Incurring debts, losses, businesses cry for urgent help

Reducing profits, incurring losses, having to scale down production or shutting down workshops temporarily are the common situation of 30 percent of total enterprises.

The finance reports for the first six months of the year show the sharp fall of profits of enterprises. Most enterprises have high proportions of bank debts. Especially, the debts of some enterprises have been found as bigger than the stockholder equities.

Small profits, big debts

The financial report of the PetroVietnam Nghe An Construction Joint Stock Corporation shows that the ratio of the corporation’s debt on the stockholder equity is very high at 1092/165 billion dong. The profit in the first six months of the year was 12.9 billion dong, not including the loan interests it has to pay. If counting on the interest rates, about 20 percent on average, the total loan interests the corporation has to pay would be 50 billion dong. As such, the minus profit in 2011 proves to be highly possible.

Le Dat Chi, MA, from the HCM City Economics University, said that the finance reports show that a lot of companies have the debts higher than the stockholder equities. Therefore, enterprises have to use the profits they made to pay for loan interests.

Also according to Chi, the limited money supply has made it unable to access bank loans to maintain production. Very few enterprises could borrow money, but they have to bear overly high interest rates.

It is worrying that enterprises try to delay the payment because they have no money, which has caused big difficulties to other enterprises. Since enterprises cannot get paid on schedule, they have no money to pay bank debts on schedule.

Narrowing production, shutting down

According to the HCM City Department for Industry and Trade, in the first six months of 2011, enterprises only ran production at a moderate level, while they only accepted the orders which can bring the profitability high enough to cover expenses.

Some enterprises have to delay the implementation of projects and cancel the plan to expand business. Some companies reportedly set up a plan to renovate equipments worth 100 billion dong and more, but they have delayed the project until it can see the lending interest rates going down.

According to the HCM City Management Board of Industrial Zones and Export Processing Zones (Hepza), tens of reports have been sent to Hepza since the beginning of the year, informing that they have delayed the project implementation, narrowed the production, transferred the production workshops or ended projects.

A Hepza official said he has never before witnessed such a critical situation, and that Hepza cannot stay outside, considering taking necessary measures to assist enterprises.

Nguoi lao dong has confirmed that a lot of merger and acquisition deals or workshop transfer deals have been reportedly recently, which shows that enterprises now have to scale down the production or shift to other business.

Pham Xuan Hong, Deputy Chair of the Vietnam Textile and Apparel Association (Vitas), said that 5-10 small garment companies have to shut down because of the lack of workers and unprofitable business. Many other enterprises have narrowed their production, because the production cannot bring profits to them.

“The small enterprises with low profits do not have enough money to pay to workers. As a result, they have to use unskilled workers, which has led to the high percentage of error products. As for them, shutting down production is inevitable,” Hong said.

Nguyen Ton Quyen, Deputy Chair of the Vietnam Forest and Forest Products Association, has said that enterprises have cut down 30-50 percent of the capacity.

The HCM City Business Association has released a report that 30 percent of enterprises are likely to have to stop production. However, there won’t be many enterprises to declared bankruptcy. In Vietnam, businesses would rather to drag out a miserable existence and hope for a better prospect than getting dissolved with complicated procedures.

Source: Nguoi lao dong

Tags: Vietnam companies, Vietnam enterprises, Vietnam SMEs