Oct 13, 2012

Vietnam - Indicators pose a cloudy picture

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Enterprises’ big debts, large inventories, declining production capacities growing and growing number of closures and bankruptcies have illustrated a gloomy business prospect. Thanh Thu takes a closer look.

Vietnam Institute of Economics director Tran Dinh Thien’s gloomy debt figures of real estate businesses and the concept of ‘property inventory’ caught special attention from participants at a conference on Vietnam’s economic situation held last week in Hanoi.

Thien said 69 property companies listed on Vietnam’s stock market aggregately owed VND67 trillion ($3.22 billion) to banks by late 2011, with annual interest of VND13.4 trillion ($644.2 million). In the fourt quarter of last year, the companies’ short-term debts amounted to VND26.4 trillion ($1.27 billion).

Thien said this meant the companies would need at least VND39.8 trillion ($1.91 billion) to pay the debts in 2012 while their cash flow just reached only VND915 billion ($44 million).

“This is a worrisome statistics,” he noted, adding that in reality, there were many more property companies facing the same trouble.

According to figures released by Dragon Capital, an integrated investment group centred around the emerging financial markets of Vietnam, some VND70 trillion ($3.37 billion) are needed to buy up the 70,000 apartments on sale in Hanoi and Ho Chi Minh, supposing the average price is VND1 billion ($48,000) per unit.

Indeed, apartments in the two cities are normally sold at much higher prices. Ho Chi Minh City Property Association reported that 90 per cent of the city-based property firms had suffered from losses since last year.

Thien said property businesses’ huge debts and unsold apartments would continue to pose a big risk on the banking system and likely force the companies to bankrupt. And these indicators are typically showing the bad heath of the business community and the economy as well.

“If there is no solution to stimulate house buying demand, it will take at least seven years for the companies to sell off these apartments,” Thien said.

Massive debts and inventories

Huge debts are also reported in several sectors. According to Vietnam Institute of Economics’ data, 15 major cement companies were bearing an aggregate debt of VND25.5 trillion ($1.22 billion). Vietnam Customs in early September announced that nine wholesale petrol traders owed more than VND192 trillion ($9.23 billion) in taxes, with the majority being overdue. Petrolimex was the biggest debtor, followed by Military Petroleum Corporation, Vinapco Company and PetroVietnam Oil Corporation.

The General Statistics Office (GSO) reported in late September that the inventory index in the processing and manufacturing sector mounted by 20.4 per cent on-year by early last month. Notably, in the corresponding period last year, the index decreased by 5.5 per cent.

Vietnam Construction Porcelain and Ceramic Association chairman Dinh Quang Huy said the total value of the local porcelain and ceramic companies’ inventory reached VND3.5 trillion ($168.27 million) in September.

Narrowing production and increasing closures

The GSO also reported the Index for Industrial Production (IIP) in this year’s first nine months grew just 4.8 per cent on-year, compared to the 7.8 per cent rise reported in last year’s corresponding period.

HSBC last month also released its Purchasing Managers Index 2012, conducted over 400 manufacturing companies in Vietnam last August. All the indexes about output, new orders, inventory and employment remained below 50 points, meaning the manufacturing economy is generally declining.

Thien estimated operating enterprises already had to cut down 30 per cent of their production capacity.

According to the Ministry of Planning and Investment (MPI), in 2011 and this year’s first eight months, more than 88,500 enterprises declared bankruptcy and stopped operation, accounting for over 40 per cent of the total number of businesses closed since 1986..

“But these figures have not fully reflected all difficulties facing enterprises now. We have failed to take into account operational enterprises’ narrowed production and employment,” Thien said.

He pointed out that with 470,000 enterprises still maintaining operation, a 30 per cent cut to their production capacity would equal to the closure of a further 140,000, and supposing each company employed five to 10 workers, more than one million workers had been made redundant.

“Unemployment will result in reductions of incomes and a rise in social disorder and in a macro-view, the economy’s total demand will also remarkably decrease and Vietnam’s economic growth is badly affected,” said Vo Tri Thanh, vice director of the Central Institute for Economic Management.

Thanh said with local businesses were facing serious problems, Vietnam’s gross domestic product (GDP) could only grow 5.1-5.2 per cent this year.

HSBC in early September also forecast the GDP would slow to 5.1 per cent this year, against 5.89 per cent last year, due to “business conditions in Vietnam remained challenging and external demand continued to be weak, dragging down export orders, and local low demand as well as many local enterprises trying to unload their debt.”

The ADB last week lowered Vietnam’s growth forecast to 5.1 per cent for 2012 and 5.7 per cent for 2013.

The National Assembly early this year posted an economic growth target of 6-6.5 per cent for 2012.

Recently, the MPI said it would ask the government to reduce the target to 5.3-5.6 per cent for the year.

Thien said domestic production would face another more challenging year in 2013. “Both consumers and enterprises will take great caution in spending. Therefore it will be likely that enterprises will not expand production in 2013. Thus the Vietnam Institute of Economics forecast Vietnam’s GDP growth for 2013 would be 4-4.5 per cent.”

The government recently estimated that GDP growth in 2013 would be about 6 per cent.

Thanh Thu | vir.com.vn

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