Vietnamese firms struggle to survive serious capital thirst
Many Vietnamese enterprises are struggling to survive as the time of easy and cheap capital flows have ended, with hiked interest rates and fluctuating exchange rates.
Many have had to sharply reduce product prices, lay off employees, pay quarterly salaries, and even seek black credit.

Capital-raising doors seem to be closed to businesses. Photo courtesy of VietnamPlus.
Capital congestion
The local stock market has gone through an unforgettable period, even for the most seasoned investors. Since the beginning of the year, after bottomless drops, many stocks have plunged 70-80% from their peak set at the end of 2021, especially those in the real estate sector.
The benchmark VN-Index, which tracks the performance of the Ho Chi Minh Stock Exchange (HoSE), recorded streaks of strong falls to 947.24 points on November 10 - the lowest level since November 6, 2020.
The deep drop of stock prices has kept companies’ capital raising plans on "paper", meaning they could not raise capital via this channel. Margin calls and forced selling are now applied for not only individual investors, but also corporate leaders and large shareholders, when stock prices plunge. Many tickers hit their floor prices with up to 50-60 million shares waiting for buyers, notably blue chips NVL of Novaland Group and PDR of Phat Dat Real Estate Development JSC.
In the bond market, the situation is even more tragic, with corporate bonds, regardless of good, bad, big or small, being sold off. Some bondholders even halve bond prices, but without attracting demand.
Corporate bonds used to be the preferred source of capital for many real estate developers. But serious violations discovered in the recent time have hurt investor confidence. Recently-issued Decree 65/2022/ND-CP on private placement of corporate bonds adds many strict requirements, making capital raising via the corporate bond channel very difficult.
Particularly in October, there was only one private bond placement, a sharp decrease from the same period last year. In the 10 months of 2022, VND240,761 billion ($9.7 billion) of corporate bonds were issued via private placements, down 51% over year-on-year.
According to the Vietnam Bond Market Association (VBMA), more than VND61 trillion ($2.45 billion) of corporate bonds will mature in the two remaining months of this year, including nearly VND48 trillion ($1.9 billion) in December. Next year, September and December will see the largest volume of maturing corporate bonds at VND42 trillion ($1.7 billion) and VND54 trillion ($2.17 billion), respectively. These maturing bonds will continue to create a burden on cash flow for businesses facing a lot of difficulties at present.
After two years of the Covid-19 pandemic, businesses have run out of capital. In addition, in the 10 months of the year, enterprises re-purchased more than VND147,484 billion ($5.9 billion) in bonds, up 46% compared to the same period last year, VNMA data shows. This made their money shortages more and more severe.
Meanwhile, bank credit is also showing signs of congestion. Commercial banks themselves are facing many difficulties from credit growth caps, liquidity-related problems and regulations on the ratio of short-term desposits to medium and long-term loans.
The State Bank of Vietnam (SBV) has affirmed the need to prioritize macro stability at present, with two base interest rates hikes in one month (1 percentage point each). This move has led to a race in deposit interest rates at all commercial banks in the system in order to attract deposits. It can be understood that the era of bank capital surplus has ended, replaced by high interest rates.
Foreign investment is an important capital flow for the real estate market, but amid difficulties in the global financial market, foreign investment funds and enterprises now prioritize retaining cash. Even foreign investment tends to flow out of Vietnam as the U.S. dollar interest rate is on the rise.
While most capital-raising doors are closed, businesses pinned high hopes on state budget capital through public investment. But in fact, in the 10-month period, VND297,700 billion ($12 billion) of public investment was disbursed, reaching only 46.44% of the yearly plan. The slow disbursement of public investment caused a shortage of capital in the economy.
Myriad of ways to raise capital
A recent report by the Ho Chi Minh City Real Estate Association (HoREA) said that a number of real estate businesses have suspended investment activities and construction of several projects and works; stopped the implementation of new projects, share issuances and initial public offerings. Some companies have reduced their workforce by up to 50%.
A number of capital-hungry real estate firms had to seek loans from sharks with very high interest rates. Some others had to sell off assets, projects or real estate and housing products with discounts of up to 50%. This situation is forecast to last until the end of the second quarter of 2023 if there are no government interventions.
In addition, some developers recently launched new investment products to attract money from the public. Fantasy home, a product of VMI Real estate Investment and Management JSC newly set up by Vingroup chairman Pham Nhat Vuong, is an example. It aims to provide all small-cap investors a chance to invest in real estate products, which used to be for those with large capital sources.
Initially, the company set to buy existing or future properties of Vinhomes and divide the equity into 50 parts. The number has now increased to 200, with each valued at about VND40 million ($1,600). Customers can invest in the portions through a business cooperation contract. The person who cooperates with VMI JSC will be certified by the company for their property rights and receive profits generated thereof in proportion to the investment ratio.
In a resolution adopted at the October regular cabinet meeting, the government requested the Ministry of Finance take steps to address short-term difficulties related to corporate bonds and promote healthy, efficient and sustainable development of the market in the medium and long term.
The ministry was asked to soon report on the maturity of corporate bonds via private placements in the fourth quarter of 2022 and 2023, and propose solutions to existing problems.
Untying the corporate bond knot is expected to provide an exit for businesses, in the context that the central bank has expressed a strong stance on credit growth caps, with the stock market not showning any signs of improving in the short term.
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