Vietnam - EVN’s debt exceeds safe threshold: Ministry

Report of Ministry of Planning and Investment (MoPI) showed that Electricity of Vietnam Group (EVN)’s liability ratio on equity is currently at 4.35 times. Meanwhile, according to MoPI, the safe threshold for enterprises is only three times.

Report on pilot results for establishment of state-run economic group submitted by MoPI showed the average debt ratio on equity of enterprises was 1.98 times (figures were based on report from nine groups). This ratio was lower than the average level of the country’s all enterprises (2.33 times) and most of groups have ensured the capital adequacy ratio (CAR) as prescribed (less than 3 times).

Explaining more about EVN’s CAR, a leader of the group said that the debt ratio on equity of the holding company is still under the safe threshold (less than 3 times). However, if including the debts of its subsidiaries, this ratio is higher. In the near future, EVN will plan to reduce the debt ratio via dealing with member companies and hiking the chartered capital of the group.

However, notably, EVN and Vietnam Construction Industry Group have reported the relative high debt ratio on equity at 4.25 times and 3.91 times respectively. Of which, till the end of 2010, EVN’s ownership capital reached 56.41 trillion dong, according to the group’s report. Thus, it’s easy to see that EVN’s debts exceeded its total assets, estimating at about 215 trillion dong in 2010 (the figure was announced by EVN’s general director, Pham Le Thanh on December 9).

According to the draft decree on capital investment and financial management of state-owned enterprises (SOEs) submitted by the Ministry of Finance to be issued in 2012, with the aforementioned debt ratio, EVN will not be able to continue to borrow capital for production and business unless the group gets the prime minister’s approval.

Earlier, according to EVN’s general director, Pham Le Thanh, in the 2006-2010 period, EVN invested some 203 trillion dong in expanding the production and power transmission network. This is properly the main cause of the group’s aforementioned “huge” debts. However, it was also undeniable that a huge part of capital has been invested in non-core sectors by EVN with not very high efficiency, resulting in low solvency.

According to the report of MoPI, EVN has invested over 2.107 trillion dong in non-core sectors, including over 2.1 trillion dong (accounting for 99.8%) for sensitive sectors with high risks such as banking, securities, real estate and insurance. As a result, although the group has still gained average profit of about two trillion dong per year (except the loss in 2010 due to the group had to offset for the electricity price), the group’s basic ratios such as return on equity (ROE) or return on assets (ROA) reached only 3.84% and 1.13% respectively. These figures were less far from the average level of listed firms on the stock market in the same period (at about 16% and 6.7%).

Therefore, based on the group’s debt ratio compared to production and business efficiency, MoPI said that EVN’s financial situation is at a "high risk". "With the groups having effective and sustainable business performance, if ROE is higher than the interest rate of debts, the owner will be more beneficial for bigger loans. But for the groups with less effective business performance, they will fall into more difficulties if borrowing more loans" deputy minister, Dang Huy Dong explained.

Meanwhile, groups in construction and real estate sectors posted lower ratio with the debt ratio on equity at 3.91 times like Vietnam Construction Industry Group.

According to MoPI, some companies under this construction group are falling into insolvency for due foreign debts. For example, Dong Banh Cement Joint Stock Co cannot pay the principle debt and interest of over 141 billion dong and now is lacking of 607 billion dong to pay for debts in 2011-2015 period. A similar situation also occurred at Construction Engineering Corp and other subsidiaries. Thus, the Ministry of Construction has to propose to be supported for repayment for foreign debts for members of this group.

MoPI also reported, the total investment in non-core sectors of 11 groups is now at 19.5 trillion dong, of which, Vietnam National Oil and Gas Group (PetroVietnam-PVN) took the leading position with 6.708 trillion dong and then Vietnam Rubber Group with 3.848 trillion dong.

In 2011, these groups need about 26% of their total assets and 72% of chartered capital for non-core investments, mainly focusing on high risk sectors such as finance, banking and real estate. Meanwhile, authorities also confirmed the non-core investments of groups did not gain effectiveness, even suffered losses, causing implications for the overall development, of which Vietnam Shipbuilding Industries Group (Vinashin) is an unforgettable lesson.

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