The cutting down of the public investment which has led to the reductions in the demand for building materials has put big difficulties for cement producers, sparing no one. Even the enterprises, which are considered the “big guys” on the market, such as Ha Tien, Hoang Thach, Bim Son – the subsidiaries of the Vietnam Cement Corporation (Vicem), and some joint ventures have also seen the market narrowed.
The Vicem’s market share has decreased by 3 percent after 10 months of operation, while the big guy has suffered the loss of 220 billion dong in total.
According to Vicem, the market conditions are not favorable for cement producers. The financial costs have increased due to the bank loan interest rate increases. Meanwhile, it has to pay debts and amortization for the projects which have just been put into operation.
Especially, the input materials all have increased dramatically, which has made the production costs increase. The petrol price, for example, has increased by 32-43 percent, the electricity price has increased by 15.28 percent, and the coal price has increased by 88 percent. The quietness of the real estate market has made the situation more serious.
Even the enterprises, which have been operational for many years in the field and have loyal markets and clients, also have to struggle to survive, let alone the enterprises which are the new comers on the market.
Dong Banh Cement Company in Lang Son province, which joined the cement market in late 2010 after four years of construction, for example, incurred the loss of 141 billion dong just after one year of operation. The latest report of the business shows that it cannot pay debts.
In 2006, the Dong Banh cement project was kicked off. The project capitalized at 1298 billion dong has the designed capacity of 910,000 tons. However, due to the delay in the implementation, the investment capital climbed to 1505 billion dong.
Right when the investors decided to inject money in the cement project, they were warned about the cement oversupply. The noteworthy thing is that the founding shareholders, including Coma, a mechanical engineering construction corporation, Mie, a machine and industrial equipment corporation and the Lang Son Cement Corporation, only contributed 52,485 billion dong, or 3.49 percent of the total investment capital. Meanwhile, the remaining capital was borrowed from the Bank for Investment and Development of Vietnam BIDV (272.142 billion dong), Agribank (183.467 billion dong) and ANZ (747.850 billion dong).
The big difficulties and the loss prove to be unavoidable for Dong Banh. The project has been developed with 80 percent of capital being the bank loans, which means that the financial costs are very high because of the high lending interest rates. Meanwhile, the investment period was two years longer than initially expected, which has led to the higher investment costs.
According to the Ministry of Construction, from 2011 to 2015, the enterprise will needs some 600 billion dong to pay bank debts and balance its financial resources.
Chair of Vicem Le Van Chung said that cement projects are usually invested in foreign currencies. After the financial crisis period, the bank loan interest rate increases, plus the dong devaluation both have put a heavy burden on enterprises.
As for Vicem, with 7 projects putting into operation in 2011, the enterprises will have to pay the debt of 3200 billion dong in total, which is equal to the investment capital of a big cement plant.
Also according to Vicem, declaring bankruptcy for some cement projects is the thing Vicem is considering. Though the bankruptcy may cause difficulties to laborers, but this is a necessary move to restructure the important industry.