Coteccons begins new chapter, hopefully, after resolving feud with shareholders

On June 22 the construction giant announced the resignation of Nguyen Sy Cong and Tran Quyet Thang, and their places will be taken by representatives of Kustocem and The8th, two Singaporean investors with 18.23 percent and 10.42 percent stakes in the company.

The decision came at the company’s annual general meeting on Tuesday along with a formal apology from chairman Nguyen Ba Duong to shareholders, who admitted the board had been remiss in allowing conflicts of interest between the management and shareholders.

After Duong’s apology on Tuesday Coteccon’s CTD shares, listed on the Ho Chi Minh Stock Exchange and part of its VN30 basket of the largest capped stocks, surged twice to the ceiling, gaining 6.9 percent and 7 percent on two successive days.

The disagreements between the two major shareholders and the management began in mid-2017 when the company’s business was booming.

From being strategic partnerships, the relationship became confrontational after Kustocem twice called for extraordinary general meetings in October 2019 and early June to elect a new board of directors and order special audits of the management practices. It even wanted Duong to step down as chairman.

By June it had been able to rally support from a number of local and foreign shareholders owning around 45 percent of shares.

Coteccons had until then made a number of counter-arguments, including that the Singaporean investors were in reality involved in a hostile takeover bid.

But things changed when Vietnam’s leading construction firm announced the resignations on June 22. Kustocem representatives publicly thanked Duong for acting in the best interests of the company and shareholders, while he said geographical distance, cultural differences and the difference in views between the major shareholders and Coteccons’s board were the main causes of the recent "fuss."

"Resolving these bottlenecks is the start of a new chapter for Coteccons," he said.

The two new directors, who Coteccons said would be appointed soon, are Bolat Duisenov, CEO of Kusto Vietnam, and Herwig Guido H. Van Hove, general director of The8th.

Duong and Nguyen Quoc Hiep will be the only Vietnamese directors on the board, and Hiep is an independent board member.

While some minority shareholders raised concern saying most foreign personnel do not have much experience in or specific understanding of the Vietnamese construction market, the company dismissed the concerns saying it is more important that the board is able to find a common voice.

It said it would hire more experts for financial advice, transparency, and the management of transactions with its subsidiaries and sister companies.

Duong said in the last year or two the company had to turn down many large construction deals due to lack of consensus from the board.

Once it stabilizes internally it would find ways to use over VND3.3 trillion ($142.4 million) in cash and cash equivalents to diversify and tie up with prestigious investors, many of whom have a hard time accessing cash given the State Bank of Vietnam’s tightening of credit to the property sector in recent years, he said.

"If Coteccons only focuses on construction, it cannot achieve growth of 30-40 percent like in 2016-18 as there are more competitors in the industry, and work is limited."

The company has been the general contractor for most major projects in Ho Chi Minh City, Hai Phong and the northern Quang Ninh province, but still failed to meet last year’s revenue targets, he said.

"Coteccons will invest in real estate differently than other companies. We will not tender or buy up projects but will directly cooperate with developers to be safer."

The company also has the capacity to undertake infrastructure construction, but would wait for a better time because of the segment’s great risks, he said.

Cong, the general director who is set to step down, said one of the top priorities is for Coteccons to remain the number one contractor with a market share of around 5 percent.

Its audited report for 2019 shows the company’s post-tax profit slumped by 53 percent year-on-year to VND710 billion ($30.64 million) on 17 percent lower revenues of VND23.73 trillion ($1.02 billion).

According to the management, the steep fall in profits was because some projects were taking longer than expected to finish, inflating fixed costs, and pressure from competitors drove prices down, especially in the context of there being less work to go around this year.

Construction accounted for almost all of Coteccons’s revenues, with a modest amount coming from renting construction equipment and offices and sales of materials.

The company expects revenue and profits to fall 32.6 percent and 15.5 percent respectively this year as a result of the Covid-19 pandemic dampening the market.

Duong said it is reconsidering a merger with Ricons Construction and Investment JSC, an affiliate in which it holds a 14.87 percent stake.

The proposal had failed to get board approval last year, but if the new board approves, the matter would be placed before shareholders next year, he added.