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Equitized construction giant in dire financial straits

By Nguyen Ha   February 18, 2019 | 06:36 pm PT
Equitized construction giant in dire financial straits
Licogi headquarters in Hanoi. Photo courtesy of Licogi
Construction giant Licogi is suffering losses, unable to repay debts, and its liquidity depends on inventory sales and receivables.

A Finance Ministry report says construction and infrastructure corporation Licogi suffered a before tax loss of VND58.7 billion ($2.54 million) in 2017 and a meagre profit of VND9.8 billion ($423,511) in the first half of 2018.

The report also says that poor performance has lowered Licogi’s and its holding company’s capital preservation ratios to 0.79 and 0.83 respectively.

This means that the company is failing to "preserve state investment capital", the report said. The Finance Ministry has directed the Ministry of Construction to appoint a representative to report on the causes and identify solutions.

The Finance Ministry report also points out Licogi has difficulties paying short-term debts, especially debts of under 3 months, because its short-term assets consist primarily of receivables and inventory. Cash and cash equivalents by June 30, 2016 were only about VND40 billion ($1.73 million).

This situation has been evident from December 2017, when the company was warned by auditors who noted that its short-term debts exceeded short-term assets by VND1.23 trillion ($53 million).

"These factors, among others, cast doubt over the ability for Licogi to operate continuously," the report says.

It has also revealed an extremely low return on investment of 3.06 percent.

Licogi Corporation, established in 1960, is an enterprise operating mainly in construction and infrastructure. The company had been responsible for the construction of many hydroelectric, thermoelectric, industrial, transport, irrigation, and airport facilities, which have important political, economic and defense significance.

The company was equitized on January 1, 2016 and has been operating as a joint stock company since. However, Licogi’s post-equitization business has deteriorated, with accumulated losses reaching over VND530 billion ($22.9 million).

As of the end of June 2018, 40.71 percent was held by the State Capital Investment Corporation (SCIC), while another two major shareholders, private investment companies, collectively hold 57.24 percent.

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