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Monday, July 22, 2024

Corporate restructuring gets underway

By Trieu Duong

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In the context of disrupted cash flows and restricted access to capital, the corporate circle is rolling up its sleeves to drastically restructure its operations and financial situation to eliminate hardships, step by step

Reinforcing financial resources

With a record-high order matching volume of over 128.5 million shares on November 22, it was believed that the stock of Novaland (HOSE: NVL) would eventually attain “salvation” after it had gone through 13 sessions stuck at rock bottom. In fact, the price of this stock sank for three more sessions before it was rescued for the second time on November 28, with an additional 104 million shares changing hands, marking the first time in 24 sessions it wrapped up a trading day without a decline. This suggests the volume of shares subject to forced selling seems to have been completely absorbed. Even so, compared to late October, NVL has seen more than 70% of its value evaporate, becoming one of the two biggest losers on the bourse this November alongside PDR.

It seems investors are pinning their hopes on the operational restructuring solutions recently put forward by Novaland, that they will help alleviate the difficulties and challenges this real estate group has been tackling.

These include cash flows for businesses getting disrupted, projects slipping behind schedule in the context of poor sales as property prices are going downhill, the pressure to buy back previously issued bonds before their maturity, and the limited ability to access new capital sources, especially credit from banks.

The Board of Directors of Novaland has recently given their nod to a plan for share issuance to bondholders. Specifically, there will be five bonds at Citigroup Global with a par value of US$200,000, equivalent to more than VND23 billion, to be converted into shares at the price of VND85,000 each. Reportedly, these five bonds are part of Novaland’s capital mobilization via the sale of 1,500 convertible bonds to international investors on July 16, 2021, with the Bank of New York Mellon and Credit Suisse arranging the deal and acting as issuing agents.

This conversion price is four times higher than the market price of NVL as of November 28. However, according to financial experts, the deal between Novaland and Citigroup Global takes the form of Private Investment in Public Equity with accompanying terms. It is likely that there is an agreement to buy back NVL shares to be converted for Citigroup Global at a price higher than the conversion price (VND85,000 per share). This method may help Novaland temporarily extend the debt. Alternatively, when the stock price reaches a reasonable rate, Citigroup Global will have the discretion to sell the aforesaid shares.

In line with that, Novaland’s major shareholder—NovaGroup—has recently made public its application for the sale of 150 million NVL shares, equivalent to nearly 7.7% of the charter capital, to focus its attention on working out extra capital sources for the options this group has chosen to handle its bonds, bringing down the financial ratio to a safe level in the strategy for restructuring the whole corporation. As per the information disclosed, NovaGroup has successfully persuaded investors and organizations with a great financial capacity to transfer a stake in Novaland, expected to occur between late November and December 2022.

Some listed companies have witnessed major shareholders and business leaders looking for ways to undo their investments to reinforce their financial resources in the current context of capital scarcity, despite the massive drop in the prices of many stocks recently.

At another real estate giant, Development Investment Construction Joint Stock Corporation (HOSE: DIG), whose stock price has fallen more than 90% from its peak but lately displayed signs of a rebound, its major shareholder—Thien Tan Development Investment JSC—has recently unveiled the sale of 8.3 million DIG shares on November 21 and 22 to scale down its ownership. Following the deal, this company only holds nearly 71.9 million DIG shares but remains the largest shareholder with an ownership percentage of 11.79%.

Meanwhile, at VIX Securities JSC, Nguyen Van Tuan (the brother of Chairwoman Nguyen Thi Tuyet of the Board of Directors of VIX), who is currently the General Director of GELEX Group, has registered to sell more than 87.4 million shares or 15.02% of all VIX shares in circulation. His wife, Duong Thi Hong Hanh, has also requested approval for the sale of 21.2 million VIX shares, equivalent to 3.64% of the total number of outstanding shares.

Not only that, FTG Vietnam JSC (whose general director is Tuyet’s husband) is looking to entirely sell more than 26.8 million VIX shares in its hands or 4.61%. The total number of VIX shares held by the three investors related to its chairwoman to be sold is 135.4 million shares, equivalent to nearly 23.3% of all VIX shares in circulation.

Giving bonds a revamp

Besides the need to strengthen financial resources, the recent proposals on solutions to support the corporate bond market are also drawing attention. These solutions, if adopted, will help relieve the business community of financial distress so they can tackle problems in this very important channel for capital mobilization and restructure their debts, overcoming the current period of instability.

The pressure to buy back previously issued bonds before they fall due and to settle them at maturity will remain intense in the final month of this year and in 2023. This has sent quite a few businesses into a tailspin, especially when other sources of capital, such as bank credit or the stock market, have been significantly narrowed.

Statistics show that in the first 10 months of the year, nearly VND147.5 trillion worth of bonds were bought back, up 46% year-on-year.

For example, the Development Investment Construction Corporation has completed the repurchase of VND1.6 trillion worth of bonds three years ahead of time. Most recently, on November 25, Phat Dat Real Estate Development Corporation said it would spend a total of VND150 billion buying back the batch of bonds issued in late 2021 (with a term of two years). In late October, the firm settled a working capital loan worth VND220 billion to the Mirae Asset Financial Group (South Korea).

Similarly, An Gia Group has revealed its plan to prematurely buy back VND300 billion worth of bonds, set to be implemented this quarter.

Therefore, expectations for solutions that help restructure bond debts are now greater than ever. If adopted, they will help with the recovery of the stock market as well.

Recently, Vietnam’s credit rating agency FiinRatings came up with several viable options currently exercised by the corporate circle: extend the repayment period with payments, extend the repayment period without payments, or “barter”. These solutions lighten the cash flow burden on the shoulder of issuers, while investors can still recoup their investments in the future without the need to cut losses.

In addition, the experts at this organization said, “There should be specific guidelines on handling the restructuring of bond debts and handling unexpected situations when there are cases of breach of debt payment obligations.”

Meanwhile, regarding handling violations in the corporate bond channel, Prime Minister Nguyen Minh Chinh, at the National Online Conference on policy communication, said several illegal acts related to corporate bonds and securities had been addressed and some weak credit institutions dealt with. This problem cannot be left unresolved, for the longer it drags on, the more severely it affects the legitimate interests of private bondholders, he underscored.

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