When Will DRH Holdings Finish Its Restructuring? (Part 1)

16 December, 2024

Reeling from Penalties

Prior to the issues with its 2023 financial statement auditor, DRH was penalized by the State Securities Commission (SSC) for a series of information disclosure violations. These included delays in reporting on the progress of the company’s commitments to bondholders, and failing to include the remuneration of each member of the Board of Directors, the salary of the General Director (Director), and other managers as a separate item in the 2021 financial statements.

The 2022 and 2023 management reports, as well as the first half of 2022, lacked information about the company borrowing money and project management services with its subsidiaries.

Nearly a month later, the company’s consolidated financial statements for the fourth quarter of 2023 showed a net loss of 95 billion VND for the year (the audited financial statements recorded a loss of nearly 104 billion VND), marking a record loss in the 14 years since the stock was listed on the HOSE.

Source: VietstockFinance

In 2023, the company recorded a meager 9 billion VND in revenue, while financial expenses soared to 114 billion VND, a 22% increase from the previous year. Borrowing costs alone increased by 10 billion VND to 90 billion VND.

Following this historic loss, DRH twice requested extensions from the SSC and the Ho Chi Minh City Stock Exchange (HOSE) on March 27 and April 9, respectively, for its 2023 audited financial statements. The company attributed these delays to changes in its business operations and ongoing restructuring, as well as delays in obtaining evidence from the accounting departments of its subsidiaries, which required additional time for the auditors to gather and assess relevant information.

On May 15, DRH sent another document to the two agencies explaining the delay in publishing its 2023 audited financial statements and annual report. According to the explanation, on May 14, 2024, DRH received a request from Ernst & Young Vietnam (EY) to terminate their contract prematurely and asked DRH to settle the contract. However, the company did not receive any written notification from EY regarding the reason for the early termination.

DRH asserted that throughout the contract, the company had ensured the provision of all documents requested by EY to complete the issuance of the separate and consolidated financial statements for 2023.

Due to the delayed submission of the 2023 audited financial statements beyond the deadline, HOSE placed DRH‘s stock on a warning list from April 24, 2024, and restricted trading (allowing only afternoon sessions) from May 27. Additionally, the regulators removed DRH from the VNX Allshare index of the VNX-Index family, as the stock was shifted from the warning list to the control list on May 9.

“Don’t be fooled by blooming flowers into thinking spring has arrived”

Following EY’s discontinuation of services, DRH‘s Board of Directors approved a resolution on May 20 and signed a contract with An Viet Audit and Consulting Company to audit the 2023 financial statements. On September 4, after 3.5 months, DRH‘s 2023 financial statements were finally concluded. Subsequently, DRH released its 2023 annual report on September 26, set the record date for the 2024 Annual General Meeting of Shareholders on October 8, and planned to hold the meeting on November 5.

However, it wasn’t until September that DRH published its 2023 audited financial statements. The company’s stock was shifted from restricted trading to trading suspension on September 16. Moreover, as the audit opinion on the financial statements was qualified, the stock was once again placed on the warning list from September 19.

The basis for the qualified audit opinion stems from the fact that as of December 31, 2023, the total debt of the DRHH2022001 and DRHH2224001 bonds amounted to nearly 568 billion VND. At the time of issuing the financial statements, the company had not received an audit report on the use of proceeds from the issuance of these two bond lots. The auditors were unable to assess the impact of this issue on the consolidated financial statements for 2023.

Additionally, regarding the short-term receivables and other receivables as of December 31, 2023, which included loans, interest receivables on loans, and cooperation in business with CTCP Kinh Doanh Dia Oc Dland, as well as receivables from entrusting investments to Mr. Nguyen Thanh Tri, the auditors were unable to obtain sufficient appropriate evidence regarding the reasonableness of these loans and entrusted investments. They were also unable to assess the collectability and whether these counterparties were related parties of the company.

The auditors also highlighted the DRH bond’s principal amount of 158 billion VND and interest of 10 billion VND, which were past due, along with additional late payment interest of nearly 38 billion VND. Furthermore, DRH had overdue tax liabilities to the state budget, leading the auditors to express doubt about the company’s ability to continue as a going concern.

In response, DRH stated that it was still in the process of finding an auditing firm to assess the use of proceeds from the two bond issuances. Regarding the overdue bonds, DRH planned to dispose of the secured assets, which included KSB shares and land use rights in Thu Duc City, to repay the bond obligations by the first quarter of 2025 at the latest. For the bonds that had not yet matured, DRH intended to transfer one of its projects to generate funds for principal and interest payments to bondholders in the fourth quarter of 2024.

In addition to these urgent measures, DRH outlined several strategies to ensure cash flow for its other obligations to bondholders. These included accelerating the construction of the Aurora high-rise apartment complex from November 2024 to maintain progress in collecting payments from customers, with expected delivery in August 2025, and timely recovering receivables due in the first quarter of 2025.

Amid this turmoil, DRH‘s stock price continued to plummet. From the beginning of 2024 until the last trading session before the suspension (September 13), the stock price dropped by more than 62%, settling at 1,900 VND per share—not even enough to buy a cup of iced tea.

Price Movement of DRH Stock from the Beginning of 2024 until Trading Suspension

It is worth noting that the total ownership ratio of insiders and related parties as of December 31, 2023, was nearly 6.6 million shares, equivalent to 5.29% of the company’s total outstanding shares.