Dong A Plastics (DAG) issues shares to continue increasing capital by 200 billion

Dong A Plastics Group Corporation (DAG) has just converted 212 billion VND of debt into shares and plans to raise another 200 billion VND.

As stated in the presentation of the 2023 Annual General Meeting of Shareholders, Dong A Plastics Group Joint Stock Company (DAG) has just approved a plan to issue up to 21.2 million individual shares to convert the loan debt to Mr. Nguyen Ba Hung - Vice Chairman of the Board of Directors and Mr. Pham Ngoc Hinh.

These shares are used to exchange for a 0% interest loan worth 212 billion VND from these two individuals to DAG. Of which, Mr. Nguyen Ba Hung's loan is 112 billion VND, due on November 3, 2023, Mr. Pham Ngoc Hinh's loan is 100 billion VND, due on December 27, 2024.

Plastic is converting itself into a continuous component to increase capital formation. — Dong A Plastics (DAG) converted a debt of 212 billion, continuing to plan to issue 20 million more shares (Photo TL)

The par value of these shares is 10,000 VND/share, 2.2 times higher than the market price. Recorded in the trading session on April 11, 2023, DAG shares were priced at 4,450 VND/share. Thus, it can be considered that these two individuals had to "suffer a loss" when converting the debt into shares of Dong A Plastics.

In addition to the debt swap plan, Dong A Plastics is also planning to issue 20 million individual shares to raise an additional VND200 billion. The proceeds are expected to be invested in Dong A Plastics Company Limited and supplement working capital for production and business activities, and pay off other debts.

The question here is whether the two creditors are too kind to accept the debt-to-equity swap at a value that they have to suffer 2.2 times compared to the market price, or is Dong A Plastic's ability to mobilize funds to pay off debt really having a problem?

Dong A Plastics has had 3 consecutive years of gloomy profits, short-term debt continuously increasing

To answer the above question, we need to look at the business situation of Dong A Plastic in the past 4 years. Specifically, in 2019, Dong A Plastic recorded revenue of 1,635.4 billion VND, with profits reaching 53.2 billion VND.

However, in the period from 2020 to 2022, despite continuous growth, from 1,756.9 billion VND to 2,244.1 billion VND, profits were only recorded at a nominal level compared to the revenue scale. Profit in 2022 was only 9.8 billion VND, less than 1/5 of the profit in 2019. In the following 2 years, profits continued to decrease to only 7.4 billion in 2022.

Even in 2023, when Dong A Plastics set a pre-tax profit target of VND 22 billion, an increase of 55% over the same period, this target is still less than half of what was achieved in 2019.

The above profit growth rate may still be a distant plan because in 2023, exchange rate pressure may still be a problem for import-export enterprises. Pressure from competitors such as Binh Minh Plastics, Tien Phong Plastics... will also be an obstacle to Dong A Plastics' business plan.

Negative business cash flow of up to 157.3 billion VND

By the end of 2022, Dong A Plastics' total assets reached VND2,178.5 billion, an increase of about VND150 billion compared to the beginning of the year. However, the increase was mainly in liabilities.

Dong A Plastics's recorded liabilities increased from VND1,349 billion to VND1,491.6 billion. The main increase was in short-term loans and financial leasing debt, increasing from VND749.5 billion to VND963.7 billion, an increase of 28.6%. Long-term debt also increased from VND221.2 billion to VND245.4 billion.

Meanwhile, equity remained flat at VND687 billion. The company's undistributed profit after tax was very low, reaching only VND23.1 billion.

Another notable point is that Dong A Plastic's operating cash flow in 2022 recorded a negative 157.3 billion VND. The reason is due to the increase and decrease in payables, increase and decrease in inventories, and relatively high interest expenses. With a negative operating cash flow of 157.3 billion VND, it is not surprising that Dong A Plastic had to convert a debt of 212 billion VND into shares, and at the same time planned to issue an additional 20 million shares to raise additional money for business activities.

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