“From Profit to Loss: Novaland’s Plunge into a 7.3 Trillion VND Loss in H1 2024 Post-Review, Attributed to Provisions Related to Lakeview City Project”

Novaland (stock code: NVL) has just released its reviewed semi-annual financial statements for 2024. Specifically, Novaland’s consolidated after-tax profit for the first six months of 2024 reported a loss of 7,327 billion VND, compared to a positive profit of 345 billion VND in the self-prepared financial statements.

The company attributed the loss primarily to the provision for land rent and land use fees payable, based on the 2017 pricing plan for the 30.106-hectare project in Nam Rach Chiec, An Phu Ward, Thu Duc City, Ho Chi Minh City (Lakeview City project – the investor is Century 21 International Development Company Limited), as per the tax authority’s notification on January 8, 2021. The provision established for this payable amount is 4,358 billion VND.

In addition to the additional provision, Novaland had to reduce its after-tax profit by another 3,046 billion VND due to adjustments in financial activities of 2,991 billion VND and other income of 55 billion VND for contract violations that occurred during the period but had not been collected by June 30. These amounts will be recognized upon completion of the collection. As of the date of issuance of the financial statements, these amounts had been fully recovered.

Finally, Novaland’s profit was further reduced by 268 billion VND due to provisions for inventory markdowns and adjustments to other expenses.

It is understood that Lakeview City is a project that the Company exchanged for a 30.224-hectare project in Binh Khanh Ward, Thu Duc City – a project for which the Company had completed site clearance and compensation in 2008 according to the land allocation decision in 2004. In 2016, the People’s Committee of Ho Chi Minh City issued a decision approving the land price scheme at market prices for the 30.224-hectare site in Binh Khanh Ward and the Lakeview City project to resolve the exchange for the Company, with the same time point for determining the land price for both projects in 2008. As a result, after determining the land use rights value and the location differential value between the two sites, the Company had to pay an additional amount of nearly 52.7 billion VND after the project exchange. The Company recorded this financial obligation in its accounting books in 2016.

However, on December 29, 2020, the People’s Committee of Ho Chi Minh City issued Decision No. 4777/QD-UBND approving the land price scheme for the 30.106-hectare site in Nam Rach Chiec, An Phu Ward, District 2, with the land price scheme at the time of April 2017 (instead of 2008 as mentioned above). Accordingly, the Ho Chi Minh City Tax Department issued Notice No. 268/TB-CTTPHCM on January 8, 2021, and Notice No. 269/TB-CTTPHCM on land use fee payment on the same day, with a total land rent and land use fee of nearly 5,176 billion VND. The company disagrees with the determination of the land use fee calculation period as April 2017, as it had completed compensation in 2008.