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Vietnam’s construction industry: risk of chain default

Vietnam’s construction industry: risk of chain default

Friday 15, 05 2020
Most construction companies witnessed a decline in business results in the first quarter of 2020,

​While an increasingly exhausting cash flow also made it difficult for contractors to recover from the COVID-19 epidemic.

Gloomy business results

Facing difficulties suffered by the real estate industry and the negative impact of COVID-19, Vietnam's construction industry has just experienced gloomy business results when most businesses witnessed revenue and profit declining compared to the same period last year, and some businesses have even suffered from losses.

According to statistics in the first quarter of 2020, total revenue of large enterprises in the construction industry reached VND 9,780 billion, down 17% compared to the same period last year while total profit after tax decreased by 27% to VND 347 billion.

Gloomy business results

In particular, the leader in the industry, COTECCONS CONSTRUCTION JOINT STOCK COMPANY (CTD), recorded a net revenue of VND 3,554 billion in the first quarter, down 16.4% compared to the same period in 2019. Profit after tax also decreased by 34.6 % to VND 123.4 billion in the first quarter of 2020, the lowest in the last 5 years.

Coteccons said that the decline in revenue in the last quarter was due to the fierce competition when fewer and fewer projects were available. Besides, many real estate projects which were signed but not implemented or implemented slowly in the first quarter due to the COVID-19 epidemic have affected the overall business activities of the company.

Meanwhile, HOA BINH CONSTRUCTION GROUP JOINT STOCK COMPANY (HBC) has witnessed a decrease of 34.1% to VND 2,442 billion in net revenue. The company’s profit after tax was only VND 5.5 billion, which is a sharp decline of VND 155 billion over the same period last year. This business may even have had to report a net loss in the first quarter if there had been no "other financial revenue" which was VND 12.7 billion.

Also due to the impact of COVID-19, VIET NAM CONSTRUCTION AND IMPORT - EXPORT JOINT STOCK CORPORATIONs first-quarter revenue and profit after tax decreased by 40% and 36%, respectively, to VND 1,000 billion and VND 63.8 billion. FECON CORPORATION also witnessed a decrease of 48.3% to VND 15.1 billion in profit after tax, while its revenue only decreased by 12.8% to VND 427.8 billion.

Even another giant in the construction market, CONSTRUCTION CORPORATION NO 1 JOINT STOCK COMPANY (Code: CC1), suffered a net loss of more than VND 56 billion in the first quarter of 2020 (the same period last year it gained more than VND 41 billion), although net sales of the company still reached VND 1,213 billion, just a slight decrease compared to the same period last year.

Cash flow increasingly exhausted

The outbreak of the COVID-19 has seriously affected all economic sectors. For the construction industry, the difficulty is not only indicated in the declining business results but also in the increasingly exhausted cashflow.
Financial reports of the first quarter of 2019 show that many investors are in serious liquidity situation. Many businesses such as Quoc Cuong Gia Lai, Netland, Phat Dat whose total assets may be worth trillions of dongs have total amount of a few billion dong in cash. Even businesses that follow balanced financial policies like Nam Long also face difficulties.

According to contractors, the difficulties faced by the real estate sector in the past two years have had a clear impact on the construction industry. Many businesses are unable to carry out their business plans because of legal problems, and some even fall into financial imbalance, unable to pay due debts.

Due to the complicated movements of the COVID-19 epidemic causing slow progress, revenue of construction companies has also been affected. Meanwhile, cash flow recovery is also limited because investors are also having difficulty in selling and handing over their projects due to the epidemic.

Cash flow increasingly exhausted

In the first quarter, most construction businesses witnessed negative operating cash flow. In particular, Vinaconex had a negative operating cash flow of VND 1,061 billion, nearly 4 times higher than the same period last year, and even higher than the revenue in the first quarter.

In contrast, Fecon is the only enterprise in the industry to record positive operating cash flow, but the amount was only VND 2 billion. Accordingly, the cash value of this business at the end of the period was only VND 221 billion, while receivables amounted to VND 3,344 billion, equivalent to 59% of total assets.

Similarly, cash flow of the other companies is also stuck in the receivables of investors, while the amount of available cash is very small. Particularly, cash of two Coteccons businesses accounts for over 10% of total assets while that of the others maintained below 5%. Hoa Binh Construction has a cash ratio of less than 1% while receivables account for 69% of total assets.

Asset structure of construction companies

According to BSC Securities, the construction industry is among sectors with the lowest tolerance after COVID-19 epidemic. BSC's analysis shows that construction companies can only maintain their business for an average of 4.2 months, much lower than other industries. Meanwhile, most of these businesses have less-than-6-month liquidity (except Coteccons).

Difficulties in cash flow due to bad debts from investors have caused a sharp increase in receivables, while the increase of short-term loans to provide capital for operating activities also made interest expense increase, and created additional financial pressure on these businesses.


Facing the above situation, many businesses have come up with solutions to deal with difficulties and overcome the impact of COVID-19 epidemic. Vinaconex said that the company persistently organizes a direct construction model in combination with a general contractor management model, while improving bidding work, searching for construction works and selecting projects with investors who have good capital source, and improving the quality of works to create prestige with foreign investors. 

In 2020, Vinaconex will try to sign new projects such as Foxconn E5-E6 (signed in March 2020), Vam Tra Lot Bridge (winning bid contract negotiation), VOV tower, Valuetronics, Lotte Mall Hanoi, Hanoi University of Science and Technology, Foxconn, etc.

The representative of Hoa Binh construction company said that this company is focusing on major customers, FDI customers, industrial and infrastructure construction. These customers are less affected by the epidemic and legal procedures.

According to economic experts, the Government's support package can help ease debt repayment. Businesses need to stay firm and overcome the difficult period in 6 months to 1 year. Meanwhile, restructuring solutions, finding new markets and new products are very good but need time and financial resources.

Source: Vietnambiz

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