What challenges for QCG

Ministry of Public Security’s Investigation Police Agency has recently opened an investigation into "violating regulations on the management and use of state assets causing loss and waste" at the Vietnam Rubber Group (VRG), Dong Nai Rubber Company, Ba Ria Rubber Company, and other units involved in the infractions at land plot 39-39B Ben Van Don, District 4, HCMC.

Complications with several projects

The Government Inspectorate found that this land piece had been totally sold to users, notwithstanding its placement on state territory. As a result, the Government Inspectorate has urged that the Ministry of Finance perform an inspection and take appropriate legal action.

Before reaching out to the present investor, Nova Phuc Nguyen, to deploy the previously sold project, this land tract was the headquarters of Phu Viet Tin Company, which is 72% owned by Dong Nai Rubber Company and 28% by Ba Ria Rubber Company. QCG bought 99.5% of Phu Viet Tin Company's capital in 2014, which it then sold to three organizations and individuals. In 2017, Phu Viet Tin Company combined with Phuc Nguyen Real Estate Company, becoming Nova Phuc Nguyen.

Ms. Nguyen Thi Nhu Loan, CEO of QCG, explained to the State Securities Commission that QCG has never engaged or bargained directly with VRG, Dong Nai Rubber Company, or Ba Ria Rubber Company on the capital transfer.

QCG also stated that the resale of Phu Viet Tin Company's ownership capital just a few months after purchase was due to financial plans focusing on the Phuoc Kien project, as investing in two projects at the same time was not feasible, so this project was sold to reduce the company's financial burden and minimize risks for shareholders.

On the stock market, the incident appears to have had little impact on QCG, as the shares continue to trade around VND 15,300 each - a milestone established with a sudden rise after the court ruled QCG must return over VND 2.880 trillion received from Sunny Island, a company in the Van Thinh Phat ecosystem through the Phuoc Kien project transaction. Regarding the event, QCG has also contested the ruling forcing it to refund a sum equal to 28% of the firm's total assets, claiming that the business should return more than VND 1.441 trillion to Ms. Truong My Lan. The outstanding sum should be deducted from prior payments made to Sunny Island.

Business operations remain challenging

QCG has extended the timeline for organizing the 2024 General Shareholders Meeting, with the final list date of May 29 and the time and venue to be notified subsequently. In addition, on April 19, QCG announced the publishing of the 2023 annual report, which is currently not available on the company's website. Thus, QCG's business plan until 2024 remains undetermined.

On March 29, right before the close of the Q1/2024 business results, QCG announced the transfer of its whole 31.39% share in Quoc Cuong Lien A JSC. This was the company's most favorable transaction in the first quarter of 2024, generating financial income of VND 6.4 billion versus a loss of VND 65 million in the same period last year. In addition, QCG received over VND 1.5 billion in interest income from linked firms, up from a loss of VND 77 million in the same time previous year.

In Q1/2024, QCG generated roughly VND 39 billion in net revenue, a 77% decrease from the same time last year owing to real estate market issues and overlapping legal proceedings. After subtracting expenditures, QCG's after-tax profit was just VND 651 million, a 28% fall from the same period.

By the conclusion of Q1/2024, QCG owed about VND 5.200 trillion. Other short-term payables continued to account for the biggest amount, totaling more than VND 4.300 trillion, including VND 2.880 trillion received from Sunny Island. Debt fell marginally by 2% to more than VND 570 billion. If forced to refund more than VND 2.880 trillion as ordered by the court and take 16 properties from the Phuoc Kien project, QCG would face major obstacles.

Quoc Cuong Hydroelectric Construction Investment JSC received approval from QCG on May 20 to sell the IA Grai 2 Hydroelectric Plant project and the Ayun Trung Hydroelectric Plant in Gia Lai. Previously, the business borrowed VND 101 billion from Vietcombank to finance the IA Grai 2 hydropower project and VND 198 billion from Vietcombank to finance the Ayun Trung hydroelectric project, with both loans due in 2029. This demonstrates that, while the declared goal of the sale was to restructure the investment portfolio, it appears to be a choice to cope and create revenue in a situation where QCG's real estate segment has not showed additional indications of recovery.