Firms made to pay for investment errors
Firms made to pay for investment errors
Listed companies made serious errors last year that only came to light following the economic downturn. The three main mistakes were investments in real estate, financial sectors and business expansion.
In recent years, most listed firms have invested in the financial sector. Commercial banks and securities companies operated as investment banks, while enterprises set up specific departments or subsidiaries for financial investment.
Financial investments brought quick profits, so many businesses took out high-interest loans to buy shares while capital for core production was insufficient. The consequences were huge losses.
A typical example was Kinh Bac Urban Development Co (KBC). As of September 30 last year, the company had invested VND505 billion (US$24 million) in six affiliates and over VND1 trillion ($47.6 million) in 17 companies from different sectors. By that point Kinh Bac had accrued long-term debt of VND3.8 trillion ($180.9 million), reports Thoi bao Kinh te Viet Nam (Vietnam Economic Times).
Financial income in the third quarter of last year dropped 87 per cent over the same period in 2011, causing a loss of VND138 billion. The total loss in the first nine months was VND233 billion ($11 million) and inventories reached VND1.2 trillion ($57.1 million), an increase of VND255 billion ($12.1 million). Also in the third quarter, Kinh Bac divested 26.5 million shares in Western Bank and 30 million shares in Nam Viet Infrastructure Development and Financial Investment Company.
Another major loss was the massive expansion of branches with a desire to achieve growth. Coffee processor Thai Hoa Group (THV) established subsidiaries and invested in many projects regardless of their effectiveness. The group then sank into debt and its chairman Nguyen Van An even had to mortgage his own house.
Thai Hoa currently has 10 subsidiaries, including two in Laos, with total charter capital of VND575 billion ($27.3 million), of which it contributed 62.6 per cent.
The group is facing the risk of delisting.
Haphazard investment also appeared in real estate companies such as Hoang Quan (HQC), Van Phat Hung (VPH), Quoc Cuong Gia Lai (QCG) and PetroVietnam Premier Recreation (PVR).
There is no denying the real estate sector was in trouble last year. Real estate shares usually had high returns, but listed property companies had to cope with many difficulties as inventories piled up.
“Challenges in the real estate sector remain, and property stocks are unlikely to rebound,” commented Maybank KimEng Securities Co analyst Thien Kim Quang.
vietnamnews
