A recent report by the Government paints a picture with both bright and dark spots concerning the financial situation and business activities at State-run groups and corporations. There are more bright spots, though.

An outlet of Viettel, the military telecom company

The Government has recently published a report on investment, management and use of State capital at enterprises in 2017. This report further provides additional information on the debt situation at State-owned enterprises (SOEs).

Regarding the financial situation and results of production and business activities at economic groups, corporations and parent-subsidiary companies (83 in total, excluding Vietnam Shipbuilding Industry Corporation, which is under restructuring), the report offers data showing that the total assets of these enterprises last year were up 2% from 2016, despite a drop in the number of economic groups and corporations (eight units less). Meanwhile, the number of accounts receivable went up 5% from two years ago (see the table below).

As the number of accounts receivable registered a higher growth rate than that of assets, the ratio of receivables to total assets surged 13.5% against 2016, reflecting a significant decline in asset quality compared to two years ago.

Notably, for the first time in four years, the number of doubtful accounts receivable fell against the preceding year, 6% lower than in 2016. This is due to the reduction in the number of doubtful accounts receivable (up to 21%) at parent companies, which made up for the rise recorded by economic groups and corporations (+4%). Some enterprises with a great volume of doubtful accounts receivable are PVN, VRG and Viettel.

The further decrease in the ratio of inventory to total assets suggests that the business efficiency at economic groups, corporations and parent-subsidiary companies has improved, with relatively smaller inventory, directly leading to better business revenue and profitability.

As far as debt issues are concerned, the ratio of accounts payable to equity remained modest, up only 1.3% in 2017, versus 3% in 2016. The confusing thing is that despite the 4% equity growth in 2017, when the liabilities of economic groups, corporations and parent-subsidiary companies picked up at a lower rate of 1.3%, the ratio of accounts payable to equity at these firms was still higher than in 2016 (1.25 versus 1.22).

Due to equity expanding at a faster rate than the increase in total assets, economic groups, corporations and parent-subsidiary companies achieved an equity-to-total-assets ratio of 0.56 in 2017, significantly higher than the previous years. This resulted in a considerable improvement in the sustainability of the investment and business operations at these enterprises.

Last but not least, the ratio of total accounts payable to total capital—another measure of the financial health of economic groups, corporations and parent-subsidiary companies—stood at 0.56, slightly higher than the two years before that. As per the report, the lower this ratio is, the higher the chance businesses can settle their debts, and vice versa. Thus, with this indicator, it seems the debt situation at economic groups, corporations and parent-subsidiary companies is getting worse.

In short, the Government’s report reveals a picture with both bright and dark spots concerning the financial situation and business activities at SOEs, despite the limited scope and consistency of the information it provides. Specifically, regarding debts, there is no clear and consistent evidence of a significant improvement based on relevant selected criteria.

SGT