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Loans in foreign currencies officially “risky”
Due to the global financial crisis, the prices of foreign currencies have been fluctuating, putting businesses that take out loans in foreign currencies at risk.
The HCM City Stock Exchange has served a warning on Pha Lai Thermopower Company (PPC) because the company did not inform investors about possible risks from the company’s loans in foreign currencies, thus affecting the interests of investors who own shares of PPC.
This is considered a general warning for all enterprises that borrow capital in foreign currencies in the context of the current financial crisis.
In its financial report for the third quarter of 2008, PPC should have included information about the higher costs for its loans in foreign currencies, as the dollar revalued sharply against the VND. Meanwhile, PPC simply reported the post tax profit of the company of Q3 at VND793bil.
Tran Anh Dao, Head of the Listing Securities Management Division under the HCM City Stock Exchange, said that PPC absolutely was aware of the risks caused by the exchange rate fluctuations, but it chose not to inform investors.
In order to carry out the Pha Lai Thermopower Plant project, PPC had to borrow yen50bil ($600mil) from the Japan Bank for International Cooperation (JBIC). Under the loan contract, PPC has to pay to JBIC yen2bil a year in both principal and interest. At the moment PPC signed the contract, the VND/yen exchange rate was VND147/yen1, but the rate has surged t VND180/yen1 recently, which means big losses for PPC.
Before the HCM City Stock Exchange served the warning, PPC announced it would delay paying dividends for the first phase of 2008, as it predicted that its profit would be not high enough. PPC predicted that due to exchange rate fluctuations, the profit of the company would be VND0 this year.
Economists have pointed out that most export companies have loans in foreign currencies under different modes of credit. However, according to Le Dat Chi, lecturer in the Finance Faculty under the HCM City Economics University, virtually no listing company includes details about loans in foreign currencies in its financial reports, which makes it difficult for investors to make wise decisions.
Nguoi Lao Dong
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