Infrastructure construction units have high leverage ratios, the total liabilities of this group are often double or triple the equity.
Vinaconex's (VCG) third quarter financial report said the company had more than VND20,000 billion in liabilities as of the end of September, of which 58% was financial debt. This level has improved significantly as previously, the debt of this "giant" in constructing public investment projects increased almost continuously, at a rate of about 280% in the period 2018-2022. Although it decreased by more than VND2,000 billion compared to the beginning of the year, VCG's total liabilities were still twice as high as its equity. High financial leverage caused this enterprise to spend an average of VND2.4 billion per day on financial expenses in the first 9 months of the year.
Workers are constructing a public investment project in Long An province, August 2023. Photo: Hoang Nam
Starting from the same state-owned enterprise, the same story also happened at Construction Corporation No. 1 (CC1). Previously, this enterprise had a large total debt compared to its equity, often 4-5 times higher. Of which, financial leverage accounted for half of the debt. By the end of the third quarter, CC1 reduced its total debt to more than VND 10,700 billion, 2.85 times higher than its equity. However, financial debt remained almost unchanged compared to the beginning of the year, still recording nearly VND 6,800 billion.
For CII, the company's total debt decreased by more than VND2,200 billion in the first 9 months of the year, to about VND18,000 billion. The financial debt group alone decreased by nearly VND1,700 billion to about VND12,900 billion. Meanwhile, Deo Ca Group (HHV) has a total debt of more than VND27,800 billion, 73% of which is financial leverage.
As for the "BOT tycoon" Tasco (HUT), thanks to a strong capital increase in the past 9 months, the company has reduced its debt-to-equity ratio to 1.24 times - a low level compared to the industry average. However, the company has 13,400 billion VND in debt to pay, an increase of 79% compared to the beginning of the year. Financial debt alone increased by 72% to more than 8,300 billion VND.
Using high financial leverage is a common denominator among infrastructure construction enterprises in recent years. In the November investor meeting, Deo Ca leaders said that this is a characteristic of this field and they accept having a high debt ratio.
It is also a consequence of the period of hot growth of public projects in the period of 2011-2015, especially BOT transport. In previous years, in order to compete to do BOT, businesses sought to mobilize money to implement a series of projects requiring capital of thousands to tens of thousands of billions of VND. Statistics from the State Bank up to the end of June 2021 showed that outstanding credit in the BOT transport sector was 105,000 billion VND. After banks slowed down due to accumulating bad debts, infrastructure construction businesses turned to the bond channel, with some companies issuing a batch every 3-6 months on average.
In the context of competing to bid for public projects, enterprises have not carefully calculated the cost and revenue issues, leading to a failure in debt repayment plans. In addition, the slow disbursement of State capital due to many reasons such as failure to arrange, disagreement on auditing, improper procedures... also forced enterprises to borrow money themselves to advance and then incur long-term debt. In the BOT traffic group, negative reactions from the people about toll collection have made the capital recovery roadmap of enterprises persistent.
This development shows that the health of large enterprises in the infrastructure construction industry is going against the criteria for selecting contractors. According to regulations, enterprises with experience and construction capacity, good ability to mobilize machinery and equipment, especially healthy financial capacity will have a higher probability of winning bids for public investment projects.
In an extraordinary meeting in September, Mr. Le Quoc Binh - General Director of CII - also said that financial capacity will be the criterion that infrastructure project investors focus on to avoid the situation of "winning the bid and then leaving it there" because the enterprise does not have enough capacity to mobilize capital when banks limit lending for BOT investment.
Therefore, debt restructuring is the top strategy of many businesses. In August, CC1 announced the early repurchase of VND2,650 billion of outstanding bonds, expected to be completed by the end of this year. The management said that this move helps ensure the efficiency of capital use, in line with the financial situation and capital needs.
Also in August, Deo Ca offered shares to existing shareholders to raise more than VND823 billion. In the coming time, HHV plans to offer individual shares worth more than VND740 billion to invest in projects and supplement capital for production and business activities in 2024.
Recently, CII has also been actively implementing a plan to issue VND7,000 billion in convertible bonds to shareholders to convert debt into equity. The board of directors said that this plan will help reduce the great financial pressure on CII after a long time the company used high leverage to invest in BOT projects.
Infrastructure construction enterprises are the main beneficiaries of the wave of public investment disbursement. The Ministry of Finance said that the disbursement progress from the beginning of the year to October 31 reached more than VND430,600 billion, equivalent to 52% of the annual plan. Currently, the Government is urging ministries, central and local agencies to quickly disburse.
VNDirect expects that in the fourth quarter, public investment will be further promoted to complete at least 95% of the capital disbursement plan assigned by the National Assembly for 2023 with a value of nearly VND712,000 billion.
Siddhartha
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