Transport firms show poor returns

Many Vietnamese state-owned civil engineering construction businesses are not developing as quickly as they might be expected.

Ministry of Transport (MoT) information reveals that for many transport engineering businesses current figures for ownership capital size and return on revenue rate are not dissimilar to those of several years ago.

“Our equity capital would contract a minus figure if overdue debts for which the Ministry of Finance-approved extended deadlines were included,” said chairman of MoT’s Vietnam Waterway Construction Corporation (Vinawaco) Nguyen Huy Hien.

Vinawaco had incurred accrued audited losses of VND415 billion ($20.7 million) by January 1, 2007 despite efforts to restructure debts and boost production and business efficiency.

Despite the corporation winning bids for the construction of large seaports and running effectively, its current accrued losses still far outstrip its chartered capital book value of VND154 billion ($7.7 million).

Vinawaco is just one of many businesses which the MoT believes are in a similar position.

According to MoT’s Steering Committee on State-owned Enterprises Renovation and Development, average ownership capital size for seven civil engineering construction corporations (Ciencos) under the MoT was around VND200 billion ($10 million) as of June 30, 2010.

With the exception of Cienco 5 which saw its equity capital grow from VND80 billion ($4 million) to VND306 billion ($15.3 million), the capital size of most other Ciencos was almost unchanged from several years ago.

This meant the operation of these capital-strapped Ciencos relied heavily on commercial loans and advanced investments by project developers. Because of current high lending rates, the average return on revenue rates of these Ciencos remained low, at about 0.9 per cent last year.

“Many big transport businesses report a debt rate far beyond permissible levels (triple their chartered capital amount) as regulated in governmental Decree 199/2004/ND-CP dated December 3, 2004. In some cases, the debt amount is even 10 times their chartered capital,” said head of MoT’s Financial Department Do Van Quoc.

“These colossal debts have sparked concerns about the investment and business efficiency of these labour intensive corporations,” said Minister of Transport Ho Nghia Dung.

This year is forecast to be a difficult one for businesses in the transport sector since the state budget allocation to the transport sector might be even lower than that of 2010, and not exceeding VND25 trillion ($1.25 billion) per year.

“Advanced investments to transport contractors will be kept at less than 15 per cent of total investment capital,” said head of MoT’s Planning and Investment Department Nguyen Hoang.

In this context, many transport businesses may be come ineligible to access soft commercial loans for building big highways from the Asian Development Bank and the World Bank. – VIR