Businesses "cut blood" to pay off debt: Deals are difficult to predict success or failure

Sell assets, sell projects to pay debt

Recently, many large enterprises have put up for sale real estate or projects to pay off debts. Among them, Hoang Anh Gia Lai Joint Stock Company - HAGL (stock code: HAG) wants to sell the HAGL hotel in Pleiku City, Gia Lai Province. Mr. Duc's group said that this is part of the company's plan to liquidate unprofitable assets.

HAGL Hotel is probably the last real estate asset of Mr. Duc, operating since December 2005. Before that, he participated in real estate, hotel business and had some projects in Quy Nhon, Da Lat, Da Nang , Myanmar. But HAGL encountered an incident, he withdrew from this field.

The sale of HAGL Hotel this time is to repay the bond debt at BIDV Bank. According to the consolidated financial report for the 2023 semi-annual period, HAGL has an outstanding bond debt at BIDV of VND 5,271 billion, unchanged from the beginning of the year. As of June 30, HAGL has not paid the interest payable for the due payment period with a total value of more than VND 2.6 billion.

Doanh nghiệp cắt máu trả nợ: Thương vụ khó dự liệu thành bại - 1 — HAGL Hotel in Pleiku is being sold by Mr. Duc (Photo: HAGL).

While HAGL wants to sell its real estate assets, LDG Investment Joint Stock Company (stock code: LDG) has a policy to transfer two projects including Bai But - Son Tra Beach Resort (LDG Grand Central), Da Nang and Apartment Complex Lot C1 in Binh An Ward, Di An City, Binh Duong Province. This is to pay off the company's bank debt and bonds.

The sale of these two projects is a surprising decision by LDG, because at the recent 2023 Annual General Meeting of Shareholders, the company also wanted to issue shares to raise capital for project investment.

LDG Grand Central is one of LDG's strategic projects, which was identified in 2020. At the 2023 Annual General Meeting of Shareholders, the company's board of directors said that the project has the smallest area (30 hectares) among the strategic projects but has a prime location. The company also considered options for preparing capital to implement this project, in which it assessed that cooperation with partners is difficult.

Or Hai Phat Investment Joint Stock Company also announced the transfer of capital contribution at HP Hospitality Nha Trang project - the investor of TM1 commercial land in Tan Lap Islet residential area project. In addition, identifying cash flow difficulties, the company focused on wholesaling products at projects such as: Lao Cai project, high-rise buildings Bac Giang project and urban residential area project at Km3, Km4 Hai Yen ward, Mong Cai city (phase 1) Quang Ninh province.

In addition to the above-mentioned sales, the market has also recorded a number of successful mergers and acquisitions (M&A) transactions recently. These include Gamuda Land acquiring a project from Tam Luc Real Estate Joint Stock Company in Thu Duc City (HCMC) or Saigonres Group taking over a project from Duc Nhi Company Limited in Tan Phu District (HCMC).

The excitement of the cooperation market between domestic and foreign investors can also be mentioned as the strategic cooperation between Kim Oanh Group and Surbana Jurong Group (Singapore) or the investment from Marubeni Group (Japan) in Hung Thinh Group.

It is not easy to close the deal because of many factors.

Ms. Giang Huynh, Head of Research & S22M Savills HCMC, said that domestic enterprises will still have the need to sell some inefficient assets. However, whether these assets are attractive to foreign investors (NĐTNN) is another story.

According to her, the success or failure of a deal depends largely on the price negotiation between the seller and the buyer, and also on legal matters. A project with clean legal documents is often prioritized by foreign investors.

Sharing the same view, Ms. Duong Thuy Dung, Senior Director of CBRE Vietnam, said that for the housing market, most transactions are only related to land. That means foreign investors are interested in land funds for housing development in Ho Chi Minh City and Hanoi, they put the first requirement on clean land funds, then the conditions for project development such as legal documents, reasonable product development structure.

Most of the foreign investors who have conducted M&A transactions in recent times have been present in Vietnam for a number of years. If they are new investors, they usually prioritize investing in the form of contributing equity capital to Vietnamese enterprises to jointly develop projects. However, the current difficult problem of M&A in Vietnam is clean land funds, or the need for a legal corridor to create favorable conditions for investors.

Regarding domestic investors, Ms. Dung said that there is a tendency to sell real estate assets because the market has lacked capital in the past two years and they need to find new sources of capital outside of banks or issuing bonds. Domestic enterprises can call for capital from abroad or sell off their products.

According to a representative of CBRE Vietnam, outright sale is not easy because foreign investors always require clean project legality. Products that have been mortgaged to banks are difficult to invite foreign investors. Therefore, although domestic investors have proactively offered assets for sale, successful transactions are not easy.

Mr. Luu Quang Tien - Deputy Director of the Institute for Economic - Financial - Real Estate Research Dat Xanh Services said that recent M&A deals from foreign investors focus more on quality, most of which are in the form of capital contribution and share purchase.

In the future, the M&A market is forecast to begin to recover when inflation and interest rates are adjusted to a more reasonable level, in addition to factors such as the political and legal situation being strengthened.

"In general, the M&A market in Vietnam is still very attractive in the medium and long term as the economy still shows great growth potential. This is a reasonable period for investors to hunt for deals with good prices and more favorable terms," said Mr. Tien.

Source