Nam Mekong (VC3) used 200 billion VND of mobilized capital to repay debt for the Bao Ninh 2 project.

Use the 200 billion VND recently raised to repay debts for the Bao Ninh 2 project.

Recently, Nam Mekong Group Joint Stock Company announced a progress report on the use of capital raised from the share offering in September 2022.

In this offering, Nam Mekong offered 33.4 million shares to the public, raising 342.9 billion VND. Of this amount, 334.1 billion VND was collected, and the capital surplus reached 8.8 billion VND.

Initially, according to Extraordinary General Meeting Resolution No. 2010/2021/NQ-ĐHĐCĐ-MKG dated October 20, 2021, the funds were to be used to invest in the Bao Ninh 2 Urban Area project. Of this amount, 200 billion VND was used to pay land use fees and 134.1 billion VND was used for the construction of facilities on the land.

Southern Mekong VC3 uses 200 billion VND of mobilized capital to repay debt for the Bao Ninh 2 project (Figure 1). — Nam Mekong (VC3) has used almost all of its capital raised since September 2022 to repay debts for the Bao Ninh 2 project. Currently, Bao Ninh 2 still accounts for 80% of Nam Mekong's inventory (Photo courtesy).

However, Resolution No. 02/2022/NQ-ĐHĐCĐ-MKG dated December 5, 2022, of the Extraordinary General Meeting of Shareholders of Nam Mekong approved a change in the capital utilization plan. Specifically, VND 200 billion was used to repay the principal of a loan from Vietnam Technological and Commercial Bank (Vietcombank) for the purpose of "Paying land use fees for the Bao Ninh 2 Urban Area Project," and VND 134.1 billion was used for the construction of facilities on the land belonging to this project.

In its progress report on the use of funds, Nam Mekong stated that it had used up 200 billion VND to repay debts as stipulated in the resolution. Of the 134.1 billion VND allocated for construction, nearly 80 billion VND remains outstanding.

80% of inventory remains unsold at the Bao Ninh 2 Project, South Mekong, resulting in a significant negative cash flow for five consecutive years.

Looking at Nam Mekong's asset structure at the end of Q2/2023, the company's total assets reached VND 3,621.9 billion. Notably, inventory was recorded at a very high level, reaching VND 2,340 billion. Currently, inventory accounts for 64.6% of the company's total assets.

This inventory represents the cost of unfinished construction projects undertaken by VC3. Of this, 80% is located at the Bao Ninh 2 project, equivalent to VND 1,847.7 billion in inventory. In terms of total assets, the Bao Ninh 2 inventory accounts for 51% of Nam Mekong's total assets.

Inventory fluctuations for the Bao Ninh 2 project show that at the beginning of 2022, the inventory amounted to only VND 355.3 billion. By the end of 2022, the inventory had increased to VND 1,911.4 billion. By mid-2023, the inventory of Bao Ninh 2 still amounted to VND 1,847.7 billion.

This means a large amount of Southern Mekong's capital is "tied up" in this project. Therefore, it's not surprising that the 334.1 billion VND raised since September 2022 has been quickly disbursed for Bao Ninh 2, but Southern Mekong's cash flow has consistently been negative in each phase.

Specifically, in the last five years, VC3 has not recorded a positive net cash flow from its business operations in any year. From 2018-2022, the best year was 2019, when VC3's cash flow was only negative 19.9 billion VND.

Southern Mekong VC3 uses 200 billion VND of mobilized capital to repay debt for the Bao Ninh 2 project (Figure 2).

The peak of the operating cash flow deficit occurred in the three years 2018, 2020, and 2022, with negative cash from business operations amounting to VND 181.6 billion, VND 163.4 billion, and VND 214.3 billion, respectively.

To compensate for this cash flow shortfall, Nam Mekong had to increase its borrowing activities as well as raise additional capital from shareholders. The amount of cash from borrowed sources, as shown in the Statement of Cash Flows from financing activities, increased gradually each year, from 178.7 billion in 2018 to a peak of 734.6 billion in 2022.

In addition, VC3 has also increased its capital twice by issuing shares to existing shareholders in 2020 and 2022. The amount of money raised from these two share issuances was VND 283.8 billion and VND 334.1 billion respectively.

They haven't paid a single penny in cash dividends for six years.

The period from 2008 to 2017 was a time when VC3 consistently paid cash dividends. The cash dividend payout ratio during these years ranged from 10% to 22%, depending on business performance. The only exception was 2016, when VC3 paid a cash dividend of 5% and a stock dividend of 29%.

During the period from 2018 to 2022, VC3 only distributed dividends in the form of shares and rights issues, and did not spend a single penny on cash dividends.

Specifically, at the end of 2019, VC3 paid dividends for 2017 in shares at a rate of 15%. Also in that year, the company issued shares at a ratio of 1:1 to existing shareholders at a price of VND 10,000 per share. The charter capital increased by VND 283.8 billion.

In 2021, VC3 continued to pay stock dividends to shareholders with a total rate of 9.5% (including 2.5% dividend for 2018 and 7% dividend for 2019).

In 2022, VC3 also carried out another capital increase by issuing shares at a ratio of 2:1. The number of additional shares issued was 33,405,740 shares, bringing the charter capital to VND 334.1 billion. As mentioned above, almost all of this capital was invested in the Bao Ninh 2 project.

In 2023, VC3 issued shares to pay dividends at a rate of 11.5% to shareholders. Thus, for five consecutive years, VC3 has not paid a single cent of cash dividend to its existing shareholders.

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