HBC shareholders vote to approve debt-for-equity swap

As of the start of the Annual General Meeting, 119 suppliers and subcontractors have agreed to convert their debt into equity, worth 821 billion VND. However, regulations limit the number of private placements to 100 investors, and the approved plan includes only 99 suppliers and subcontractors.

In 2023, HBC paid off its bank loans on time and is not classified as a bad debt. Its credit limit with 3 major banks is currently 7,592 billion VND.

HBC believes that by implementing its recovery strategy and leveraging its experience, it will regain its leadership position in the domestic market and maintain a consistent increase in revenue, growing fivefold every five years. By 2032, HBC projects revenue of approximately 20 billion USD and profit of approximately 1 billion USD.

To achieve this growth rate, HBC will venture into international markets that are 450 times larger than the domestic construction market. HBC’s expansion into foreign markets is comparable to planting a bamboo tree. In the first four years, all efforts are focused on establishing roots hundreds of meters deep, with only a few centimeters of growth above ground. When the roots are strong enough, starting in the fifth year, the tree begins to shoot up at an incredible rate of 30 centimeters per day and reaches a height of 15 meters within six weeks.

In the first quarter of 2024, HBC secured contracts for overseas projects with a total contract value of 52.8 million USD, equivalent to 1,343.5 billion VND. While the number is modest, it represents an important start.

Shareholder’s equity increases to 7.2 trillion VND by 2026

CEO of HBC, Mr. Le Van Nam, shared that the company has developed nine strategies to increase shareholder’s equity to nearly 7.2 trillion VND by 2026, including issuing shares to swap debt with subcontractors/suppliers (expected to increase shareholder’s equity by 740 billion VND); selling debt (269 billion VND); selling part of its construction equipment (400 billion VND); handing over the Lake Side project, where HBC acted as both the investor and general contractor (expected profit of 72 billion VND); aggressively collecting receivables to reverse provisions (938 billion VND); implementing the Asscent No Trang Long project (500 billion VND); transferring real estate projects like No. 1 Ton That Thuyet and 233 & 235 Vo Thi Sau (total of 333 billion); M&A of the 127 An Duong Vuong and Hai Luu Resort projects by issuing shares to partners (total of 1,364 billion); and finally, issuing shares to strategic partners (projected 2,400 billion VND.

The attendance rate at the start of the meeting was 52.65%, fulfilling the requirement for HBC to proceed with the general shareholders’ meeting as per regulations.

Target profit of 433 billion VND in 2024

For 2024, HBC intends to achieve a total revenue of 10,800 billion VND, an increase of more than 43% compared to the previous year, and a post-tax profit of 433 billion VND (a loss of over 1.1 trillion VND the previous year).

The revenue target of 10,800 billion VND for 2024 was previously mentioned by HBC’s management at the general meeting on October 17, 2023. According to the plan, revenue from projects undertaken in 2023 and carried over to 2024 will be 5,500 billion VND; revenue from subsidiaries will be 600 billion VND; revenue from the overseas construction market will be 1,200 billion VND; and finally, revenue from new projects will be 3,500 billion VND. To reach the target of 3,500 billion VND, HBC’s new contract awards in 2024 are expected to be around 10,000 billion VND.

In addition to project execution, HBC also announced it will offer four new customer development services, including design and legal support, project management solutions based on BIM standards, ISO/ERP/PMS management systems, and construction machinery and technology.

Amendment to the 274 million share issuance plan

HBC said that due to unfavorable conditions in the financial market since the second half of 2023 and changes in the company’s capital needs, it needs the approval of the general meeting of shareholders to discontinue the issuance of 274 million shares according to the plans approved in previous resolutions.

Instead, the Board of Directors proposed a new plan that maintains the same issuance volume of 274 million shares, but reduces the number of shares offered in a private placement to raise capital to 200 million, while increasing the number of shares for debt-to-equity swap to 74 million.

In addition to the change in quantity, the issue price of the 74 million shares swapped for debt has also been reduced from 12,000 VND/share to 10,000 VND/share. Each 10,000 VND of debt will be converted into one newly issued ordinary share. The shares exchanged will be subject to a one-year lock-up period.

HBC believes that the reduced issue price for debt-exchange shares is in line with market developments and ensures fair treatment for suppliers and subcontractors participating in the debt-for-equity swap.

For the private placement, apart from reducing the number of shares issued to 200 million, other details remain the same as the plan approved by the general meeting of shareholders on October 17, 2023. The issue price is 12,000 VND/share and the shares are subject to a one-year lock-up period. The offering will be made to less than 100 professional investors.

In a resolution of the Board of Directors dated November 16, 2023, HBC announced two investors willing to acquire all of the privately placed shares: Tumaz and Tumaz Enterprises Ltd and Primetech VN Development and Investment JSC.

HBC plans to finalize the dossiers of the entities participating in the debt-for-equity swap with HBC shares in early May 2024 and submit them to the State Securities Commission (SSC). The private placement shares are expected to be issued between 2024 and 2025, with details to be presented at the 2024 general meeting of shareholders.

DISCUSSION:

Borrowing based mainly on reputation

Is HBC at risk of being delisted?

Chairman Le Viet Hai: To date, HBC still meets the listing requirements. HBC has consulted with securities companies and law firms and received similar responses.

Why was the resolution to provide collateral assets passed?

Chairman Le Viet Hai: Up until now, HBC has been a construction company that relies primarily on its reputation for borrowing, using receivables as collateral, with collateral assets accounting for only about 10% of the credit limit.

Currently, banks are no longer accepting low asset ratios, so additional personal assets must be mobilized to meet the requirement. To address the interests of those who agree to provide collateral assets, HBC has agreed to pay a fee for borrowing the assets. This is a last-resort solution during a period when the group is facing difficulties in debt collection.

No risk of unsuccessful debt-for-equity swap

Why is the swap price 10,000 VND/share when the current share price is 7,000-8,000 VND/share? Is the issuance feasible?

Chairman Le Viet Hai: I have spoken with the subcontractors, and if they have shared the difficulties with the Group, they will wait until the shares are credited to their accounts, when the price of HBC shares will no longer be as it is now.

Many of HBC’s sources of funds (from the sale of machinery, from unfinished real estate projects) have yet to be recorded, and the real price or book value is very different from the audit. The company will incorporate this into the