The word “leverage” is a term in the economics, there are many types of leverage such as financial leverage, marketing leverage, technology leverage, training leverage… Particularly, financial leverage is simply understood as the use of borrowed capital to invest, instead of using equity capital. However, financial leverage is a double-edged sword, if used well and wisely, it will be successful, if not used well, it will become a trap to smash the business. Moreover, excessive borrowing will lead to loss of control. If you borrow a lot, the pressure to repay is great and interest is also high.
On February 22, the CafeF newspaper published an article: “The source of Novaland’s liquidity crisis: The adventure of using too high leverage to inflate assets and legal risks of 1,000-hectare mega-projects.” Until now, when the real estate market is frozen, it is unknown when it will recover, the debt that Novaland is having is too great. Interest is generated every day, but the business is stuck, unable to push goods and unable to raise new capital to repay loans. Liquidity problems became a tremendous pressure on the group’s management.
The issue of Novaland’s liquidity crisis began to be mentioned at the end of last year, hitting its peak when NVL’s stock fell to the floor for dozens of consecutive sessions. To date, about $5 billion of the company’s market capitalization has been blown away, a drop of more than 80%. Economists said that Novaland was too risky when using too high financial leverage to blow up the size of the business, and now they have to pay the price for what they did. According to the article, currently, five out of six of assets are from its debt. As Thoibao.de analyzed in the previous report, the current situation of Novaland is that the patient is breathing oxygen.
Someone compared that, Mr. Bui Thanh Nhon used too much leverage compared to his potential, he assumed swinging the lever and now, the leverage is knocking him to the head. Mr. Bui Thanh Nhon’s position is no longer “riding a lever” but now he is stuck in a tangle of levers. His feet were on the lever and his head was on the ground, and he was hanging from the ground, not knowing when to put his head in the ground.
Often, talking about Novaland without mentioning VinGroup is a big mistake. Mr. Pham Nhat Vuong’s VinGroup was identified as using the same large financial leverage as Mr. Bui Thanh Nhon. Although Mr. Vuong forced the newspapers to withdraw their articles, it was not possible to delete all the news. VinGroup’s borrowed capital is up to 285% of its equity. This level of leverage is considered very high. With the current gloomy business situation, Pham Nhat Vuong is being leveraged by this real thing.
So far, many people do not understand, with VinGroup’s loss of billions of dollars per quarter, it is unclear how Pham Nhat Vuong does manage. The bond market is now like a trap. The government is trying to overhaul the stock market without knowing how. They are also very shy, do not dare to knock down the big guys like VinGroup, Novaland, Sun Group etc… for fear of it causing the economy to collapse. However, pampering these businesses is also very dangerous, if the bomb does not explode today, it will explode the next day.
The era of cheap capital and easy loans is over. The era of gullible investors is over. Investors who have been deceived by FLC, Tan Hoang Minh, Van Thinh Phat and now Sunshine Real Estate Group, are becoming more and more obvious. The biggest losers are investors and no one else. So, if you have money and insufficient knowledge but easily listen to the temptations of businesses, you will only lose everything. If you have money, keep it, don’t trust people and then lose everything.
Novaland’s current situation is to extend its life by day or by day. VinGroup’s situation is not much better, Mr. Pham Nhat Vuong is trying to brow anyone but it seeems he would not and VinGroup is no different from Novaland.
Thoibao.de (Translated)
