Real estate firms in Vietnam reach final stage of restructuring

The domestic real estate market is evolving in a progressively positive direction, as evidenced by numerous businesses striving to resolve lingering issues from the previous phase.

Two bond lots valued at nearly VND1 trillion ($40.62 million) from Dai Thinh Phat Construction Investment and Trading Company are considered high-risk maturity bonds in August, after experiencing a loss of over VND7 billion ($284,500) in the first half of 2024, according to Vietnam’s credit rating company, VIS Rating.

Fortunately, bondholders granted a 12-month extension for these two bonds, originally due in July and August 2024. These bonds were issued to fund the LDG Sky project in Binh Duong province, with LDG Investment JSC standing as the payment guarantor.

Leadership from Dai Thinh Phat and LDG have confirmed that all legal procedures for the LDG Sky project have been completed.

As of now, the LDG Sky project has finished the basic piling work and the foundation construction for blocks C1 and C2, which have been approved by the State Authority for Construction Quality Inspection under the Ministry of Construction. Only minor construction tasks remain before the residential units can be sold.

Established in July 2013, Dai Thinh Phat operates in real estate and was previously a subsidiary of LDG, with LDG holding 99.95% of the shares. LDG divested its stake in Dai Thinh Phat for around VND150 billion ($6.09 million) in August 2021.

While LDG guarantees the repayment of the bonds, legal issues and overdue debts are straining the company's financial health.

After earning profits exceeding VND600 billion between 2018 and 2019, LDG's financial performance began to decline from 2020 onwards, with profits dwindling to just over VND4 billion by 2022.

In 2023, LDG incurred a significant loss of VND527 billion, marking its first substantial loss in a decade.

As of the end of the first half of 2024, LDG reported an additional loss of nearly VND400 billion.

Consequently, the auditing firm highlighted a significant uncertainty in its biennial review report for 2024, raising substantial doubts about LDG's ability to sustain its operations continuously.

Similarly, Binh Duong Trade and Development JSC (Becamex TDC), as of late June, had accumulated losses exceeding VND317 billion and short-term debts surpassing short-term assets by nearly VND1.1 trillion.

Becamex TDC said that its parent company, Investment And Industrial Development Corporation (Becamex IDC), along with other group entities, had pledged financial support by guaranteeing loan debts and refraining from demanding repayment of debts related to goods and services until the ability to repay is restored.

Due to cash flow challenges, Becamex TDC is proposing a private placement of 35 million shares to raise VND350 billion.

The funding aims to partially repay a VND700 billion bond before its maturity on June 30. The bond was issued in November 2020 for dividends, unpaid interest and debt repayments, due on November 15, 2025.

VIS Rating said that VND4.3 trillion in bonds from construction and real estate firms were considered high-risk for maturity in August. Companies like Novaland, Hung Thinh Land and Dai Thinh Phat have struggled with bond repayments since 2023.

Next year, about 20% of the VND259 trillion corporate bonds facing high risks are expected to experience delays, primarily due to previous coupon payment delays, high leverage, low cash reserves and low EBITDA (earnings before interest, tax, depreciation and amortisation) margins.

Efforts to overcome challenges

Positive developments are underway in the real estate market, yet prior setbacks are impeding the recovery progress of businesses, particularly concerning bonds.

Despite this, as a vital long-term capital-raising avenue, many enterprises are actively seeking solutions to alleviate the pressure stemming from these issues.

For example, Dat Xanh Group has recently announced a board resolution aimed at adjusting the utilisation of funds garnered from the 2024 stock offering to existing shareholders.

This adjustment seeks to increase capital infusion into its subsidiary by an additional VND201 billion while proportionately reducing the allocated funds for the company's working capital.

The property developer is prioritizing a capital injection of nearly VND1.6 trillion into Ha An Real Estate Trading and Investment JSC, surpassing the earlier projected allocation of nearly VND1.4 trillion.

Of which, VND802 billion will be directed to Hoi An Invest, a subsidiary of Ha An Real Estate, for bond principal and interest repayments. Additionally, VND757 billion will be contributed to Ha Thuan Hung Co., Ltd., another subsidiary of Ha An Real Estate, to service principal and loan interest owed to credit institutions.

Disbursement of these funds is expected from this fourth quarter through the conclusion of 2026, extending the original deadline from the end of 2025.

In practice, VIS Rating said that Ha An Real Estate’s leverage and debt coverage ratio was below average.

This indicated strong leverage but very weak debt coverage due to negative cash flow resulting from a two-year decline in sales and significant capital expenditure for new project development.

Nevertheless, the strong leverage score reflected the substantial equity investment made by Dat Xanh since 2018 to support Ha An Real Estate in investments, business growth and meeting debt obligations.

VIS Rating expected a partial improvement in the company's low debt coverage ratios in the near future, alongside a partial fulfilment of capital needs through the recovery of cash flow from sales.

Experts suggest that positive market developments and buyer sentiment will drive developers to increase sales, reducing inventory levels and addressing cash flow challenges.

As a result, many firms are expediting project timelines to swiftly bring products to market for additional revenue streams.

Novaland representatives have indicated the delivery of numerous products across various projects, with ongoing construction in 14 out of 16 projects under a total construction cap of VND12.1 trillion, with phased disbursements.

The estimated total value upon completion and handover of products, along with new sales, is approximately VND480 trillion.