In the fourth quarter of 2008, Binh Thanh Import-Export Production and Trade Joint Stock Co (Gilimex) saw an unexpected business result when the company’s revenue rose by 11.8% and particularly after-tax profit increased by 49.5% against the third quarter.
Gilimex can be considered a remarkable symptom amidst the difficult situation impacted from the world’s crisis. However, the strong appreciation of the forex rate in the fourth quarter of 2008 directly impacted the above result.
Gilimex is also a typical case that received benefits from the central bank’s policies on the forex rate as well as export support in general. Yet, many other businesses are distressed because of the too fast and sharp growth of the forex rate.
A chair of a listed company’s managing board said that the forex risks have been foreseen and should be minor effects on business results compared to financial investment provisions. However, when drawing the final balance sheets at the end of the fiscal year, the forex rate risks have distorted business results, which have made many companies find hard to behave with shareholders and investors.
That was also the reason why a series of companies listed at the Ho Chi Minh Stock Exchange (STC) in February and March made official letters explaining differences in statistics in their audited financial reports of 2008.
For example, the Saigon Maritime Joint Stock Co (SHC) reported its 2008 business results where the company’s revenue reached 174.436 billion dong, rising by 83% against a year earlier, fulfilling 116% of its plan; pre-tax profit was 17.979 billion dong, a year-on-year increase of 127%, fulfilling 120% of the company’s target and after-tax profit registered at 15.462 billion dong.
Nevertheless, after being audited, the company reported after-tax profit at only 13.925 billion dong, failing to fulfil its plan. The reason was that SHC had not yet taken the difference in forex rate into account for foreign currency loans.
Luu Tien Ai, chair cum CEO of SHC, said the above readjustment was because of the difference in forex rate, which amounted up to over US$3.6 billion, when making up accounts for foreign currency loans although this difference is only provisioning amount and has not yet occurred (the lending contract carries a term of five years). Ai also suggested the finance ministry instruct auditing for this item regarding the technical aspect.
Because such difference is only provisioning and has not yet occurred, SHC loses nothing and is impacted insignificantly. However, the company’s shareholders have to suffer from some losses, namely reduction of dividend rate and decrease of share price in the stock market and others.
Similarly, the forex rate risks have also significantly reduced profit of dragged business results of many other listed companies.
For example, that the State Bank of Vietnam on 26 December 2008 increased the interbank forex rate by another 3% added a strong spike in financial costs for many businesses. At the Doan Xa Port Joint Stock Co, the difference in forex rate at the end of 2008, which was calculated into expenses of 2008′s fourth quarter, rose by up to over 441 million dong, which also meant the same reduction of profit.
Or in another case, Tan Binh Culture Joint Stock Co saw a decrease of 15.7% in profit in the fourth quarter resulting from the sharp fluctuation of the forex rate. The company had to calculate more than 900 million dong into costs for the forex rate difference at the end of the financial year of 2008. As for Petrolimex Gas Joint Stock Co, its profit reduced by 17.7 billion dong in the fourth quarter, which was also resulted from the forex rate difference and the financial provisioning.
Additionally, the forex rate risks can be seen from losses of many other listed businesses and even unlisted companies.