DLG faces the risk of mandatory delisting

The Ho Chi Minh City Stock Exchange (HoSE) has issued a notification that DLG shares of Đức Long Gia Lai Group Joint Stock Company may face mandatory delisting. On April 4, 2024, HoSE issued Decisions No. 161/QĐ-SGDHCM and No. 162/QĐ-SGDHCM, shifting DLG shares from warning to control category, effective April 11, 2024.

The reason is that DLG's audited financial statements for the previous two years (2022-2023) showed negative after-tax profits, and the audit firm issued a qualified audit opinion for two consecutive years (2022-2023), classifying DLG shares as controlled securities under regulations.

Furthermore, HoSE stated that on September 28, 2024, it received both the individual and consolidated reviewed financial statements for the first half of 2024 from Đức Long Gia Lai. However, these reviewed financial statements for the first half of 2024 still contained a qualified audit opinion.

According to point h, clause 1, Article 120 of Government Decree No. 155/2020/NĐ-CP dated December 31, 2020, the shares of a public company are subject to mandatory delisting if the audit firm refuses to conduct an audit, issues an adverse opinion or disclaimer of opinion on the most recent financial statements of the listed entity, or issues a qualified opinion for three consecutive years. As a result, HoSE has informed the firm of the danger of DLG shares being delisted if the audited 2024 financial statements continue to bear a qualified audit opinion.

Concerning the qualified opinion on the 2024 semi-annual reviewed financial statements regarding doubts about DLG's ability to continue as a going concern, the company's leadership stated that they will assess the actual recoverability of short/long-term loans totaling nearly VND 167 billion and short-term receivables totaling more than VND 28 billion. They will also engage with clients to acquire extra collateral and improve debt collection during 2024 in order to give evidence to the audit firm so that the qualified opinion on the reviewed financial statements for the first half of 2024 may be resolved as soon as feasible.

"The firm is committed to reform its financial condition in order to reduce interest payments, improve debt collection, and slash expenses, with the ultimate objective of lowering bank and other institutional loans. In the first half of 2024, the firm returned VND 148.4 billion in principle debts, according to DLG.

At the same time, DLG stated that its business operations are steady, overcoming short-term challenges and meeting sales and profit projections.

In another incident, DLG recently declared a delay in paying the principal and interest on a bond issued on December 30, 2017 for VND 134 billion with a 10% annual interest rate. The primary payment was scheduled on December 30, 2022, however as of today, the business has only paid VND 1.5 billion to bondholders on September 30 and still owes roughly VND 79.4 billion.

The justification for the delayed payment provided by the corporation is not novel in comparison to past postponements. The corporation specifically mentioned the impact of extended natural catastrophes and epidemics, which had a direct impact on business operations, as well as rising interest rates and restricted credit, which limit ed cash flow and prevented them from paying bondholder payments.

The company’s leadership stated that they are negotiating and reaching agreements with bondholders to extend the repayment period for both principal and interest in accordance with the law.

It is reported that DLG issued this bond at the end of 2017, generating VND 134 billion with an annual interest rate of 10% and maturing in December 2022. It is over two years delayed. This bond is nonconvertible and has no warrants. It is backed by the personal assets of Chairman Bùi Pháp and his wife, Nguyễn Thị Hương, as well as some corporate assets. The bonds are kept in custody by the Bank for Investment and Development of Vietnam (BIDV).

However, according to the certified 2023 financial statements, DLG still owes VND 432 billion in outstanding bonds, of which VND 360 billion is for a five-year bond issued in December 2014 with a starting interest rate of 10% each year. This bond's collateral includes Đức Long Gia Lai Plantation and Forestry Joint Stock firm, Đức Long Dung Quất Co., Ltd., Alpha Seven Group Joint Stock Company, and other firm assets.

In terms of business results, in the first six months of 2024, DLG generated over VND 594 billion in net revenue, an increase of more than 16% compared to the same period in 2023. After-tax profit reached over VND 61 billion, up 79.4% compared to the same period last year and up 35.5% compared to the pre-review figures.

DLG's leadership credited the economic recovery to the group's total income from products and services sales in the first half of 2024 increasing by 16.2% over the same time previous year. Specifically, income from the sale of electronic components manufactured by the company's facilities in China and South Korea under MassNoble in Hong Kong climbed by more than VND 57.2 billion, while revenue from BOT toll services increased by VND 39.9 billion. The cost of products sold also increased, resulting in a corresponding gross profit of VND 41.6 billion, bringing the total gross profit from goods and services sales to VND 153.6 billion, up 37.2% from the same time the previous year.