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Major investor makes minor provision
Kinh Do Corporation has seen the value of its share holdings fall off a cliff but so far has only provisionally written down the value of its holding in fellow confectionery producer Vinabico.
In a statement to the Ho Chi Minh Stock Exchange, Kinh Do says no provision has been made for devaluing Kinh Do’s other share holdings since they are more in the nature of long-term business arrangements.
Kinh Do’s fourth-quarter financial report for 2008 valued its “long-term investments,” as it described its ownership of other stocks, at VND902 billion (US$52 million).
Its portfolio of listed shares had a market value of VND835.5 billion, while Kinh Do’s stakes in its business partners was worth VND32 billion and its stakes in subsidiaries was worth VND9 billion.
Deputy General Director Le Phung Hao insists that Kinh Do’s share purchases are never speculative in nature; they are solely for the purpose of building up the business.
“For one, we have invested heavily in our subsidiary Kinh Do Binh Duong Joint Stock Co. to build a VND400- billion ($23 million) factory in Binh Duong Province,” Hao said.
“Also, we have bought into Sai Gon Kim Cuong Joint Stock Co. to build the 45-storey SJC Tower in Ho Chi Minh City’s District 1, and have a cooperation contract with Bourbon Tay Ninh to supply us with sugar.
“We took a controlling stake in Vinabico to augment our confectionery output, while our investment in Nutifood paved the way for us to enter the dairy foods market.”
But economist Le Dat Chi from the HCMC University of Economics is adamant that Kinh Do must create nominal-loss provisions for all these listed and unlisted share holdings, as regulated by the Ministry of Finance.
“The ministry’s Circular No. 13/2006/TT-BTC requires listed companies to create provisions for revaluing both long-term and short-term investments as necessary,” Chi said.
Dang Ngoc Phan from the Hanoi Auditing Company said any profit or loss from owning shares in business partners or subsidiaries, even if the profit or loss is on paper only, must be included in a firm’s financial report.
“For example, firms who buy shares in their strategic business partners and intend to hang on to those shares still have to create profit-and-loss provisions if necessary. Circular No. 13/2006/TTBTC doesn’t exempt long-term cooperation investments,” Phan said.
Kinh Do has been hit hard by the collapse of share prices in Vietnam, which fell more than 66 percent in 2008.
It bought a 6.42 percent stake in Eximbank for VND1.4 trillion in 2007, when the share price was VND80,000. By December 31, 2008, Eximbank had plunged to VND12,000 in the OTC (over-the-counter) market, and Kinh Do was still holding the shares.
Kinh Do also bought shares in Sabeco, Vietnam’s largest beverage producer, at its IPO (initial public offering) last year, paying over VND70,000 a share. On the last day of 2008, Sabeco’s share price was a dismal VND29,000 in the OTC market.
According to an e-mailed statement from the corporation, Kinh Do’s net income fell 37 percent to VND142 billion ($8.1 million) last year.
Dau Tu Chung Khoan
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