BWE restructures its debts

However, BWE faces several risks, including policy risk, M&A risk, foreign exchange risk, and interest rate risk.

Debt Restructuring

BWE's Q3 2024 financial report states that the parent company's after-tax profit was VND 461 billion, which was 66% of the annual target and a 6% reduction from the previous year.

Unrecorded revenue and earnings from waste and wastewater treatment (VND 274 billion and VND 27 billion, respectively) as a result of delayed paperwork were the primary cause of this reduction. According to BWE, these numbers will be reported in Q4 of 2024. Including this sum, the parent company's after-tax profit for the first nine months of 2024 would be VNĐ 488 billion, which would be 70% of the yearly objective and a minor 1% reduction from the previous year.

As of the end of September 2024, the company held total debt exceeding VND 7.2 trillion, with over VND 2 trillion in short-term debt and the remainder in long-term liabilities. In Q3 alone, the company recorded a foreign exchange loss of over VND 67 billion. To address this, BWE's leadership shared with investors plans to base their strategies on foreign exchange forecasts and intensify debt restructuring efforts.

In particular, during the first nine months of 2024, BWE restructured debt by refinancing a VND 550 billion term loan from VietinBank (interest rate: 8.10%–10.50%) to Vietcombank at a lower rate of 7.6% annually for Biwase Long An.

According to corporate leadership, the remaining refinancing plan, which consists of (1) VND 705 billion from Maybank for a loan at Standard Chartered, (2) VND 219 billion from Cathay Bank for an HSBC loan, and (3) other loans, should be finished by the end of 2024. Additionally, BWE adjusted Quảng Bình Water Supply JSC's debt.

With an estimated 1% drop in USD interest rates and a 2-3% drop in VND interest rates, BWE intends to refinance a total of VND 1.55 trillion in 2024. According to BWE, this might save VNĐ 96 billion (14% of 2023's reported profit if incorporating restructured debt for Gia Tân Water Supply JSC) or VNĐ 65 billion (10% of 2023's reported profit after minority interests) in borrowing costs. Furthermore, it is anticipated that the Federal Reserve's recent interest rate reductions will substantially reduce the cost of borrowing for BWE's USD-denominated loans in the upcoming year.

Despite short-term foreign exchange losses and reduced profits, Vietcap Securities believes BWE could achieve positive profit growth in 2025. Lower borrowing costs are projected to offset foreign exchange losses associated with the company’s USD 113 million loan (as of September 2024), which was used to fund its expansion of clean water supply across the Mekong Delta.

Potential Risks

Recently, BWE has ramped up its M&A activities with two significant moves. In August 2024, BWE spent VNĐ 23 billion to acquire a 47% stake in Saigon-Can Tho Water JSC. By October 23, 2024, BWE increased its ownership in the company to 65%, renaming it BIWASE Can Tho (Biwaco).

Additionally, TDM — BWE’s largest shareholder — has announced a public bid to acquire a 24.36% stake in Can Tho Water Supply JSC (CTW) at VNĐ 30,400 per share. Following this transaction, BWE and TDM will jointly hold 49% of CTW’s shares. Moreover, BWE holds 49% of CT2 and 65% of Saigon-Can Tho Water JSC (Can Tho 3).

BWE wants to increase its market share by using financial leverage to boost revenue and volume of commercial water. By the end of 2024, BWE leadership anticipates that the province of Bình Dương will authorize a five percent increase in water prices. It is believed that this change will increase gross profit margins.

Furthermore, BWE expects approval for a 3% yearly increase in water costs for the 2025–2028 period. Proposals for a 10% increase in wastewater treatment service prices are part of plans to improve the capacity of water plants and fortify the waste treatment segment. These plans also aim to maximize capital efficiency and lower debt, interest expenses, and foreign exchange concerns.

Overall, BWE's water-related operations, benefiting from local monopoly advantages and expanding market share, are viewed as having positive prospects.

However, because of its heavy reliance on environmental variables and natural resources, the water sector needs sustainable solutions for both environmental protection and resource utilization. As a result, the industry is vulnerable to resource and environmental hazards in addition to policy concerns.

In addition, BWE is exposed to operational risks, such as those resulting from M&A activity, volatility in interest rates and foreign exchange, and non-revenue water (NRW) rates. Notably, BWE's profit growth is predicated on the suppositions of lowering interest rates and stable exchange rates, although these forecasts are questionable given the continuous volatility of the market.