Selling the business after one year of purchase.

Vinahud Housing and Urban Development Investment Joint Stock Company (Upcom: VHD) has just announced the documents for its extraordinary general meeting of shareholders, scheduled to take place on September 5th, which include several noteworthy items. Most notably, it plans to transfer 100% of the charter capital of Me Linh Thinh Vuong Limited Company for a price no lower than VND 980 billion.

The Board of Directors of Vinahud will also submit to the Extraordinary General Meeting of Shareholders for approval the use of the proceeds from the transfer of capital contributions in Me Linh Thinh Vuong Company Limited to make early repayment of a portion of the company's loan at Tien Phong Commercial Bank - TPBank (TPB).

The prospective partner with whom Vinahud plans to sell 100% of the capital of Me Linh Thinh Vuong Company Limited is VNC Construction Joint Stock Company.

Therefore, if the property is sold, Vinahud will be able to pay off part of its debt. According to financial reports, by the end of Q2/2024, Vinahud had total short-term and long-term loans of over 2,629 billion VND. Of this, long-term debt to TPBank was nearly 1,986 billion VND.

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In the next phase, VHD will focus on completing and operating the Grand Mercure Hoi An project.

Over a year ago, Vinahud acquired Me Linh Thinh Vuong Company Limited from R&H Group.

Specifically, in April 2023, following the resolution of the 2023 annual general meeting, Vinahud acquired from R&H Group 83% of the capital in Friends Investment and Construction Co., Ltd. for VND 987.5 billion and 100% of Me Linh Thinh Vuong Co., Ltd. for VND 950 billion.

The total value of the two transactions is VND 1,937.5 billion. Of this, 80% of the funding, equivalent to VND 1,550 billion, was arranged by TPBank. This is a very large figure considering that as of early 2023, Vinahud had total assets of less than VND 589 billion and equity of just over VND 411 billion.

Following the transaction, Vinahud's assets increased significantly, reaching nearly 4,670 billion VND (as of mid-2023). Naturally, total liabilities also surged, from over 177 billion VND at the beginning of 2023 to nearly 4,315 billion VND at the end of June 2023; of which, long-term loans and financial leases amounted to nearly 1,749 billion VND, and short-term loans and financial leases amounted to over 187 billion VND.

At the beginning of 2023, Vinahud only had short-term loans and financial lease liabilities, totaling over 77 billion VND.

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By the end of Q2/2024, Vinahud had total short-term and long-term loans of over VND 2,629 billion. Of this, long-term debt to TPBank was nearly VND 1,986 billion.

Most likely, Vinahud used the aforementioned assets, along with assets belonging to these two companies, as collateral for its bank loan obligations.

Thus, from a business whose predecessor was the Vinaconex Housing Development and Construction Investment Project Management Board (established in 2000) with a relatively small scale, Vinahud has seen a significant increase in assets after the two aforementioned transactions.

However, these two deals also caused a stir. This is because Vinahud carried out these two M&A transactions just before the maturity of three tranches of bonds with a total face value of VND 2,500 billion issued by R&H Group (from April 14th to May 4th, 2023).

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R&H Group holds several bond issues, including three bond issues with a total face value of VND 2,500 billion maturing between April 14th and May 4th, 2023.

The three-way relationship between Vinahud, R&H Group, and VNC Construction

Many investors are questioning whether Vinahud carried out the two M&A deals to help R&H Group obtain funds to pay off its bonds.

At the 2024 annual general meeting held on June 25th, shareholders questioned the relationship between Vinahud and R&H Group.

Unlike Vinahud – a small but well-known enterprise in Hanoi with many key projects such as the Trung Hoa Nhan Chinh New Urban Area and the Bac An Khanh Urban Area project – R&H Group is larger in scale but a less well-known name.

In fact, prior to Vinahud's two aforementioned M&A deals, R&H Group was significantly larger in scale, assets, and liabilities than Vinahud.

According to a report by R&H Group Joint Stock Company, as of mid-2023, the company had total assets exceeding VND 10,000 billion, but total liabilities amounted to nearly VND 8,947 billion. Of this, VND 5,000 billion was debt from private placement bond issuance.

Looking at R&H Group's report, it's clear that the company has poor financial health. In the first six months of 2023, R&H Group incurred a loss of over 296 billion VND, bringing the total accumulated loss to nearly 690 billion VND. The debt-to-equity ratio reached nearly 7.8 times. The total bond debt-to-equity ratio was 4.36 times.

Given their current financial situation and the lack of brand recognition, securing loans from banks is very difficult.

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R&H Group's financial health is poor.

Responding to a shareholder's question about the relationship with R&H Group, a Vinahud representative stated that R&H Group is one of the partners that has been developing projects with Vinahud for many years. However, the operations and ownership structure of the two companies are completely independent, with different major shareholders.

R&H Group issued a large-value bond in late 2021 and early 2022, with Tien Phong Securities Joint Stock Company (TPS) acting as the arranger.

R&H Group and Vinahud are two independent legal entities but share many similarities. Both have Mr. Nguyen Minh Tuan as their general director.

As for VNC Construction - the entity expected to acquire 100% of Me Linh Thinh Vuong's charter capital from Vinahud - this is also a company that has had close ties with Vinahud for some time.

In early 2023, Vinahud passed a Board of Directors resolution approving the issuance of commitments, guarantees, and the use of assets to secure VNC Construction's credit obligations at TPBank.

According to Mekong Asean, Vinahud directly and indirectly (through Friends Investment and Construction Co., Ltd.) holds nearly 100% of the shares of Xuan Phu Hai Investment and Construction Joint Stock Company - the investor of the Grand Mercure Quang Nam project.

Meanwhile, Me Linh Thinh Vuong Co., Ltd. holds a 40% stake in Prime Land Real Estate Investment Joint Stock Company - the investor of the 40-hectare Tien Phong Flower Village residential project in Me Linh district, Hanoi. This project has been delayed for many years.

Vinahud's financial situation is also quite bad. In the first six months of the year, VHD incurred a loss of over 105 billion VND, marking five consecutive quarters of losses. Revenue showed signs of decline while interest expenses remained high. By the end of the second quarter of 2024, Vinahud only had over 4.9 billion VND in cash and cash equivalents, while total liabilities amounted to over 4,912 billion VND.

At its 2024 annual general meeting, VHD stated that the company remains fully focused on completing and putting into operation the Grand Mercure Hoi An project, thereby helping the company improve its business results in the 2024-2026 period.