VietNamNet Bridge – A lot of big debtors have issued shares recently to specific partners as a method to pay debts.

Hoang Quan Real Estate Group, Tan Tao Investment and Industry Group, Mai Linh Group and Ha Tien 1 have succeeded with the plans to pay debts in shares instead of cash.

The extraordinary shareholders’ meeting of Ha Tien 1, a cement manufacturer, has approved the plan on issuing 120 million shares to the Vietnam Cement Corporation to pay a part of the debt it owes to the corporation.

The share issuance is believed to be the only solution that helps Ha Tien 1 ease the finance burden on its shoulders, which is the main reason behind its business decline in the last 4-5 years.

Prior to that, Ha Tien 1 once tried to issue shares from the surplus or accumulated profits, issue shares to existing shareholders and strategic partners, turn debts into stockholder equity.

However, the first two solutions were unfeasible because the stockholder equity was lower than the chartered capital, while the surplus and profits left were moderate.

Meanwhile, Ha Tien 1 shares are traded at VND5,000 per share, thus making it impossible for the company to issue shares from the surplus or profits.

If it issues shares at the prices below the face value (VND10,000 per share), the issuance plan will not be approved by the State Securities Council. If it issues shares at the price equal to the face value, the surplus would not be high enough to cover the price gap.

Vicem, as a holding company, which holds 67.38 percent of Ha Tien 1’s stakes, has to give support to its subsidiary, as Ha Tien 1’s solvency is getting worse, while its debts nearly get matured.

The report of Bao Viet Securities Company showed that Ha Tien 1’s short term debts are on the rise, while short term assets are on the decrease.

Also according to Bao Viet Securities Company, though Ha Tien 1’s situation has not been alarming yet, it would be dangerous if Ha Tien 1’s business performance cannot be improved.

The cement manufacturer is facing big difficulties. Though the company still sees the turnover increasing steadily year after year, the profits have been decreasing sharply due to the finance cost increases.

According to Bao Viet Securities, the cement manufacturer’s bank loans have increased by 9 times in the last five years, from 1.001 trillion in 2007 to VND8.92 trillion in 2012.

Once Ha Tien 1 issues shares, the debts would convert to equity. The VND1.2 trillion worth of debt would be forgiven, while the chartered capital of the company would increase from VND1.98 trillion to VND3.18 trillion. Especially, the VND1.2 trillion would be weeded out from Vicem’s books as an account receivable.

The method would bring benefits to both sides, helping polish the balance sheets of the companies. Ha Tien 1 would not have to pay interests for the loan, while Vicem does not have to make provisions for the lending item.

However, analysts have warned that Vicem would become a venture investor, because it would lose the sum of VND1.2 trillion if Ha Tien continues taking loss.

The solution has helped a lot of businesses revive. Bianfishco, a seafood company, is a typical example.  After the debt restructuring process, under which Bianfishco’s debts turned into SHB’s equities, Bianfisco has been rescued from the bankruptcy and has returned to normal operation. It plans to make a profit of VND34.9 billion in 2013.

Kim Chi