Nam Long Investment Corporation: Navigating Challenges in Vietnam’s Bond Market

Introduction to the Current Landscape

As Vietnam’s corporate bond market experiences a lull, Nam Long Investment Corporation (Nam Long) has made a notable move—issuing VND500 billion (approximately $21 million) in non-convertible bonds. This decision, made amidst a challenging economic environment, reflects the developer’s strategic intent to leverage its equity in subsidiaries as collateral.

Bond Details and Purpose

The bonds, issued to the International Finance Corporation (IFC), come with a maximum term of seven years, set to mature on March 28, 2029, and feature an appealing annual interest rate of 12.94%. Nam Long aims to utilize the proceeds primarily to fund the second phase of the Nam Long Waterpoint Project. Located along the Vam Co Dong river in Long An province, about 30 km southwest of Ho Chi Minh City, this residential township project signifies the company’s expansion ambitions.

Collateral and Valuations

In securing the bond issuance, Nam Long provided substantial collateral by utilizing its 51% stake in Nam Long VCD JSC and a 50% stake in NNH Mizuki JSC. These stakes are valued at VND1,850 billion ($78.37 million) and VND1,501 billion ($63.59 million), respectively. This strategy not only reflects confidence in their subsidiaries’ growth prospects but also positions Nam Long to access necessary capital in a tightening credit environment.

An Analysis of Recent Bond Issuances

This current issuance marks the second and final tranche under an issuance agreement with the IFC. The first tranche was conducted earlier in June, similarly involving VND500 billion but at a lower interest rate of 9.35%. The contrasting interest rates highlight an evolving market landscape that has become increasingly cautious, affecting capital costs for real estate developers.

Market Context: A Unique Position

Nam Long’s bond issuance is particularly noteworthy as it stands out in a landscape where many companies paused their fundraising efforts. According to the Hanoi Stock Exchange (HNX), Nam Long is the only real estate firm to have successfully issued bonds in the past two months. This resilience contrasts sharply with the last issuer in the sector, Ba Ria-Vung Tau House Development JSC, who raised only VND30 billion ($1.27 million) with an interest rate of 11% in late October, showcasing the shrinking appetite for bond offerings within the industry.

Financial Performance Overview

In the third quarter of 2022, Nam Long reported a robust net revenue of nearly VND882 billion ($37.36 million), a staggering increase of 5.8 times year-on-year. However, the company’s after-tax profit reached only VND51 billion ($2.16 million), illustrating a drop compared to previous periods.

For the first nine months of the fiscal year, Nam Long’s net revenues totaled VND2,710 billion ($114.81 million), showcasing a significant increase of 244% yet accompanied by a decline in after-tax profits, which stood at VND276 billion ($11.69 million)—down 61% year-on-year. This divergence highlights a complex landscape where revenues can surge while profit margins tighten, a common scenario in aggressive market conditions.

Debt Dynamics and Stock Performance

As of September 30, 2022, Nam Long’s total liabilities reached VND12,604 billion ($534 million), up 24.9% from the beginning of the year. Notably, short-term debt accounts for 65% of this total, raising questions about the company’s liquidity management in a rising interest rate environment.

In the stock market, Nam Long’s shares (NLG) have faced significant volatility, trading at VND30,500 ($1.29) per share—a drop of more than 53% from their historical peak at the beginning of 2022. This decline reflects broader market sentiments and investor apprehensions surrounding the real estate sector in Vietnam.

Conclusion: Navigating a Turbulent Market

Nam Long’s proactive bond issuance, coupled with strategic collateralization efforts, positions it as a resourceful player in Vietnam’s real estate sector. Despite facing challenges, including fluctuations in profit margins and stock prices, the company demonstrates a commitment to growth and market resilience. As it navigates this complex terrain, stakeholders will be watching closely to gauge its forthcoming strategies and market adaptation efforts.