The weighted average debt-to-equity ratio in book value gleaned from the
second quarter financial statements of 647 non-financial companies listed on
the two bourses of Vietnam is among the world’s highest, up to 1.53.
Nguyen Xuan Thanh from the
Fulbright Economics Teaching Program unveiled the astonishing figure at the
2012 Investment Conference held by Nhip Cau Dau Tu magazine in HCMC on
Thursday.
“This ratio is so high compared
to other economies, both developed and emerging. For example, the ratio of the
U.S listed companies was 1.2 in 2011 and Chinese firms 1.06,” said Thanh.
He cited data proving that this
has not happened all of a sudden, but has been the case for several years. But
warnings were not promptly given and no adjustment was made.
Vietnamese businesses have
increased financial leverage since 2007. Their debt ratios were already at high
levels in the early 2000s.
The ratios of accounts payable to
equity of 114 companies listed on the Hochiminh Stock Exchange averaged out at
1.2 in 2007.
A survey conducted by the General
Statistics Office in 1999-2002 shows that the debt-to-equity ratio was 1.32 in
1999, 1.93 in 2000 and 1.96 in 2002.
But which sector incurs the most
debts? Thanh cited the Q2 financial statements of listed firms showing that
construction and real estate are those suffering the highest ratios of debt to
equity, at above 2.0.
Non-financial companies have an
average ratio of 153%, energy 144% and consumption goods 80%, the lowest.
Remarkably, the ratio of State
groups and corporations reaches over 1.73, higher than the average 1.5 of
listed companies in general.
More worryingly, according to
Thanh, debt decline is facing multiple obstacles.
Credit institutions tend to
invest in secure financial assets like bonds and valuable papers and
consequently, cash flow gets stuck at banks.
Banks have also recently added
more “other assets” in their balance sheets.
As for enterprises, those with
smooth cashflow tend to borrow less, while the troubled firms want to take out
new loans but they cannot do so due to the heavy burden of old debts.
Sharing Thanh’s view, Nguyen Nam
Son, board member of Thien Viet Securities Co. and managing director of Vietnam
Capital Partners, said: “The financial weakness of Vietnamese companies is
alarming.”
The debt-to-equity ratio of local
firms is as much as 120%, versus the regional average of 45%. This is an
alarming figure, a ratio of over 60% already poses risk of bankruptcy if the
market developments are unfavorable,” Son said.
He noted the most typical
loss-making companies were those investing in non-core business sectors,
regardless of their capability.
“Without long-term financial
strategies, Vietnamese property firms have the highest financial leverage in
Asia. Most of them might not survive the crisis, as banks are tightening
lending. Meanwhile, international funds are always available, but only to
transparent companies,” he added.
In the first seven months, the
total money supply picked up 8.58% against late 2011. Bank deposits increased
significantly while credits only inched up 0.57%.
“Certainly, our country is at the
early stages of an economic downturn, with the first sign being the falling
credit-to-GDP ratio,” Thanh underscored.
Hong Phuc - The Saigon Times
Daily
Business & Investment Opportunities
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