UNIVERSITY OF ECONOMICS HO CHI MINH CITY

COLLEGE OF BUSINESS
SCHOOL OF FINANCE

ADVANCED CORPORATE FINANCE

24C1FIN50510506
LECTURER: PHÙNG ĐỨC NAM

LIVE CASE STUDY

GROUP
Hồ Nhật Trà
Võ Triều Dâng
Trầm Duy Khang
Trần Anh Khôi
Lương Trần Thanh Thảo
Trịnh Xuân Anh Vũ
TP. Hồ Chí Minh - 2024
 MEMBERS OF GROUP

No Full name Student Code EMAIL

1 Hồ Nhật Trà 31221026708 traho.31221026708@st.ueh.edu.vn

2 Võ Triều Dâng 31221025270 dangvo.31221025270@st.ueh.edu.vn

3 Trầm Duy Khang 31221023999 khangtram.31221023999@st.ueh.edu.vn

4 Trần Anh Khôi 31221024001 khoitran.31221024001@st.ueh.edu.vn

5 Lương Trần Thanh Thảo 31221026130 thaoluong.31221026130@st.ueh.edu.vn

6 Trịnh Xuân Anh Vũ

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 V. Capital Structure Choices
1. Benefits of Debt
1.1. What marginal tax rate does this firm face and
how does this measure up to the marginal tax rates of
other firms? Are there other tax deductions that this
company has (like depreciation) to reduce the tax
bite?
Company Marginal Tax Effective Tax Tax Benefit
Rate Rate (billions VND)

HPG 20% 13.78% 2070.685

HSG 20% 44.52% 264.988

NKG 20% 34,46% 133.728

VIC 20% 81.97% 6971.559

VNM 20% 17.76% 530.812

HPG's marginal tax rate is comparable to that of other firms, standing at about 20%.
However, the Effective Tax Rates for these companies vary. To calculate the
Effective Tax Rate we used this formula:

Effective Tax Rate= Total tax expense/ EBT.

The results revealed that HPG has the lowest average effective tax rate at
13.78%. What could be the reasons for this?

HPG has a low effective tax rate due to the tax incentive policies provided by the
Vietnamese government. Specifically, Hòa Phát is granted a preferential tax rate of
10% for 15 years, or a tax exemption for 4 years followed by a 50% reduction in the

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tax payable for the next 9 years for income from new investment projects in areas
with difficult or extremely difficult socio-economic conditions, economic zones, or
high-tech zones. In 2023, the debt ratio of HPG has significantly increased. By the
end of the year, Hòa Phát's total debt reached over 65 trillion VND. The debt-to-
equity ratio of the group was 0.64 at the end of 2023, allowing HPG to deduct
interest expenses, reducing taxable profits and thus lowering the effective tax rate.

However, HPG has the highest tax compared to its peers in the industry. The tax
benefit for HPG can be calculated using the following formula:

Tax benefit =( Interest expense + Depreciation)*20%

In 2023, HPG's cash flow from operating activities indicated an interest expense of
approximately 3,585 billion VND. Additionally, the depreciation of tangible fixed
assets and investment properties and amortization of intangible fixed assets, totaled
6,768.426 billion VND. As shown in the table below, HPG has the highest interest
expense and depreciation among companies in the same industry. Consequently,
this positions HPG to receive the highest tax benefit compared to its peers.

HPG HSG NKG VIC VNM

3585 195 293 17.246 354

Interest expense

6768.426 1129.941 375.639 17611.795 2300.059

Depreciation of
tangible fixed
assets and
investment
properties and
amortization of
intangible fixed
assets

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1.2. Does this company have high free cash flows (for eg.
EBITDA/Firm Value)? Has it taken and does it continue to
have good investment projects? How responsive are
managers to stockholders? (Will there be an advantage to
using debt in this firm as a way of keeping managers in
line or do other (cheaper) mechanisms exist?)
1.2.1. Does this company have high free cash flows?
Table: EBITA/EV Ratio

Company EBITDA/EV

HPG 8.41%

HSG 8.97%

NKG 8.08%

VIC 12.45%

VNM 9.07%

Industry 11.07%

Source: Vietstock, cafeF

HoaPhat’s EBITDA/EV ratio of 8.41% is the second lowest among the companies
considered and lower than the ratio of Iron and Steel Industry (11.07%).

1.2.2. Has HPG taken and does it continue to have good investment
projects? How responsive are managers to stockholders?

a. Investment Quality

- EBITDA/EV Ratio as an Indicator: HPG’s EBITDA/EV ratio of 8.41% is below

the industry average of 11.07% and lower than some key competitors (like VIC and

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VNM). This suggests HPG might not be generating as much profit from its
enterprise value compared to others in the industry. Generally, lower EBITDA/EV
ratios hint that HPG’s investments may not be as efficient or profitable, raising
concerns about whether its projects are delivering strong returns.

- Implications for Investment Projects: This lower profitability could mean

HPG’s projects aren’t as lucrative as those of its peers. This might be due to higher
costs, thinner profit margins, or perhaps a more conservative approach to choosing
investments.

b. Management Responsiveness to Stockholders

- Alignment with Stockholders: The relatively low EBITDA/EV ratio could imply
that HPG’s management isn’t maximizing earnings as much as it could. If the goal
is to enhance shareholder value, then ensuring management is responsive to
stockholders’ interests is crucial.

- Ways to Align Interests: One way to keep management aligned with shareholder
goals is through debt financing. The need to make regular debt payments often
encourages managers to keep a close eye on cash flow, which usually means
focusing on projects that generate reliable earnings - directly benefiting
shareholders.

c. Debt as a Governance Tool

- Benefits of Debt: Given HPG’s lower-than-average profitability (8.41% vs. the

industry’s 11.07%), adding debt could be useful. Debt forces management to be
disciplined due to the ongoing obligation to make payments, which can improve
how efficiently it uses resources and encourage it to focus on projects that add more
value.

- Other Governance Tools: Besides debt, HPG could also consider options like
performance-based pay for executives, stronger board oversight, or better reporting
transparency to align management with shareholders. However, debt is often a
practical way to ensure managers are focused on shareholder interests, especially if
the firm could benefit from tighter capital management.

Summary

- Investment Projects: HPG’s projects might not be performing as well as those of

its peers, given the lower EBITDA/EV ratio.

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- Management and Debt: Debt could be a good tool to improve management focus
and alignment with shareholders, though HPG should also consider other
governance options that might achieve similar results without the extra financial
cost.

While debt can incentivize management efficiency and improve profitability,

careful planning is essential to mitigate financial risk and ensure sustainable
growth for HPG.

Benefits of using debt Risks of using debt

Stronger Financial Discipline: Higher Financial Risk: Debt

Taking on debt means HPG will have means more fixed costs in the form of
regular interest payments to meet, interest, which is fine when things are
which forces management to be more good, but it can be risky during
disciplined with cash flow and focus on downturns. If HPG faces lower cash
high-profit projects. This can be a great flow due to market changes or
way to align managers’ decisions with competition, paying off debt can
what shareholders want since debt become a burden, possibly even leading
repayment naturally keeps them to insolvency.
accountable.
Less Flexibility in Cash Flow:
Tax Advantages: Interest on debt The more debt HPG has, the more cash
is tax-deductible, so by using debt, it needs just to service that debt, which
HPG can lower its taxable income. This could limit how much they can invest
means they could end up with more net back into the business. This means they
profit, which makes shareholders happy might miss out on new opportunities or
because it boosts earnings without extra limit themselves to short-term gains just
operating costs. to make debt payments, impacting long-
term growth.
Boosted Return on Equity
(ROE): Using debt wisely can improve Impact on Credit Ratings:
HPG’s ROE because it amplifies Taking on too much debt can hurt
returns without increasing equity. In HPG’s credit rating, making future
other words, they can grow and take on borrowing more expensive. If lenders
profitable projects without diluting view HPG as a higher risk, they might
existing shareholders’ stakes by issuing charge higher interest, creating a cycle
new shares. This is especially helpful if where debt becomes even harder to
HPG has stable cash flows to handle the manage.
debt comfortably.
Interest Rate Risks: If interest
Access to Growth Capital rates go up, servicing floating-rate debt
without Dilution: Debt can be a smart can get very expensive. Even if HPG

6
 choice when HPG wants to expand but has fixed-rate debt, they might face
doesn’t want to dilute shareholder higher rates when it comes time to
ownership by issuing more stock. By refinance. Interest rate hikes could then
borrowing, they can access funds for start eating into profits, adding pressure
growth or big projects while keeping on financial stability.
shareholders’ ownership intact.

In conclusion, debt can be a smart tool if HPG uses it carefully. The company
should aim for a balanced debt-to-equity ratio and try to secure good interest rates.
As long as it keeps debt at a manageable level, they can gain the benefits of
improved cash flow discipline and tax savings, all while keeping financial risk in
check.

2. Costs of Debt
2.1. How high are the current cash flows of the firm (to
service the debt) and how stable are these cash flows?
(Look at the variability in the operating income over time)
Growth Rate and Operating CF

We assumed a 10% annual growth rate in operating CF from 2023-2026 ( this

growth rate was chosen based on typical industry growth and historical trends,
indicating steady operational expansion.

Interest Expense Growth Rate

A 5% annual growth was assumed for interest expenses from 2023-2026

This assumption reflects potential increases in interest payments due to new

borrowings or changes in interest rates.

Capital Expenditures (CapEx)

CapEx was assumed to grow by 8% annually, considering typical reinvestment for

expansion and maintenance in the manufacturing sector.

Corporate Tax

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Estimated at 10% of operating profit

This simplified assumption was made to account for outflows affecting net cash for
debt servicing.

Depreciation and Provisions:

Depreciation and Provisions were added back to operating CF as non-cash

adjustments, which is standard practice in CF analysis.

Year Operating Depreciation Provisions CapEx Corporat Interest N

Cash Flow e Taxes Expense F
S

Bi

2023 15.42 6.76 1.09 5.00 1.54 3.59

2024F 16.96 7.44 1.20 5.40 1.70 3.76

2025F 18.66 8.18 1.32 5.84 1.87 3.95

2026F 20.53 9.00 1.45 6.30 2.05 4.15

Hoa Phat Group’s cash flow used to repay debt is expected to remain stable, with
net cash available for debt servicing projected to reach around 6.10 billion VND in
2024, up from 5.29 billion VND in 2023. This indicates an improvement in cash
flow generation to meet the company’s debt obligations. The growth is primarily
driven by the stable operations in the steel production sector, which contributes to
operating cash flows.

However, there could be fluctuations in cash flow stability due to factors such as
raw material costs, capital investment requirements, and potential changes in market

8
demand. The company’s effort to expand production and invest in technology may
lead to temporary shifts in operating income, but the overall outlook remains
positive. Hoa Phat’s net cash for debt repayment is forecasted to reach around 8.03
billion VND in 2026, providing a solid financial foundation for maintaining debt
obligations.

2.2. How easy is it for bondholders to observe what equity

investors are doing? Are the assets tangible or intangible?
If not, what are the costs in terms of monitoring
stockholders or in terms of bond covenants?
Bondholders want to keep an eye on the company's financial decisions to ensure
that stockholders aren't taking risks that could harm bondholders' interests.

- Transparency in Reporting: Hoa Phat provides audited financial reports every

year, with KPMG as their auditor. This means bondholders can trust the financial
information is accurate and fairly presented. Because Hòa Phát’s financial
statements include income statements, balance sheets, and cash flow statements,
bondholders can get a clear view of the company’s financial health and any major
actions by stockholders, like dividends or stock buybacks.

- Stock Performance Indicators: Hoa Phat's financial data also includes ratios like
P/E (Price-to-Earnings) and P/B (Price-to-Book), which are useful for tracking
stock performance. Sudden changes in these ratios could indicate actions by
stockholders that may affect bondholders’ risks.

Fixed asset: Long-lived property owned by a firm that is used by a firm in the
production of its income. Tangible fixed assets include real estate, plant, and
equipment. Intangible fixed assets include patents, trademarks, and customer
recognition.

Hoa Phat Group operates in industries like steel production, construction materials,
and real estate, which are asset-heavy. Most of their assets are likely tangible
because they include:

- Fixed Assets: Steel mills, machinery, factories, and real estate.

- Inventory: In steel manufacturing, inventory (materials in production or finished

goods) is substantial and very tangible.

9
Tangible assets are advantageous for bondholders because they can be sold or used
as collateral if the company faces financial trouble. This makes bondholders feel
more secure compared to companies that hold more intangible assets (like patents or
goodwill), which are harder to value and recover.

Therefore, the costs for bondholders to monitor stockholders’ actions are relatively
low. Yet, there are still a few key points to consider:

- Monitoring Stockholders: Bondholders need to ensure that shareholders are not

engaging in risky activities like high dividend payouts, aggressive buybacks, or
increasing the company's debt, which could put bondholders at risk. The company’s
regular financial reports make it easier to keep track of these activities. More
frequent updates, like quarterly reports, would provide even more visibility, but this
could increase costs slightly.

- Bond Covenants: To protect themselves, bondholders might include covenants

(contract terms) that set certain limits for the company, such as:

+ Debt-to-Equity Ratio Limits: Ensuring the company doesn’t take on too much
debt compared to equity.

+ Asset Maintenance Requirements: Requiring Hòa Phát to maintain a certain level

of tangible assets as collateral.

+ Dividend Payout Limits: Restricting dividends ensures that the company retains
cash that could otherwise go to repaying debt.

- Costs of Covenants: While these covenants add security for bondholders, they
can also limit the company’s flexibility in making strategic decisions. For instance,
Hòa Phát may face restrictions in how much it can invest in new projects or growth
opportunities, which could slow down expansion.

2.3 How well can Hoa Phat Group anticipate its future
investment opportunities and needs? How flexible is it?
Hoa Phat Group has established itself as a dominant force in the steel industry,
consistently meeting international standards and fueling growth in Vietnam’s
construction and manufacturing sectors. As one of the largest steel producers in the
country, Hoa Phat serves both domestic and international markets. Beyond steel, the
company has strategically diversified into real estate, agriculture and home
appliances, demonstrating its ambition for broader growth.

10
By the end of 2023, Hoa Phat’s total assets were projected to exceed 200 trillion
VND, a testament to its ongoing investment in production capacity, technological
upgrades, and sectoral expansion. This substantial growth underscores the
company’s focus on maintaining flexibility, enabling it to swiftly respond to shifts
in market demand, fluctuations in raw material costs and emerging opportunities in
other industries.

However, accurately predicting future investment needs in areas like real estate and
agriculture is challenging, given their inherent volatility. Hoa Phat's diversified
strategies allow it to tap into various growth opportunities, reducing dependency on
the steel sector alone. Yet, this diversification also requires a high degree of
adaptability in securing funds to pursue new ventures while effectively managing
existing debt.

VI. Optimal capital structure

1. Cost of capital approach
1.1 What is the current capital cost for the firm?
The authors adopt the WACC (Weighted Average Cost of Capital) to calculate the
current cost of capital cost for Hoa Phat Group.

The formula can be described as below:

E D
WACC = × RE+ × RD (1−t C )
E+ D E+ D

To fill in the variables in the formula, we need to know the cost of equity, cost of
debt, and the proportion between debt and equity of this firm.

1.1.1 Cost of equity:

The capital asset pricing model (CAPM) will be used to determine the level of cost
at which the firm is using its equity, the formula will be:

E(R) = Rf + β.(E(Rm) - Rf)

E(Rm) will be represented by the average annual return of VNINDEX in the period
from 2022 to 2024.

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From the result above, the market expected return is about 5.83%.

The risk-free rate of Vietnam will be calculated in the same way with Vietnamese
Treasure bills for 10 years. The result is about 3.38%.

Beta 0.93

E(Rm) 5.83%

Rf 3.38%

Cost of equity 5.66%

=> E(R) = 3.38% + 0.93*(5.83%-3.38%) = 5.66%

1.1.2 Cost of debt:

The cost of debt for HPG would be calculated as:

Cost of debt = Interest expense/Total debt = 3585/65381 = 5.48%

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The interest expense will be obtained from the Income statement of HPG while
Total debt will the the sum of short-term and long-term debt and financial lease.

1.1.3 Weighted Average Cost of Capital

From the information on the cost of equity and cost of debt, along with information
collected from HPG’s financial statement, we can calculate the current WACC.

Component Value in 2023 (billion VND)

Equity(E) 155234

Debt(D) 65381

Cost of Equity 5.66%

Cost of Debt 5.48%

Corporate Tax Rate 20%

=> WACC = 61.36%*5.66% + 29.64%*5.48%*(1-20%) = 5.28%

1.1.1.4 Optimal capital structure

By testing every feasible capital structure, we conclude that the lowest WACC
structure is the optimal one.

Debt ratio Cost of equity Cost of debt (after tax) WACC

0.00% 5.08% 3.18% 5.08%

5.00% 5.16% 3.18% 5.06%

10.00% 5.24% 3.18% 5.03%

15.00% 5.32% 3.44% 5.04%

20.00% 5.43% 3.56% 5.05%

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 25.00% 5.54% 3.67% 5.07%

30.00% 5.67% 3.88% 5.13%

35.00% 5.82% 4.10% 5.22%

40.00% 5.99% 4.47% 5.38%

45.00% 6.20% 5.22% 5.76%

50.00% 6.45% 5.59% 6.02%

55.00% 6.75% 5.59% 6.11%

60.00% 7.13% 6.90% 6.99%

65.00% 7.62% 12.13% 10.55%

70.00% 8.32% 12.34% 11.13%

75.00% 9.52% 17.68% 15.64%

80.00% 11.07% 17.91% 16.54%

85.00% 13.66% 18.10% 17.44%

90.00% 18.83% 18.27% 18.33%

95.00% 34.70% 21.39% 22.05%

Based on the following result, the optimal debt ratio for Hoa Phat Group was 20%

14
 1.2 What happens to the cost of capital as the debt
ratio changes?

From the illustration above:

Changing HPG’s debt ratio will directly affect the cost of capital. Overall, among
the debt ratio from 0% to about 25%, the WACC does not change much and the firm
can take advantage of this similarity to raise their leverage without too large concern
about the consequences. In addition, when the debt ratio exceeds 40%, the cost of
capital will rise significantly, showing that benefit of the tax shield no longer can
offset the increased financial risk, so that the corporation has to be careful.

15
1.3 At what debt ratio is the cost of capital minimized
and firm value maximized? What will happen to the
firm value if the firm moves to its optimal?

Debt ratio WACC Value

0.00% 5.08% 228659

5.00% 5.06% 231776

10.00% 5.03% 234980

15.00% 5.04% 233516

20.00% 5.05% 232349

25.00% 5.07% 230046

30.00% 5.13% 223393

35.00% 5.22% 214739

40.00% 5.38% 199122

45.00% 5.76% 171644

50.00% 6.02% 156413

16
 55.00% 6.11% 151622

60.00% 6.99% 117832

65.00% 10.55% 61835

70.00% 11.13% 57368

75.00% 15.64% 36822

80.00% 16.54% 34352

85.00% 17.44% 32212

90.00% 18.33% 30336

95.00% 22.05% 24385

From the graph and the table above, we can see that the firm gets the maximized
value and minimized cost of capital at the same level of debt ratio of 20%, with
234980 billion VND and 5.03%, respectively.

In addition, when the firm moves to its optimal, it can reduce the cost of capital by
decreasing RWACC. This saving can grow over time, and the present value of these
cash flows can be added directly to the firm's value, which is approximately 26617
billion VND. This change can be described as:

The change in annual cost

= (WACCinput - WACCoptimal) x Current Firm Value

= (5.28% - 5.03%) x 208363

= 520.9 billion VND

Assuming an implied growth rate of 3.06% in firm value over time,

Increase in firm value = 520.9 x (1 + 3.06%) / (5.03% - 3.06%) = 26522.9 billion

VND

(the difference is the result of approximation)

1.4 What will happen to the stock price if the firm

moves to the optimal and stockholders are rational?
RESULTS FROM ANALYSIS

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 Component Current Optimal Change

WACC 5.28% 5.03% -0.25%

Implied Growth Rate = 3.06%

Enterprise value 208,363 234,980 26,617

Value/share (Perpetual Growth) = 26,700.00 31,278.05 4,578.05

As the computed result shows, if the value of the firm increases due to a lower cost
of capital, the stock price of HPG will also increase to 31278.05 VND. Further, this
change in direction tells investors that the company is being functioned well, which
adds to their confidence and increases demand for the stock. Cutting debt levels may
reduce the risk of financial distress and therefore the change will at least partially
mitigate that dynamic by reducing the default premium demanded by creditors. In
the great majority of cases, with a rational approach to their long-term interests,
stockholders will welcome such decisions as leading both themselves and the
company toward its proper capital structure and return for them; rational
stockholders are likely to respond favourably to a well-calculated shift towards the
optimal capital structure, recognizing the improved financial health and stability,
and this optimism generally leads to an increase in the stock price.

2. Building Constraints into the Process

2.1 What rating does the company have at the optimal debt ratio? If you were
to impose a rating constraint, what would it be? Why? What is the optimal
debt ratio with this rating constraint?

Table: Optimal debt ratio, Ratings and Enterprise Value HPG

Debt Ratio Bond Rating Enterprise Value

(Billion VND)

18
 0% Aaa/AAA 228,659
10% Aaa/AAA 234,980
20% A2/A 232,349
30% Baa2/BBB 223,393
40% Ba2/BB 199,122
50% B2/B 156,13
60% B3/B- 117,832
70% Ca2/CC 57,368
80% C2/C 34,352
90% C2/C 30,336

The optimal debt ratio is the one where the company’s enterprise value is
maximized. In this table, the highest enterprise is at a 10% debt ratio, with a
value of VND 234,980 billion and a bond rating of Aaa/AAA.
If you were to impose a rating constraint, what would it be? Why?

With the most recent credit rating of HPG (Hoa Phat Group) by Credit
Information Center of the State Bank of Vietnam (CIC) announced that Hoa
Phat Group has been rated AAA, the highest ranking awarded to companies
with high operational efficiency.
According to CIC's evaluation, companies rated AAA demonstrate very good
financial autonomy, long-term development potential, strong financial
capacity, an excellent history of debt repayment, and the lowest risk.

In the industry breakdown summary, Hoa Phat Group (HPG) is categorized

within the manufacturing sector, which includes 22 companies, and is one of
only six companies in this sector achieving the optimal rating. In terms of
operational scale, HPG is assessed as a large company with high profitability,
consistently maintaining significant growth in revenue, profit, total assets,
equity, and average return on equity.

If the group were to give a binding rating to HPG, the group would choose a
Baa2/BBB rating due to the following factors:

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- Risk Management: A Baa2/BBB rating indicates a moderate credit risk,
which is appropriate for a company like Hoa Phat Group. This level of risk
allows the company some leeway to leverage its investments while
maintaining a manageable risk profile. Imposing a constraint at this level
encourages prudent financial management and prevents excessive risk-taking
that could jeopardize the company's stability.

- Investment and Growth Potential: The automotive sector is expected to

face early-stage losses; thus, maintaining a Baa2/BBB rating can signal to
investors and stakeholders that while the company is pursuing growth, it is
doing so in a way that balances risk and return. This could help attract
potential investors who are looking for a balance between growth potential
and credit quality.

Market Perception: A Baa2/BBB rating is often considered the lowest

investment-grade rating. This not only helps in maintaining access to capital
markets but also ensures that the company remains attractive to institutional
investors who prefer investment-grade securities. This is particularly
important for a company that needs to finance its operations and growth
through debt.
- Strategic Flexibility: By imposing a constraint at this Hoa Phat Group
would have more strategic flexibility to adjust its debt levels based on market
conditions without losing access to investment-grade credit ratings. This is
essential for managing liquidity and funding requirements effectively.

What is the optimal debt ratio with this rating constraint?

Assuming an Baa2/BBB rating constraint, the highest enterprise value at this

rating level is at a 30% debt ratio, where the enterprise value is VND 223,393
billion.

2.2 How volatile is the operating income? What is the

“normalized” operating income of this firm and what is
the optimal debt ratio of the firm at this level of income?
Figure: Operating Income of HPG (2019-2023) (million VND)

20
Table: Change in HPG’s operating income 2019-2023

Year 2019 2020 2021 2022 2023

YOy -10.33% 69.33% 142% -73.53% -21.89%
Change

HPG's operating income during this period showed a very high level of
volatility. With a continuous increase in absolute value from 2019 to 2021, a
decrease in 2022, and then a sharp increase to negative levels in 2023. The
rate of change fluctuates greatly, from a decline of 15.73% (2019) to a strong
decrease of -73.53% (2022). In particular, the transition from profit to loss in
the most recent year changes from a positive value to a negative value in
2022, showing extremely serious fluctuations. Reflecting an unstable business
situation and possibly being strongly affected by external factors. This poses

21
great challenges for the board of directors in stabilizing business operations
and building a sustainable development strategy in the future.

Relative Analysis
Relative to the sector to which this firm belongs, does it
have too much or too little in debt? Relative to the rest of
the firms in the market, does it have too much or too little
in debt?
To compare the debt structure of Hoa Phat Joint Stock Company, our team decided
to use the Debt to total assets index of HPG and 4 other companies in the same steel
industry, in the period from 2019-2023. The data is shown in the following table:

Through the above table, we can see that the ratio of debt to total assets of HPG is
kept at an average level and not too different from the industry (35.62% and
38.4%). In addition, this ratio is kept at a stable level, showing that HPG's financial
control, especially debt, compared to other companies in the same industry in the
2019-2023 period, is relatively good when it is always maintained around 30-40%.

22
For HPG, when compared to its peers HSG and NKG, in 2023 the ratio of debt to
total assets of this company (34.82%) is much higher than that of HSG (16.91%)
and lower than that of NKG (38.97%). In addition, when compared to companies in
other sectors in the market (here we choose VIC and VNM as representatives), we
can see that the ratio of debt to total assets of HPG is still relatively higher than that
of the above two companies (31.94% and 16.05%, respectively). This shows that
HPG in particular and the steel industry in general are owning this rate higher than
companies in other fields outside the market. Currently, Hoa Phat's debt ratio may
be high due to the expansion of production scale, but this also depends on the ability
to effectively manage loans to take advantage of the company's cash flow and
development opportunities in the future.

Picture: Debt to total asset ratio 2019-2023 (unit: percentage)

When considering the trend in the past 5 years in the period 2019-2023, HPG has
continuously maintained a moderate debt ratio. For companies in the same industry,
HPG has a debt ratio quite similar to NKG when this ratio increased from 2019-
2020 (HPG was more prominent when it increased from 36.04% to 41.17%) and
decreased in the period from 2021-2023. This figure is relatively different from
HSG when this company gradually reduces its debt ratio year by year and reaches
16.91% in 2023. Moreover, when considering the general market with two
representatives, VIC and VNM, both companies show relatively low debt-to-total
asset ratios (28.49%-31.94% for VIC and 10.18%-17.73% for VNM).

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 Picture: The Liabilities to total asset ratio 2019-2023 (unit: percentage)

Another important indicator is the liabilities-to-total assets ratio. In this regard, VIC
stands out with a debt-to-total asset ratio of up to 77.8% in 2023, much higher than
HPG (34.82%) and other companies. Overall, HPG is the company with the most
stable debt-to-total asset ratio at around 3x-4x% in the 2019-2023 period among the
companies above. VNM is a company with a debt-to-total asset ratio relatively
similar to HPG during the past 5 years. In addition, another company in the same
industry as HPG, HSG, has a significant decrease in debt ratio from 56.27% in 2019
to 16.91% in 2023.

The above tables are only reference figures and the range of the number of
companies is not large enough to conclude whether HPG's debt ratio at the present
time is really effective or not. However, with the above information and data, we
can partly conclude that although HPG is a company with a relatively large debt
ratio (influenced by the characteristics of the industry), they are still doing well in
controlling finances, especially debt. This is reflected in the year-by-year stability of
the total debt and total liabilities to total assets index in the period 2019-2023. Hoa
Phat tends to borrow a lot to finance large expansion projects such as Dung Quat
Iron and Steel Complex. However, HPG has the ability to rebalance its debt ratio
when projects come into operation, which helps to reduce the financial risk from
this company's borrowing. We believe that although HPG's debt ratio may increase
in the future due to investment and production scale expansion, with the good

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management of its debt ratio maintained over the years, the company can grow and
achieve more achievements.

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