Vietnamese companies swimming in debt, experts warn

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Experts have warned that Vietnamese companies have racked up precariously high debt-to-equity ratios, which can prove difficult to reduce during tough economic conditions.

Nguyen Xuan Thanh, director of the Public Policy Program at the Ho Chi Minh City-based Fulbright School, said data from 647 listed companies showed that their average debt-to-equity ratio had reached 1.53 by the end of June.

"That is high compared to other developed and emerging economies," quoted Thanh as saying. "Listed companies in the US only had a ratio of 1.2 last year while China's was 1.06."

Thanh said the ratio was even higher at state-owned enterprises, (around 1.73) and construction and real estate companies (2.07). Meanwhile, businesses in the consumer goods sector maintained a debt-to-equity ratio of just 0.8.

While strong companies can easily reduce their debts, others may struggle because large unpaid loans mean they will not be given further access to credit, he said.

Nguyen Nam Son of Thien Viet Securities JSC agreed that the debt ratios of Vietnamese companies are too high because a debt-to-equity of 0.6 is enough to impair a company if market conditions take a turn for the worse.

Real estate companies are heavily leveraged by loans and "most will not survive tough times when banks tighten lending," he said.

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