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PetroVietnam risks delisting

SGI

PetroVietnam Construction Joint Stock Corporation (PVX) is a familiar name to investors, because it used to be the best liquidity stock on the HNX. However, at present PVX has become a tragic obsession for many investors, with the stock price at only VND 1,000 and a high risk of delisting due to prolonged losses.

PVX had built big projects such as Nghi Son Refinery and Petrochemical Plant.

PVX had built big projects such as Nghi Son Refinery and Petrochemical Plant.

PVX faces record losses

According to the PVX financial report for the third quarter of 2019, the net revenue in this period reached VND 518 bn, down by 18%, and the accumulated revenue in the first nine months of 2019 reached VND 1,623 bn, down by 26.6%. Remarkably, cost of goods sold account for most of the net revenue, making gross profit only around VND 500 mn. Specifically, in the third quarter of 2019, PVX had to pay nearly VND 35 bn in financial expenses, of which nearly VND 17 bn was interest expense and more than VND 53 bn of corporate management costs. With this result, PVX continued to have net losses of nearly VND 20 bn.

The business under cost of capital, plus cost burden, caused PVX to record a loss of VND 9 bn in nine months of 2019, of which the loss belonging to the parent company was at VND 117 bn. The loss in the third quarter made the accumulated losses upto 30 September at VND 3,805 bn, equivalent to 95% of the charter capital of VND 4,000 bn. In 2017 and 2018, PVX also lost VND 416 bn and VND 414 bn, respectively. Therefore, if there is no mutation in profit in this fourth quarter, PVX will have three consecutive years of losses, meaning that it will have to compulsorily cancel listing in accordance with Decree 58/2012.

PVX also continuously suffered big losses in 2012 and 2013, but still managed to escape the last listing cancellation thanks to a surge in 2014 business results. However, history will be difficult to repeat with PVX at the present time because the financial situation of the company is very volatile. 

Specifically, on 30 September, short-term liabilities exceeded short-term total assets of about VND 391 bn, which made PVX fall in working capital to pay due debts. Because of this factor, and not too long ago, the auditors raised doubts about the ability to continue operating after this enterprise announced its semi-annual financial statement of 2019.

Unplanned investments

It can be said that the turning point for PVX came from the decision to increase its capital to VND 1,500 bn and to peak at VND 4,000 bn in 2012. This huge amount of capital made PVX leader at that time, Mr. Trinh Xuan Thanh, did not hesitate "to burn money" when investing in side-line sectors such as finance and real estate.

As of 31 December 2012, PVX invested out of its main industry, more than VND 3,370 bn, in 41 public companies and joint ventures. In the period of 2012-2013, most of PVX subsidiaries and associates reported huge losses, with accumulated losses reaching more than VND 3,200 bn. This was the reason why PVX equity dropped from VND 4,000 bn to just VND 134 bn.

According to the Government Inspectorate, in 2011, a number of PVN member units, including PVX, detected many violations. Specifically, PVX had participated in joint ventures with many outside inefficient businesses, causing losses and losing capital. In many large projects of PVN, PVX was involved as a general contractor or a major contractor. After receiving the works, PVX assigned them to subsidiaries or subcontracted them to outside businesses. The irresponsible leadership of PVX, lax executive management, lack of inspection, supervision, and contrary to provisions of the law, left PVX in dire consequences.

The wrongdoings at Petroleum Mechanical and Assembly Joint Stock Company (PVC-ME) is a good example. In 2009, after being appointed Chairman of the Board of Directors, Mr Trinh Xuan Thanh and members of the Board at that time established PVC-ME with a charter capital of VND 500 bn, of which PVX held the position of founder shareholder with 40% capital contribution and assigned Mr. Trinh Van Thao as its General Director.

Due to poor management, PVC-ME just received projects but subcontracted at a percentage. As a result, a series of unending scandals occurred with one of the violations of PVC-ME being to set up an unauthorized fund with more than VND 85 bn just to use for miscellaneous activities and welcoming guests. According to the conclusion reached by investigating authorities, by 2012, PVC-ME had lost more than VND 576 bn of its equity.

Translated by Francis

Kim Giang

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