Vinatex: Decreasing Debt of 11% while Increasing Interest Payment of 10%

This is the information provided by Mr. Le Tien Truong, Chairman of Vinatex, at the conference on resolving difficulties for production, promoting growth, and macroeconomic stability this morning.

At the conference, Mr. Truong delivered a lecture from the perspective of the competitive export-oriented economy with many different countries and developed markets.

The data and figures mentioned in his speech were collected from the activities of the textile and garment conglomerates themselves, with a scale of only 5% of the industry’s total labor force and export turnover accounting for more than 8% of the industry’s total; the financial data mainly based on the Consolidated Report of Vinatex.

Vinatex: Decreasing Debt of 11% while Increasing Interest Payment of 10%

According to Mr. Truong, in the years 2022 and 2023, after the COVID-19 pandemic and recovery, major garment-exporting countries such as China, Vietnam, India, Bangladesh, and Turkey all have a tendency to stimulate exports.

Except for Vietnam, the remaining countries have all devalued their domestic currencies to boost exports. According to statistics, in the years 2022 and 2023, the country that devalued its currency the most was Turkey (by 50%); followed by Bangladesh with a 21% devaluation, and China with an 11% devaluation from 6.2 Chinese yuan to 7.2 Chinese yuan.

In terms of exchange rates, in the years 2022 and 2023, Vietnam’s textile and garment products, in general, were more expensive than those of the top 5 countries, costing about 15% more. According to Mr. Truong’s assessment, this is also the reason why in 2022 and 2023, Vietnam’s textile and garment export industry decreased by 10%, being the country that reduced the most among the 5 garment-exporting countries.

Regarding interest rates and credit policies, currently, the average interest rate in general of countries is around 3.5%. Meanwhile, in Vietnam, with Vinatex, the average borrowing rate is about 7% for good businesses and about 9% for poor businesses. Considering the real positive interest rate, Vietnam currently has the highest real positive interest rate among garment-exporting countries.

To provide evidence for this argument, Mr. Truong provided relevant data on the conglomerate’s operations in the past five years. Specifically, he stated that in Vietnam alone, the interest payment to banks in 2023 by Vinatex on the Consolidated Report increased by 10% compared to 2022, while the total debt decreased by 11%.

“Decreasing debt of 11% while increasing interest payment of 10%, that means that compared to 2022, the cost price is higher, and compared to 2021 with support, the interest payment increases by 30%. And based on the credit contracts that the conglomerate holds from January and February 2024 until now does not show that the total interest payment in 2024 will be lower than that in 2023,” he shared.

The Chairman of Vinatex also revealed that garment companies have not found it difficult to access credit, but for the past 18 months, the industry has faced difficulties in sourcing raw materials. In which the worldwide fiber industry is in the red, not only in Vietnam. In 2022, it was easy to access capital, in 2023 it became more difficult, and especially recently, at the end of 2023, the beginning of 2024, when evaluating the 2024 credit limit for the fiber industry, it was very difficult.

All banks are currently cutting credit limits for fiber companies, or requesting 100% collateral for short-term loans in 2024. In 2023, the value of this collateral covered only about 20% of the total loans, while this year, it must be 100% or applying the policy of being able to repay 10 then only being able to borrow 8 or 9.

For the fiber group, currently, many units borrowing from state-owned commercial banks are about 7%, and borrowing from non-state-owned commercial banks is about 9%. This pertains to interest rates and credit policies.

Without the support of banks, Vietnam could lose the fiber industry

Regarding other support policies, currently, countries such as China are maintaining very strong support for electricity prices. For the fiber industry, China is currently applying a rate of 4 cents/kW, only equal to 50% of Vietnam’s rate, and applying a 50% subsidy for domestic transportation rates, starting from March 1, 2023.

Bangladesh is still applying non-mandatory health insurance and very low minimum wages of $15/month. From this basis, looking from the perspective of the textile and garment export industry (this opinion may be suitable for the general export industries as well), it is currently running at a loss globally in the fiber industry, just like the aviation industry has been in the past few years due to the COVID-19 pandemic.

“Therefore, if there is no support from banks and guidance from the Government and Ministries, we may lose the fiber industry… Our fiber industry currently has 10 million spindles. The value of assets in terms of new investments is about $6 billion, and the remaining value is about $3 billion, and currently we are paying the bank about $300 million in loans every year,

If we reduce the credit limit, it may seem safe in the short term, but it is actually not safe in the long term because without production, there is no money to repay the previous long-term loans. Currently, we pay the bank about $300 million per year. The impact in the short term affects the long term but it is not necessarily debt,” he observed.

In addition, Mr. Truong also disclosed that the fiber industry is also maintaining 150,000 employees with an average salary payment of about $1 billion, especially the fiber industry consumes a lot of electricity, currently paying about $500 million for electricity a year. There are many districts like Dinh Quan District, Dong Nai Province, where 60% of the electricity revenue comes from fiber plants. If capacity utilization continues at a low rate, it will be very difficult.

Therefore, Mr. Truong believes that it is necessary to continue supporting fiber businesses in 2024, without reducing credit limits and without requiring fixed assets as collateral, to maintain their production and return to their original mobilization rate.

According to Mr. Truong, currently interest rates have decreased, but access to disbursed capital is very difficult. On the other hand, market conditions in 2023 are much more difficult than in 2021 and 2022 due to China opening up and becoming the world’s largest competing country.

By December 2023, China’s report has only mobilized 60% of the textile and garment industry’s capacity, so they continue to support policies to increase this mobilization rate. “The story of support policies like the COVID-19 period for this recovery phase is also very important for export industries,” he emphasized.

In addition, Mr. Truong also made recommendations regarding exchange rates. “With a decrease of only 5% in the past 2 years, export industries are facing many difficulties compared to other countries. We are also not sure how much it should be reduced, but perhaps 5% is too little and difficult for export industries to recover,” Mr. Truong said.

Vinatex is one of Vietnam’s leading textile and garment businesses. In 2023, Vinatex achieved consolidated revenue of VND 17,225 billion, reaching 104.4% of the plan; estimated pre-tax profit reached VND 377 billion, reaching 101.9% of the plan.

In 2023, the corporation and its member companies had nearly 62,000 regular employees with an average income of VND 9.45 million/person/month, reaching 96% compared to 2022, but the working hours decreased by 15% (higher than 11% of the average wage received by employees nationwide in 2023 (about VND 8.5 million/person).