Greenback surge hurts Vietnamese importers, firms with dollar debts

Vietnamese businesses with dollar-denominated loans and/or those that are heavily reliant on imports have been badly hurt by the greenback’s surge against the local VND currency.

Power Generation Joint Stock Corporation 3, or EVNGENCO 3, incurred a Q1/2024 loss of VND652 billion ($25.66 million), its biggest quarterly loss since listing in 2022. Its underperforming business results in the quarter was significantly exacerbated by the high USD/VND rate.

Listed on the Ho Chi Minh Stock Exchange as PGV, the company had earned profits of VND621 billion ($24.4 million) in Q1/2023.

With lower output and electricity selling prices, EVNGENCO 3’s gross profit halved year-on-year to VND608 billion ($23.93 million) in Q1/2024.

Additionally, the company experienced a year-on-year decline in exchange rate gains from VND183 billion ($7.2 million) to VND22 billion ($866,000) in Q1/2024, leading to a decrease in financial revenue from VND251 billion ($9.88 million) to VND91 billion ($3.58 million).

Conversely, exchange rate difference losses in the same period surged from VND1.3 billion ($51,170) to VND636 billion ($25.03 million), causing financial costs to soar from VND586 billion ($23.06 billion) to VND1.24 trillion ($48.92 million). Selling and administrative expenses remained relatively unchanged.

At the end of Q1/2024, EVNGENCO3 had total debts of VND34.5 trillion ($1.38 billion) – VND5.36 trillion ($210.96 million) in short-term loans and VND29.18 trillion ($1.14 billion) in long-term loans.

Primarily, these loans, denominated in U.S. dollar, Chinese yuan, and Japanese yen, and were earmarked for investment in projects like the Mong Duong 1 thermal power plant (northern province of Quang Ninh), Vinh Tan 2 thermal power plant (central province of Binh Thuan), Buon Kuop hydropower plant (Central Highlands province of Dak Lak), and Phu My 1 thermal power plant (central province of Ba Ria-Vung Tau).

Forex loans bite

With significant foreign currency debt, real estate giant Novaland (HoSE: NVL) reported a record quarterly loss of VND567 billion ($22.32 million) over the three months. During the period, it experienced a sharp increase in exchange rate loss from VND14 billion ($551,000) to VND452 billion ($17.79 million).

As of March 31, the business held a USD-denominated loan of $72.8 million arranged by Credit Suisse AG, guaranteed by a project in Xuyen Moc district, Ba Ria-Vung Tau province.

Additionally, it issued unsecured bonds worth $300 million, with the right to convert into NVL shares, in 2021 (also arranged by Credit Suisse AG) with a due date in 2026.

The developer also holds other short-term USD loans of more than VND6 trillion ($236.15 million).with third parties.

Vietnam National Textile and Garment Group (HoSE: VGT), or Vinatex, reported a 5% increase in gross profit to VND345 billion ($13.58 million) in Q1/2024.

However, the dollar surge has caused it to incur significant exchange rate losses resulting from the reassessment of the principal balance of foreign currency loans, causing its net profit to decrease by 36% in Q1/2024 to VND36.5 billion ($1.44 million).

The group noted that while the textile and garment industry showed signs of recovery with increasing orders in Q1, prices remained relatively low. Meanwhile, expenditure has increased as a result of higher energy and transportation prices, not to mention insurance and logistics costs amid geopolitical instability and tensions in the Red Sea.

Additionally, since Vinatex members mainly borrow U.S. dollars for production and business activities, the dollar surge has led to substantial exchange rate losses.

Specifically, its Q1 exchange rate difference profit dropped from VND59 billion ($2.32 million) to VND44 billion ($1.73 million) year-on-year, while the exchange rate difference loss doubled to VND46 billion ($1.81 million).

Similarly, although Century Synthetic Fiber Corporation (HoSE: STK) saw its gross profit double year-on-year to VND32.3 billion ($1.27 million) in Q1/2024. Its exchange rate difference profit decreased 67% to VND3.5 billion ($137,750), resulting in financial revenue plummeting from VND15 billion ($590,380) to VND6.1 billion ($240,090).

Conversely, the hike in exchange rate loss caused financial costs to rise from VND13 billion ($511,660) to VND17.7 billion ($696,640). Consequently, Century Synthetic Fiber’s Q1/2024 profit plunged 56% year-on-year to VND711 million ($27,980).

Profit repatriation impact

Analysts with broker SSI Securities have said that along with rising import demand, profit repatriation by many foreign-invested enterprises has pushed up the USD/VND exchange rate.

In a report released on May 3, analysts with Singapore-based UOB bank forecast that the Vietnamese dong would bounce back in H2/2024, with the U.S. Federal Reserve likely to cut interest rates twice this year.

“Beyond near-term external headwinds, we expect the VND to draw support from resilient fundamentals and a subsequent recovery in the Chinese yuan renminbi (CNY). Our updated USD/VND forecasts are 25,600 in Q2/2024, 25,100 in Q3, 24,800 in Q4 and 24,600 in Q1/2025,” they said.

Local currency VND has thus far depreciated 4.8% against the USD since end-2023. The USD/VND exchange rates set by big 4 lender Vietcombank (HoSE: VCB) and the free market reached record highs of VND25,473 and 25,760, respectively, during the third week of April.