Reckless investment in M&A
HVG was established in 2003 when it started production in My Tho Industrial Park in Tien Giang Province with an initial charter capital of VND 32 bn. In 2007, HVG officially changed to a Joint Stock Company with charter capital of VND 120 bn. In the same year, HVG raised its charter capital to VND 420 bn. In 2008, the company increased its capital to VND 495 bn and in 2009 to VND 600 bn. By the end of 2009, HVG officially listed shares on HOSE with reference price of VND 50,000 per share.
It can be said that the decision to list shares on the stock exchange was an important milestone for HVG. In 2013, HVG issued 39.5 million bonus shares at a ratio of 2:1 to existing shareholders, along with 1.2 million ESOP shares for employees, raising capital to VND 1,199 bn. By 2015, HVG continued offering existing shareholders 43.5 million shares. At the same time, HVG issued nearly 13.2 million shares, raising its capital to VND 1,891 bn. In 2016, the company issued 37.8 million shares, raising capital to VND 2,270 bn.
With this rapid increase of capital, HVG recklessly poured money into a series of mergers and acquisitions (M&A) to complete the process of a closed supply chain, from farming, processing and distribution, to even fisheries. By the end of 2017, HVG had 23 subsidiaries, joint ventures, and well-known associates such as Viet Thang Animal Feed Joint Stock Company (VTF), An Giang Seafood Import Export Joint Stock Company (AGF), European Joint Stock Company (EUR), Asia Limited Company (ASI), and Western Hung Vuong Aquaculture JSC (HMT).
Buried under debts
While ambition to consolidate a leading position through M&A activities, HVG began to pile up a large amount of debts. The reason was clearly a large capital mobilization for M&A activities with poor investment management efficiency. According to the consolidated financial statement for the fiscal year 2016-2017, ending on 30 September 2017, HVG suddenly reported a loss of nearly VND 713 bn. By the end of the fiscal year 2016-2017, total liabilities were at VND 11,378 bn, of which short-term debts were at VND 10,678 bn, exceeding short-term assets of VND 9,868 bn. The financial statements of HVG also received negative comments from the audit company.
With this result, at the beginning of 2018, HVG was put under control by HOSE, with only afternoon trading, due to losses for two consecutive years. It was not just the losses, but HVG also regularly published false information. HVG was repeatedly fined by the State Securities Commission (SSC) and warned by HOSE. From a price of VND 10,000 per share at the end of 2006, HVG shares dropped to just VND 2,000 per share by mid 2008. This price continued until 2019 when HVG was buried under heavy losses.
According to the financial statement after the audit year 2018-2019, HVG continued to record a loss of VND 1,075 bn, bringing total accumulated losses to VND 1,489 bn. Besides huge losses, HVG was also under doubt for its inability to operate. According to the auditor Ernst & Young Vietnam, the total short-term debt of HVG exceeded the short-term assets of VND 1,170 bn as of 30 September 2019, in which the loan for Vietcombank alone amounted to VND 600.6 bn. The expiry date of this loan was 21 May 2018 and has still not been paid. The biggest creditor of HVG is BIDV with more than VND 2,000 bn in short and long term loans.
While at the edge of bankruptcy, HVG suddenly received a "life savior" in the form of Thadi Agriculture Farming, Processing and Distribution Joint Stock Company, a member of Truong Hai Auto JSC (Thaco). According to the agreement signed by the two parties on 9 January 2020, Thadi would invest in HVG with a 35% stake and participate in governance, appoint representatives, hold positions of Vice Chairman of Board of Directors and Chief Financial Officer, as well as select technical experts. In parallel with this, Thadi would contribute 65% to Thadi-HVG Joint Venture Company to produce piglets with capacity for 45,000 pigs, with total investment of VND 2,000 bn in An Giang and Binh Dinh provinces. In the long term, Thadi would invest in raising pigs according to EFSA standards, to the scale of 1.2 million per year, providing clean pork products in the domestic market.
With this investment decision, HVG immediately changed the time to organize the Annual General Meeting of Shareholders in 2020, with a scheduled date set for 20 February. This can be considered as the General Meeting of Shareholders deciding the future of this business with important reports, such as the proposal for Thadi to increase the ownership to 25% of the capital without having to make a public bid, and the additional voting proposal of two Board members for the term 2017-2021.
Currently, the Board structure of HVG has five members, of which Mr. Duong Ngoc Minh is Chairman and CEO. Also to be presented would be a report on the business targets for the fiscal year 2019-2020, with revenue and profit of VND 12,524 bn and VND 790 bn, respectively. In this, the fish processing segment brought the highest revenue and profit with VND 6,292 bn and VND 315 bn respectively.
Although the plan was built with high profits in mind, but the first quarter results of the 2019-2020 period are quite disappointing. Specifically, profits in this period were negative at VND 251 bn, bringing total accumulated losses upto VND 1,743 bn. This negative result along with overdue debts of HVG, is predicted to caused serious "hardships" for Thadi.
Currently, even Thadi's management capacity is being questioned by investors after this company decided to pour huge capital into Hoang Anh Gia Lai Joint Stock Company (HAG) and its subsidiary, Hoang Anh Gia Lai Agriculture Joint Stock Company (HNG). After Thadi sent a representative to the Board of Directors, both HAG and HNG made no positive changes, and even brought the two companies to the top of the table on a number of losses on the stock market. According to the reviewed financial statements of 2019, HAG and HNG lost VND 1,609 bn and VND 2,308 bn, respectively.