Novaland passes the “tornado”

The 2023 Annual General Meeting of Shareholders of Novaland took place quite special when it was held at NovaWorld Phan Thiet, Binh Thuan province for the first time. At the meeting, Novaland leaders discussed the up and down of the group as well as Vietnam’s real estate sector.

A few days later, Novaland, VPBank, Ricons, and contractors signed a cooperation agreement to restart the Aqua City project in River Park 2, Phoenix Central 1, Phoenix North 5 subdivisions in Bien Hoa City, Dong Nai.

The moves show Novaland's latest actions in the Group's attempt to step out of unprecedented difficulties in the Group's history. That's when the burden of costs, loans, and bonds... piled up, causing Vietnam's big real estate brand to wobble.

Although Novaland's total assets reached VND 257,365 billion (more than $10 billion) at the end of 2022, a 5-fold increase after 5 years, the increase in assets on the balance sheet mainly came from the use of debt.

When the market suddenly changes in policy, money is no longer cheap, and interest rates have increased rapidly and strongly since 2022, causing Novaland to suddenly fall into crisis when facing challenges: payment or restructuring of accounts loans and bonds that are about to mature, as well as implementing other solutions to generate cash flow to finance the Group's normal business operations in the near future.

The situation of a leading enterprise like Novaland reflects the general difficulties of the whole real estate market when all are frozen, there are no transactions... leading to a series of major problems such as high lending interest rates.

Chairman of the Board of Directors of Novaland Bui Thanh Nhon admitted: “2022 can be said to be a challenging year for the global economy as well as for Vietnam. The recent “tornado” has left heavy losses and valuable lessons for Novaland. Facing the general crisis of the market, Novaland, like many other businesses, is being affected by objective factors and is facing difficulties and short-term liquidity.

Also in the same situation as Novaland, despite cutting 50-70% of staff in 2022, in the first half of this year, many real estate businesses continued to shrink their apparatus to overcome difficulties. The data of the Vietnam Real Estate Brokers Association (VARS) also reflects the fierce screening of the market in the first months of 2023. According to VARS, if only the brokerage system is counted, in the first quarter, there are about 40-50% more exchanges had to close or suspend operations compared to the previous quarter.

The crisis in the real estate market caused Novaland's NVL stock from the peak of over VND100,000 to plummet to the threshold of over 10,000 VND and became a phenomenon on the stock exchange, showing the real concern of investors. However, Ms. Do Thi Phuong Lan, a member of the Board of Directors of Novaland, affirmed that "there was not any exit" and explained that NovaGroup registered to sell a large number of shares of NVL to support the restructuring. debts of the Company.

At the same time, Novaland's leaders also committed: "During the crisis, in the context that there is no operating money, capital and sales money is tight by banks, we are ready to accept any loss, any difficulty. difficulties, committed to making efforts to compensate for customers and shareholders”.

In fact, Novaland is showing positive signs in the fourth quarter of 2022 and in the first half of 2023 with specific plans such as debt postponement, asset sale, debt conversion into shares, coordination with private organizations and international consultants to restructuring, control of cash flow..., along with specific plans on project development and construction activities, and re-prioritize works that are about to be completed to continue handing over. products for customers, choose good projects with high liquidity and accelerate legal completion steps to promptly respond when the market recovers.

At the end of fiscal year 2022, Novaland's total consolidated revenue reached nearly VND11,151 billion, down 25.5% over the same period, reaching just over 30% of the set target and nearly VND 2,182 billion. Consolidated profit after tax decreased by 36.8% and reached just over 33% of the set target. For the 2023 plan, Novaland sets a target of VND9,531 billion in revenue and VND214 billion in profit after tax. Novaland's representative said that this indicator is somewhat cautious when the market is not favorable.

Novaland sets a revenue target of VND 9,531 billion and profit after tax of VND 214 billion.

The third quarter’s hope  

The real estate sector is undergoing its most intensive screening in a decade. Many companies learn that financial leverage is overused. This is why many units have huge assets but much bigger liabilities. When the market goes bad, cash flow breaks and the business collapses. I've seen 10-15% of real estate companies survive the crisis and thrive. Because they maintain a stable cash flow, quickly restructure, and use M&A early to continue projects and supply revenue-generating products."

To survive and expand, businesses need quick, complete reorganization. NovaGroup sold Nova F&B to a Singapore partner to focus on real estate. Nova F&B developed 46 outlets with 18 brands in three years.

Novaland's March 31, 2023, consolidated debt balance was VND 62,700 billion, down VND 9,000 billion from September 30, 2022). As of December 31, 2022, Novaland's unrecorded revenue was over VND 251,000 billion, originating from projects that have been turned over, are in legal completion, and Novaland projects are the company's major owners. co-investment and development. In 2024–2025, the Company expects to build two more urban real estate projects in Ho Chi Minh City and one nearby. Novaland's chairman said: "The Group's production and business activities will recover in the third quarter of 2023".

Novaland's leaders' expectations regarding government issues, interest rates, and credit rooms are sending encouraging signals to the real estate market. According to VARS Chairman Nguyen Van Dinh, interest rates have dropped, credit room has emerged, and cash flow returning to the market will hunt for investment avenues. Real estate is the favored investment channel due to its capital preservation and habit of accumulating assets. Investors should research and invest now.

Because the supply of real estate remains scarce while the market is demonstrating good improvements thanks to the Government's support and removal of barriers," Dinh added.

The market has evolved, albeit slowly. Real estate companies must keep solving problems, notably cash flow issues. Many estimates indicate that the market will change in the fourth quarter, improving enterprise asset quality and cash flow. Due to capital theft and inventory initiatives, many real estate companies will still have cash flow issues for at least two quarters.

For Novaland, one of the reasons why this group has difficulties is due to many problems in legal procedures, especially large projects with an area of ​​​​up to 1,000 hectares. This also causes 10,000 billion VND to be frozen at banks that are not eligible for release. However, along with the restart of the Aqua City project, Mr. Dennis Ng Tech Yow, General Director of Novaland, also announced the details of the plan to rebuild Novaland's projects.

Accordingly, in April, the Group signed an agreement on cooperation to complete the construction of The Grand Manhattan project in District 1, Ho Chi Minh City. In May, Novaland also rushed to restart projects, namely Hanaba Island and Wonderland at NovaWorld Ho Tram and a few subdivisions at NovaWorld Phan Thiet funded by Military Bank (MB). Projects in the center of Ho Chi Minh City are also being rebuilt such as Victoria Village, Sunrise Riverside...

Mr. Dennis Ng Tech Yow added: “Currently, the Company is trying its best to negotiate and continue to work with domestic banks and contractors to maintain the project development activities in a safe manner. ensure the progress of handover in stages to home buyers. With other projects/subdivisions also in the Company's plan, banks are considering and will sponsor the rollout in the near future.