiative in the Central Highlands province of Dak Lak. This project has required several years of technical adjustments to optimise wind conditions. In addition, foreign investments in Trung Nam have been affected by Credit Suisse's involvement, triggering concerns among international investors regarding associated risks.

Despite the hurdles, Trung Nam's power plants are operating at maximum capacity, generating positive cash flows. Moreover, Vietcombank is restructuring its loans to ease cash flow pressures on Trung Nam.

Huong also noted that Trung Nam is currently in the process of preparing its listing application for the Unlisted Public Company Market and addressing debt restructuring matters.

"Nevertheless, the company's future growth potential remains intact. Moreover, the energy firm benefits from the prevailing electricity shortage, as most of its power plants generate positive cash flows. VNDirect not only guarantees bond issuances, but also stands alongside Trung Nam in navigating challenging circumstances," she stated.

Effective risk management remains a paramount concern for VNDirect. Recent systemic risks have provided valuable lessons and opportunities for growth. Therefore, VNDirect is seeking capital expansion to enhance its financial capabilities, enabling it to fulfill its bond guarantee operations and offer secure and profitable investment products for market investors.

In October last year, Nguyen Tam Thinh, chairman of Trung Nam, revealed that the group is working towards attracting international funding for future energy projects. "Specifically, Trung Nam Group plans to raise nearly $1 billion in international capital to develop the energy sector," Thinh stated.

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