Removing outstanding debts in basic construction projects.

Struggling to make ends meet

Over the past two years, increased public investment and infrastructure development, coupled with a warming real estate market, have created more work for construction businesses.

However, since construction projects often last for months, if there are outstanding debts, contractors will face financial difficulties, leading to increased debts to subcontractors, material suppliers, and other stakeholders.

Outstanding debts are a major concern for construction companies. Photo: Hai Linh

Nguyen Van Hach, Director of BQT Hanoi Construction Investment Joint Stock Company, shared that most contractors are facing outstanding debts, especially for the remaining 20-25% of the project's work, even though the project may have been in operation for several years without final settlement. Meanwhile, contractors have to borrow from banks, incurring high interest rates, leading to prolonged debt accumulation across multiple projects.

Mr. Nguyen Van Hach further stated that, in reality, some investment projects lack coordination, have fragmented contract packages, and have unreasonable investment phasing... As a result, construction units complete their contract portions but cannot hand over or finalize payments because the projects are not yet operational. Businesses have to bear the costs of maintenance and warranty, leading to increased expenses and failure to recover capital as planned. This results in a loss of credibility as suppliers of materials are hesitant to sell to contractors, even though the cause is not the fault of the businesses.

"This situation occurs not only in projects using public investment capital and non-public investment state capital, but also in projects using other sources of capital. Many difficulties arise for construction contractors, and if these are not resolved promptly, they cannot 'compensate for losses,' and new debts combined with old debts become a huge burden," Mr. Nguyen Van Hach shared.

Outstanding debts are not only a difficult "problem" for small and medium-sized construction contractors; even large enterprises only thrive when they manage to secure some capital and restart many projects, reducing the pressure on cash flow to pay contractors. For example, Coteccons Construction Joint Stock Company reported a consolidated financial profit of VND 106 billion in the second quarter of fiscal year 2025 (i.e., the fourth quarter of 2024), a 54% increase compared to the same period.

However, bad debt decreased by VND 190 billion last year, but still remained around VND 2,163 billion. The majority of bad debt still comes from companies such as Viet Star Company (part of Tan Hoang Minh Group), Saigon Glory Company (the investor of the Ben Thanh Quadrilateral project), and Minh Viet Company (the investor of Tricon Towers).

Meanwhile, the Q4 2024 financial report of Hoa Binh Construction Group shows that accounts receivable still account for the largest proportion. The company has recovered 340 billion VND in debt from partners, but still has 6,891 billion VND in accounts receivable, equivalent to 45% of total assets and exceeding the year's revenue. Bad debts decreased significantly by 1,009 billion VND but still stand at 1,947 billion VND.

Efforts to resolve

In the case of Coteccons, it recently received a decision from the People's Court of District 1 ( Ho Chi Minh City) regarding the settlement of outstanding debts at a key project. With this agreement, Coteccons has made significant progress in recovering bad debts and is expected to exceed the target set at the 2024 Annual General Meeting of Shareholders in the 2025 fiscal year.

Leveraging the industry's recovery trend and the company's internal strengths, Coteccons aims for net revenue of VND 25,000 billion in fiscal year 2025 and maintains a sustainable growth rate of 20-30% annually for the next 4-5 years. Bolat Duisenov, Chairman of the Board of Directors of Coteccons Construction Joint Stock Company, shared that the positive progress in debt recovery is mainly due to Coteccons' proactive approach in working with customers, combined with the positive market recovery, which has accelerated the debt settlement process. The cooperation and goodwill of all parties involved, especially investors, played a crucial role in achieving these agreements.

“Avoiding new bad debts and minimizing outstanding debts prior to restructuring remains Coteccons’ priority. We have had open and transparent dialogues with shareholders about our financial strategy at the 2024 Annual General Meeting and believe that with the recovery of the financial health of our investors, debt resolution will make significant progress in the next 12-18 months,” said the Chairman of Coteccons.

As for Hoa Binh Construction Group, facing difficult circumstances, the company was forced to go to court with its partners to reclaim its rights. On February 19th, the company announced its victory in the lawsuit against its partner, Sunshine E&C Construction Joint Stock Company, and was ordered to pay a total amount of over 94 billion VND, including principal, accrued interest, and penalties. The amount in the aforementioned lawsuit was still outstanding from two construction contracts: the Wonder Villas townhouse project and the Sunshine International School project (Bac Tu Liem district).

Lawyer Pham Viet Thai from the Hanoi Bar Association observes that many projects lack a mechanism for adjusting contracts when the contract does not clearly specify the principles, methods, and scope of adjustment for adjusting contract prices when design modifications are made. This leads to contractors not being paid for the work performed.

"Currently, the State and Government are resolutely adjusting mechanisms and policies to support and resolve difficulties for many sectors, including the construction industry. Several circulars and decrees issued recently have actively resolved issues related to projects that have been temporarily suspended due to difficulties and obstacles in adjusting contract prices, affecting the operations of businesses," said lawyer Pham Viet Thai.

It is evident that domestic construction companies are undergoing significant transformations after a prolonged period of difficulty, with more positive signs emerging. According to MB Securities, macroeconomic factors are creating favorable conditions for public investment growth, and legal obstacles and material shortages are gradually being resolved, facilitating public investment growth in 2025.

The amended Law on Public Investment, effective from January 2025, aims to accelerate the implementation of public investment capital in ministries, sectors, and localities. The National Assembly has passed the Law amending and supplementing a number of articles of the Law on Investment under the Public-Private Partnership (PPP) method, encouraging private capital to participate in investing in public projects.

 

With the trend of increasing public investment, MBS predicts that construction companies will benefit the most, especially those that win bids for key projects expected to be completed in 2025, such as the North-South Expressway and Long Thanh Airport.

Source: https://kinhtedothi.vn/go-vuong-no-dong-xay-dung-co-ban.html