The USD/VND exchange rate after soaring in March had recorded a gradual decline so far. That meant enterprises with large foreign currency debt having exchange rate losses in Q1/2020 could record profits in Q2 when revaluating currencies denominated in foreign currencies.
A series of enterprises lost the exchange rate in Q1
In Q1/ 2020, the USD/VND exchange rate increased by nearly two percent to 23,644 dong, in the context that the US dollar price in the world hit the three-year high (US dollar Index on March 20 reached 102.8, up 6.7 percent compared to the end of 2019). Currencies of many major trading partners of Vietnam devalued, as well as domestic market sentiment affected by the Covid-19 pandemic.
According to experts, the Covid-19 epidemic had caused the global financial market to plummet. The need to withdraw capital from risky assets and the desire for secure, safe assets were the main reason for the rise of the US dollar.
The high exchange rate in Q1 had significantly affected businesses with jumbo loans in foreign currencies, especially the US dollar, when recording foreign exchange losses due to the revaluation of currencies denominated in foreign currencies.
For example, at Binh Son Refinery and Petrochemical Joint Stock Company (BSR), as of March 31, 2020, the loan balance was 8.4 trillion dong, accounting for 17.7 percent of the total capital.
The notes on the 2019 financial statements showed that, out of 5.898 trillion dong of long-term loans, BSR had 5.83 trillion dong of loans in the US dollar, accounting for 98.5%. This continued to be a burden for BSR when Q1/2020 recorded a loss of 138.1 billion dong.
The more substantial burden of BSR was the plummeting oil price, causing a sharp decline in inventories, as well as a decline in demand due to the Covid-19 epidemic, leading to a separate financial report for Q1 with a loss of 2.332 trillion dong.
Specifically, the price of oil fell by more than 70%, from 68 US dollar per barrel on the first day of the year to below 17 US dollar per barrel on March 31. The demand for gasoline decreased by 30 percent to 40 percent over the same period in previous years.
At Vietnam Aviation Corporation JSC (HVN), as of March 31, 2020, the Corporation had a total loan balance of 35.571 trillion dong, accounting for 50.1 percent of the total capital, of which 10.781 trillion dong was surplus of short-term debt and 24.79 trillion dong was outstanding long-term loans.
HVN did not disclose each type of foreign currency borrowed. Still, according to the notes to the financial statements in 2019, as of the end of last year, the Corporation recorded a short-term loan balance of 6.5 trillion dong and a long-term loan balance of 25.427 trillion dong.
Of these, financial leases from foreign organisations amounted to 21.529 trillion dong, including Citibank with 7.402 trillion dong, ING Group with 8.702 trillion dong, MUFG Bank with 1.82 trillion dong, Bank JP Morgan Chase with 1.6 trillion dong, HSBC with 1.408 trillion dong and Credit Agricole Bank with 587 billion dong.
The increase in the exchange rate in Q1/2020 negatively impacted HVN when exchange rate losses were 781.8 billion dong, increased by 2.3 times compared to the same period in 2019.
For PetroVietnam Power Corporation (POW), total outstanding loans as of the end of the first quarter of 2020 was 16.824 trillion dong, accounting for 29.5 percent of the total capital, including 8.555 trillion dong of short-term loans and 8.269 trillion dong of long-term debt.
According to POW, the Corporation had 8.538 trillion dong of outstanding loans in the US dollar, 763.3 billion dong of outstanding loans in euro.
In Q1, POW had to record a loss of 136.1 billion dong from the exchange rate. This was one of the reasons why POW’s profit in the first quarter of 2020 was only 505 billion dong, down nearly 45 percent compared to Q1/2019.
Thanks to the benefit from the fake input gas price, the temporary loss of exchange rate calculation had not directly affected the cash flow of POW. The cash flow report in Q1/2020 was still positive at 1.305 trillion dong. The cash flow in the period increased from 5.083 trillion dong to 5.407 trillion dong.
Hai Phong Thermal Power Joint Stock Company (HND) had a total outstanding loan as of March 31, 2020, of 5.055 trillion dong, accounting for 38.8 percent of the total capital. In which, the short-term loan balance was 1.904 trillion dong, the long-term loan balance was 3.15 trillion dong.
The company did not explain the loan currency in Q1/2020 report, but in the year 2019, the company recorded 1.87 trillion dong of short-term debt by the end of the year, and long-term debt of 3.527 trillion dong, in which 4.539 trillion dong was borrowed from China Export-Import Bank and 538.7 billion dong was from Japan Bank for International Cooperation. These might be the source of foreign currency, causing an exchange loss of 88.3 billion dong in Q1/2020 for HND.
Affected by the exchange rate, but HND’s after-tax profit in Q1/2020 reached 200 billion dong, up 101 percent compared to the same period in 2019, thanks to nearly a 24 percent increase in revenue and improved gross profit margin from 9.9 percent to 13%.
HND was an enterprise producing electricity from coal. Its new factories were operating efficiently, and input coal price dropped by over 46 percent YoY, which were the reason for the Q1 profit increased this year.
Another enterprise that recorded foreign exchange losses in Q1/2020 was PetroVietnam Transportation Joint Stock Corporation (PVT), with a loss of 28 billion dong.
As of March 31, the Corporation had a total short-term and long-term debt of 3.306 trillion dong, accounting for 29.5 percent of the total capital.
In the Q1 report of 2020, PVT did not explain the origin of foreign currencies. However, the financial statements in 2019 showed that, as of December 31, 2019, the total short-term and long-term loans was 3.433 trillion dong, This amount was quite similar to the total loan balance as of March 31, 2020.
In the explanation of the financial statements, PVT said that the company had signed some loan contracts with a credit limit of 2.023 trillion dong, $126.8 million, 9.936 billion Japanese Yen (equivalent to $92.4 million).
The US dollar loan interest rate ranged from 3 percent to 5.5 percent per year, the Japanese Yen loan rate was 1.2 percent per year, and the dong loan interest rate was from 2.47 percent to 10.8 percent per year.
Positive Q2 outlook
The USD/VND exchange rate surged in Q1, causing many businesses to record exchange rate losses, thereby adversely affected business results.
However, the exchange rate then reversed and continued to decline, currently trading at around 23,265 dong, down 1.6 percent compared to the beginning of Q2/2020, because the supply of foreign currencies was still guaranteed, especially when trade balance of goods surplus was high.
Therefore, businesses with negative business results in Q1 might record an interest rate in Q2 when revaluating currencies denominated in foreign currencies, especially in the US dollar.
On June 4, the State Bank of Vietnam announced the central exchange rate at 23,244 dong, a decrease of 2 dong compared to June 3 and the fourth decreasing session in a row this week. Totally from the beginning of the week, the centre rate dropped by 17 dong.
With a margin of +/ 3 percent being applied, the ceiling rate for commercial banks was 23,941 VND/USD, and the floor rate was 22,546 VND/USD.
At commercial banks, the listed exchange rate was generally stable, in which Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank), Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV), Vietnam International Commercial Joint Stock Bank (VIB) kept the listed prices at 23,170 dong to 23,350 dong per US dollar (buy-sell transfer).
Many forecasts predicted that the exchange rate from then to the end of the year would not fluctuate sharply, thanks to factors such as foreign direct investment flow continuing to be positive, Vietnam’s foreign exchange reserves remaining high.
