Tuesday, April 29, 2008

Many thousands of billion dong at risk

The figures released recently by state management agencies show that big economic groups and general corporations have been ‘living beyond their means’ as they have invested tens of thousands of billion VND in risky fields.

VND15tril and VND23,300bil

According to the Committee for Enterprises Renovation and Development, by the end of 2007, the total sum of money economic groups and state owned general corporations had injected in the fields of finance investment, securities, real estate and banking sectors had reached VND15tril ($937.5mil).

16 economic groups and general corporations had made investments in the banking sector, totalling VND4,965bil ($310.31mil), nine groups and corporations had injected money in the securities sector, totalling VND316bil ($19.75mil), while 12 enterprises had poured money into the finance and insurance sector, worth VND6,518bil ($407.37mil). Moreover, 13 enterprises had injected money in real estate, the hottest business field nowadays, totalling VND2,331bil ($145.68mil).

According to the Ministry of Finance, the total outward investment capital of economic groups and corporations has reached VND117tril ($7,312mil). Of this amount, 28/70 general corporations have investment activities in securities, banking and insurance with the total capital of VND23,300bil ($1,456mil).

The Vietnam Shipbuilding Industry Group (Vinashin) has the total investment capital in securities, banking, insurance and real estate of VND3,323bil ($207.68mil), or 1.1 times more than stockholder equity.

Together with the expansion of business scope, groups and corporations have been raising the numbers of their subsidiaries. The number of member companies has increased by 10% (68 companies) and associated companies by 39% (184).

Vinashin proves to be a typical example of expansion: in 2007, the group had 43 more subsidiaries and 111 associated and joint venture companies.

High risks

The statistics show that the main destinations of the enterprises are securities, banking and real estate, the fields that have showed uncertainties and falls since the beginning of 2008.

Explaining the investments, Vinashin’s leaders say that the group aims to get profit from other sectors to serve its long-term development strategy. However, it is clear that with the prolonged falls of the stock market, the difficulties of the real estate market and the banking system, the values of its investments will not be retained.

According to the Ministry of Finance, the total investments in securities, banking, insurance and real estate of Vinashin are equal to 1.1 times stockholder equity, which means that Vinashin has used loans for financial investments.

Deputy Minister of Finance Tran Xuan Ha said that investments in securities, banking, insurance and real estate prove to be very risky if the markets fall. The investments will not bring satisfactory profit if enterprises use loans for investments and they have to pay high interest on the loans.

The released figures also show that many groups and general corporations have high ratios of loans/stockholder equity. These include Cienco 5 (42), Cienco 1 (22.5) and Vinashin (21.8), Lilama (21.5).

Moreover, risks also come from the fact that finance, real estate and insurance are not the main business fields of the economic groups or corporations. If the enterprises are not keen on these fields, they could make mistakes that could cause big losses.

The Ministry of Finance has said that it is going to amend the current regulations on the investment activities of economic groups and corporations in order to prevent them from overindulging in investments in fields in which they do not have advantages.

The ministry may stipulate that state owned enterprises’ maximum outward investment capital must not be higher than the enterprises’ chartered capital. Additionally, a scheme on strengthening supervision over investment activities will also be set up.
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