Long crisis hits even the biggest companies hard

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Economists suggest the government be more active and sustain support for businesses that need help through slump

 

 Workers make wood furniture at Truong Thanh Corporation. Photo by Diep Duc Minh

Doing business with bank loans has driven many economic powerhouses close to bankruptcy as interest rates surge amid lower consumption.

Truong Thanh, one of the leading wood brands in Vietnam several years ago, at the end of 2013 had to hold a meeting with 13 banks asking to extend loans of millions of dollars through this year.

It was earlier ordered to clear all the old debts and its new loan requests were rejected.

The furniture corporation, which led the processed wood for export segment in 2011 at more than VND3 trillion ($142.38 million) in revenues, had to issue shares below face value (VND10,000 per share in Vietnam) to gain VND98 billion to fund its operations.

It is scheduled to issue more of the same shares for a further VND700 billion.

Thai Hoa, one of several top coffee exporters in Vietnam and the only one supplying its own exports, had to beg banks to give it a chance to clear debts, which now totals more than VND2 trillion,  mostly short term ones.

It made more than VND622.5 billion in losses by the end of 2013, after being delisted by Hanoi Stock Exchange in July.

Ha Tien 1 Cement JSC, the biggest company in the field in terms of scale, productivity and sales, is also struggling with millions of dollars debts, losses and dropping share prices.

Eye of the storm

Vo Truong Thanh, board chairman and general director of Truong Thanh furniture company, said he had failed to make the right decisions in the middle of economic turmoil.

"Many people believed that the crisis was gone in 2010, but its impacts are still very heavy until now," Thanh said.

He said an economic crisis of five to six years is the longest one that he's ever known and it has made businesses "fatigued."

"We were not determined to make the right decisions earlier, so we're in bigger trouble."

Nguyen Van An, board chairman and general director of Thai Hoa, said the company's mistake was to put short term loans into long-term projects that failed to pay back.

Loan interest more than doubled from below 10 percent a year in 2008 to up to more than 20 percent in 2009-2011 period.

Ha Tien 1's financial report showed that its expenses on interest in 2011 was more than doubled from VND311 billion the previous year, totally VND1.93 trillion in three years from 2010 to 2012.

Truong Thanh had to pay more than VND600 billion in interest over  the same period, and Thai Hoa VND667 billion.

The interest rate scaled up together with the companies' inventories as consumption ceased.

Unsold goods at Truong Thanh at the end of 2011 valued a total of VND1.67 trillion, but had risen to VND1.96 trillion a year later.

The property market has been frozen since 2010, keeping cement demand nationwide to around 54 million a year, compared to 68.5 million tons of production at operative factories.

Too big to fail, life-savers needed

Economists said troubled businesses, especially giants with established brand names, need help from the government more than ever before to avoid massive layoffs.

Huynh Buu Son, a finance and banking analyst, said both the market and businesses themselves were to blame for current problems.

Most failing businesses made the mistake of diverting their money instead of focusing on their core operations, while many over-invested in boosting sales without realizing that the overall economy had been slowing, Son said.

A representative from a company in Ho Chi Minh City said the firm was failing partly because government agencies hadn't been able to give informed market forecasts.

Experts said the government needs to learn more about the situations in different economic sectors to provide due support.

Vu Dinh Anh, deputy director of the state-backed Institute of Economy and Finance, said each business has its own problems, so it's time the government get more specific about the kind of help it offers.

Bui Kien Thanh, an independent economist and former government advisor, suggested that sudden losers like Truong Thanh, Thai Hoa or Ha Tien 1, who have previously thrived for a long time, receive help in the form of banks selling their bad debts to the Vietnam Asset Management Company so they can assess new loans and continue operating at competitive levels.

The asset management firm was set up last July to buy up the banking sector's bad debts, totaling VND142.3 trillion (US$6.7 billion) or 4.62 percent of outstanding loans by the end of September.

Bank interest rates dropped to between 7 and 13 percent at the beginning of this year, "but if businesses cannot access new loans, they will die and banks will have no one to lend to," Thanh said.

"We cannot leave clinically dead businesses to really die, we need to act to bring them back."

Analysts also said the government needs to more closely monitor the implementation of it's policies to make sure they are carried out correctly.

While banks have announced interest rates as low as 7 percent (and up to 13 percent), many businesses still complain that they are being charged higher. The government needs to find out why this is happening and solve the problem, experts said.

They also urged the government to look into the blockage of the VND30 trillion ($1.43 billion) subsidy package unveiled by the central bank last June with 70 percent of it earmarked for certain categories of buyers and the rest for developers of social housing.

Little distribution has happened within the package as buyers complained about too much red tape, while experts have said that social housing is poorly competitive compared to low-cost commercial housing with lower prices, better locations and involving little red tape.

The stagnant property market, one of the Vietnamese economy's major problems, has caused a domino effect on the construction and construction material sectors.

Cao Si Kiem, president of the Association of Small and Medium Enterprises, said many constructors are owed nearly VND100 trillion in government projects mainly due to budget cuts.

"The government needs to clear those debts so that the companies have money to pay their workers, clear their own debts and start new projects, which will boost activities in related sectors," he said.

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