Vietnam - Real estate enterprises fear debt repayment

Financial reports for quarter 4 2011 of listed real estate enterprises revealed substantial losses. Song Da Urban and Industrial Zone Development and Investment JSC (SJS) whose stock was once blue-chip posted accumulative losses for 2011and a net loss of 71.04 billion dong.

Some 90% have experienced a sharp decline in profit growth over 2010. Profit of Phat Dat real estate development JSC was even equal merely 1% of that in 2010. Likewise, the giant Hoang Anh Gia Lai saw its profit tumbling 89pct from 2.085 trillion dong in 2010 to around 224 billion dong in 2011.

Also, Sacomreal's revenue fell by half from 1.092 trillion dong in 2010 to some 540 billion dong in 2011. The most common reason has been put down as prolonged market downturn and soaring financial costs.

According to Ho Chi Minh People's Committee, some 190 trillion dong would be required for the city's property investment in the period 2008-2010, of which only 12.72% could be managed by real estate firms. It is estimated that around 80pct of their investment capital would be funded by commercial banks.

Currently, most of listed property firms have debt to equity ratio of more than 1 implying their likely liquidity difficulties on stagnant sale since the high ratio would only be welcomed in the light of vibrant market.

Short-term and long-term debts of more than 100 real estate firms and those in property- related businesses are estimated at 55 trillion dong and 85 trillion dong respectively, according to financial report for Q3 2011. In the meantime, their inventories have seen a steep rise over the past two years when the market touched the freezing point.

The continued gloomy market is likely to hamper businesses from managing repayment of bank loans. If the average interest rate is 20% annually, which is accompanied the lack of revenue; the likelihood of bankruptcy could be inevitable.

VietBiz24

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