The debt spiral of wind and solar power businesses

Suffering continuous losses, many renewable energy businesses are burdened with debts of thousands of billions of dong, continuously late in paying interest and principal on bonds.

Recently, BCG Energy Joint Stock Company reported to the Hanoi Stock Exchange (HNX) about the late payment of interest on two bonds worth a total of VND2,500 billion, issued from April to May 2021. The total late interest payment is about VND176 billion. The company said it is preparing a negotiation plan with investors on a new deadline and is expected to pay before December 31.

This is the sixth time in the past two months that BCG Energy has delayed bond interest payments. For the VND1 trillion bond alone, the company has missed the expected payment deadline three times. At the end of October, BCG Energy scheduled interest payments on November 1. Nearly a week later, the interest payment was postponed to November 10. Two days later, the company postponed the payment to November 30 but still failed to do so.

Also late in payment, Trung Nam Dak Lak 1 Wind Power Joint Stock Company owes more than VND51 billion in interest on three bonds with a total outstanding value of more than VND2,500 billion. The company said it has not received the money from selling electricity in September as expected, so it can only pay VND9.8 billion in interest in advance and owes the remaining amount.

Workers install and clean solar panels at a project in Ninh Thuan, 2019. Photo: Quynh Tran — Workers install and clean solar panels at a project in Ninh Thuan, 2019. Photo: *Quynh Tran*

BCG Energy and Trung Nam Dak Lak 1 are two of many renewable energy companies caught in a debt spiral recently. Since June, the market has recorded 15 companies that have delayed bond payments, asked for debt deferrals, changed interest payment periods, and adjusted interest rates for dozens of bond lots. Most of them are companies in the Trung Nam Group ecosystem.

Not only bondholders, banks are also struggling to collect debts from this group of businesses. Recently, Agribank auctioned off a VND1,200 billion debt of the owner of the Phong Dien 1 wind power project (Binh Thuan). According to the Binh Thuan Wind and Solar Power Association and 36 investors in this field, bad debts from 34 wind and solar power projects in the banking system could amount to VND58,000 billion.

Statistics from VnExpress show that, in the group of enterprises raising capital through the bond channel alone, 24 units have recorded total liabilities of more than a thousand billion VND. Of which, Trung Nam Dak Lak 1 Wind Power, BB Power Holdings and Gia Lai Electricity (GEC) are three companies with total liabilities exceeding 10,000 billion VND. GEC still operated profitably in the first half of the year, with a debt-to-equity ratio of about 1.86 times. But the remaining two enterprises lost hundreds of billions of VND, with a debt ratio of more than 4.7 times.

In general, renewable energy businesses have liabilities that are many times larger than their equity, in some cases up to 6-7 times. The financial burden is large but the business situation is mostly miserable. Many businesses are continuously losing from tens to hundreds of billions of VND.

Previously, wind power and solar power were two potential fields that "attracted" capital. However, policy changes with projects that could not be put into commercial operation before the deadline of November 2021 to enjoy preferential prices for 20 years have caused many units' business results to be gloomy. In addition, some units also said that the Vietnam Electricity Corporation (EVN) has been slow to pay electricity bills recently, which has also put additional financial pressure on them.

A recent report by credit rating agency VIS Rating said that renewable energy is one of three industry groups that account for a large proportion of the VND175,000 billion of bonds with delayed principal and interest payments as of September. This group is only behind real estate and construction. The rate of delayed bonds of renewable energy enterprises is also among the top groups in the market, at nearly 25%.

VIS Rating predicts that the total value of bonds with delayed principal and interest payments will reach VND195,000 billion by the end of this year. Most of them will still come from struggling industries such as real estate, construction and renewable energy. Next year, the organization expects interest rate reduction policies and capital support measures to be effective, helping to reduce liquidity pressure for the above-mentioned businesses.

Siddhartha