Shares in Vietnam realty major Novaland sink on serial bad news

A string of negative news has pushed market prices of leading real estate developer Novaland down 25% over the past month.

Shares in Novaland, listed on the Ho Chi Minh Stock Exchange as NVL, hit the floor price of VND13,600 ($0.53) apiece on Wednesday with 70.3 million units changing hands. However, NVL rebounded on Thursday, rising 1.84% to VND13,850.

The shares nosedived after HCMC police required relevant authorities of neighboring Dong Nai to provide information about Aqua City, one of Novaland’s key projects in the province.

In response to the police, Novaland said that some of its clients had lodged complaints due to the slow pace of the Aqua City project. The developer affirmed that in addition to Aqua City, its projects like NovaWorld Phan Thiet and NovaWorld Ho Tram in nearby provinces and HCMC were under construction with government agencies removing obstacles to their progress.

Novaland’s financial statements have revealed its financial issue. Auditing firm PwC said in the firm's 2023 financial statements that Novaland’s presumed operational continuity depended on its solvency, restructuring of loans and maturing bonds, and other solutions to generate sustained cash flows.

Debt reducing efforts

Despite its restructuring efforts, Novaland’s borrowings have decreased by just VND2.2 trillion ($86.5 million) over the past two years. As of March, the firm had VND35.02 trillion ($1.38 billion) worth of short-term loans and VND23.21 trillion in long-term loans.

The loans included VND22.47 trillion ($883.33 million) in short-term bonds and VNDD16.08 trillion in long-term bonds. For notes that matured in 2023, the firm is negotiating with bondholders to either prolong their terms or receive real estate products instead. With the ongoing progress, pressure from bonds will remain high this year.

In addition, for $300 million worth of convertible unsecured international bonds arranged by Credit Suisse AG and set to mature in 2026, Novaland has reached an agreement with the creditors to lower the price of NVL shares in a bond-to-share swap to VND77,000 ($3.03) from VND135,700.

Besides borrowings, Novaland has also posted payables of VND76 trillion ($3 billion).

Novaland had total assets of VND236.48 trillion ($9.3 billion) as of end-March, down 2.1% from December.

To cover its matured liabilities, Novaland plans to sell its assets for VND2.87 trillion ($112.8 million), and investors have expressed an interest in buying VND8.92 trillion. The firm’s executives believe that the liquidation will be completed in 12 months from the issuance of the 2023 audited financial statements.

Bank loans have given the developer a breather. It has been disbursed VND2.78 trillion ($109.5 million) from banks and hopes to receive another VND15.82 trillion soon.

The firm is proceeding with a plan to issue 1.1 billion shares to existing shareholders at a 10-for-6 ratio at VND10,000 ($0.39) each. The proceeds will be used to pay debt, inject into subsidiaries, pay salaries, and add to working capital.

Poor performance and major shareholders’ sales

After two profitable quarters, Novaland posted a loss of VND567 billion ($22.3 million) in Q1/2024, mostly due to hefty financial costs. The firm incurred a loss of VND452.5 billion due to forex losses.

Unloading by major shareholders has also dampened investor sentiment. NovaGroup has sold hundreds of millions of NVL shares, cutting its holding from 29.38% in early 2023 to 18.4% currently. NovaGroup, an entity related to Novaland chairman Bui Thanh Nhon, has registered to sell another 9.4 million shares between May 6 and 31.

Diamond Properties, also related to Nhon, was forced to sell 6.2 million shares in late March due to margin calls, cutting its holding to 171 million shares, or an 8.8% stake.

Bui Cao Ngoc Quynh, Nhon’s daughter, has registered to sell 9.1 million NLV shares to cut her holding to 15.6 million shares.

As such, over the past one year, Nhon-related stakeholders have trimmed their combined holding in Novaland from above 51% to 40%, and that is set to further reduce.