Risk management research project major international business case study of flc group

Introduction of FLCFLC Group Joint Stock Company is a Vietnamese company mainly dealing in real estate.. In 2018, Bamboo Airways launched and signed an agreement of more than 3 billion U

HO CHI MINH CITY UNIVERSITY

OF FOREIGN LANGUAGES - INFORMATION TECHNOLOGY FACULTY OF BUSINESS ADMINISTRATION

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Risk Management Research Project

Major: INTERNATIONAL BUSINESS

CASE STUDY OF FLC GROUP

Student’s name: Nguyễn Đức Duy ID Number: 20DH120071 Student’s name: Đinh Minh Hùng ID Number: 20DH121507

Class: KQ2002 Course: Risk Management

I Introduction of FLC

FLC Group Joint Stock Company is a Vietnamese company mainly dealing in real estate In 2008, Mr Trinh Van Quyet and his associates established a series of financial investment companies In 2010, the company was consolidated and changed its name to FLC Group Joint Stock Company In 2011, FLC shares were listed on the Hanoi Stock Exchange (HNX) In 2013, FLC shares were officially moved to be listed on the Ho Chi Minh City Stock Exchange (HOSE) In 2014, FLC stock was selected to be included in the VN30 index In 2018, Bamboo Airways launched and signed an agreement of more than 3 billion USD with Airbus to buy 24 aircraft and $5.6 billion with Boeing to buy 20 aircraft (Mốc Son Lịch Sử, 2020)

FLC has a fast capital growth rate, with resort real estate investment projects in many provinces These projects have not yet been licensed or completed construction documents, but are still under construction and have even completed construction and investment in resort real estate in Vietnam such as Sam Son, Quy Nhon, Ha Long… (Trung, 2020)

Trinh Van Quyet is the name that has made the name of FLC Group Joint Stock Company and Bamboo Airways He graduated from Hanoi Law University and holds the role of a lawyer providing legal advice and investment management at SMiC law office

He and his associates accumulate knowledge and experience on mechanisms, policies, investment, and business environment in Vietnam, as well as investment methods of foreign economic groups, and participate in a number of popular lawsuits, typically Honda and GMN about land compensation With the acumen of the businessman and the acquaintances in the customer file, Mr Quyet has entered the real estate path very smoothly

1.1 Overview of risks of FLC

From September 1, 2016, to January 10, 2022, Mr Trinh Van Quyet, former Chairman of the Board of Directors of FLC Group Joint Stock Company, directed Ms Trinh Thi Minh Hue - his sister, to contact relevant individuals and establish 20 companies They borrowed and used the identity cards of 26 relatives to open 450 securities accounts in the name of Hue and companies and individuals at Hue These defendants continuously bought and sold the same securities, cross-matching, trading in large volumes, dominating the market at the time of opening and closing, place buy/sell orders and then cancel orders, and manipulating stock prices for six securities codes (FLC, ROS, ART, HAI, AMD, GAB) Specifically, on January 10, the chairman of the board of directors of FLC Group Joint Stock Company sold 74.8 million FLC shares but did not report it (PHAN, 2022)

Mr Trinh Van Quyet was the largest shareholder of 215.4 million FLC shares, equivalent to 30.34% of the group's capital The method of depositing money and then withdrawing has been implemented by FLC a decade ago, a common formula that applies

to many companies in the same FLC family FLC has subsidiaries with a capital of thousands of billion VND, but the shares are virtual until the market getting noticed by the market turns into real money.(ĐIỆP, 2022)

Mr Trinh Van Quyet was a successful businessman who built an FLC "empire" with a series of resort services along the most beautiful beaches in Vietnam He lived well for more than a decade due to two reasons: the pinnacle of a person who understands the law and confidence He fell off the horse when he sold shares of nearly VND 1700 billion

at the beginning of January last year, believing he would only be charged with illegally selling shares and fined like he did a few years ago This was a case of "undercover selling" of 57 million shares in 2017

Mr Trinh Van Quyet's career took nearly two decades to build, so he defied everything to manipulate the stock code of FLC FLC has two main revenue streams: real estate business and hotel and resort services In 2018, he founded Bamboo Airways with the expectation that it would be the last piece of the puzzle to complete the value chain serving customers from home to resort However, the domino chain began to fall from there, and FLC could not have foreseen what happened at the end of 2019(Tập, 2018) FLC's main business segments were disrupted by the Covid 19 pandemic, and the real estate market almost frozen in the first quarter of 2020 With a record loss of 1800 billion since listing, and an unreasonable financial structure, it is only a matter of time before FLC has a problem Mr Quyet has decided to sell FLC stock code (MAI, 2022)

FLC is now a shell, with the largest creditor being Sacombank, with over 1800 billion Vietnamese dong, and a series of large banks in Vietnam with huge debts The group's best projects were actually in the banks (A.HỒNG, 2022)

Bamboo Airlines is Mr Quyet's most anticipated project, which he plans to open direct flights between Vietnam and the United States at the end of 2019 and the beginning

of 2020 Bamboo's parent company FLC Group established a representative office in the United States in 2018, but due to the outbreak of the epidemic, all representative offices

Since Mr Trinh Van Quyet's arrest, it is clear that FLC's finances are no longer viable So, at the conclusion of last year, Novaland was the financial source that assisted FLC in paying staff Prior to the collapse, Novaland explored purchasing the FLC Quang Binh complex, which is one of FLC's most stunning projects Novaland even paid a 40% payment for this project, but the agreement fell through because NVL is also

experiencing financial difficulties (PHÚC, 2022)

II PESTEL, SWOT analysis

2.1 Identify Stakeholders in the current context:

Stakeholders of FLC Group can be divided into internal and external stakeholders:

2.1.1 Internal stakeholders: (GIANG, 2022)

 Employees - Human resources are always a decisive factor for the success or failure of an enterprise The human resources of FLC Group continuously accumulated in both quantity and quality

 Management - They are responsible for making strategic decisions and managing the daily operations of the FLC Group

 Shareholders - They have invested their money in the company and expect a return

on their investment The General Meeting of Shareholders also approved the dividend payment plan from the accumulated profit in 2021 at the rate of 10%

 Board of Directors - They provide oversight and guidance to management and represent the interests of shareholders

2.1.2 External stakeholders: (Hà, 2021)

 Customers - They are the reason for the company's existence and their satisfaction

is critical to the success of the FLC Group FLC always focuses on fulfilling the commitments promised to customers, at the same time paying attention to

accompanying services, after-sales policies, etc for the products and services they provide

 Suppliers - They provide raw materials and other inputs needed for the FLC's operations Typically, in the field of architecture: FLC cooperates with Revuelta Architecture Company (USA) - a 100% foreign-owned design company in Vietnam; In the banking sector: potential partners can be mentioned as Military Bank, BIVD, VietinBank

 Government - They regulate the company's operations and provide various incentives and subsidies

2.2 PESTEL analysis (Phan tich bao cao tai chinh cua tap doan FLC 2020, 2021) 2.2.1 Political

 Vietnam's political situation has been stable in recent years, providing a favorable environment for FLC's business operations

 The government's regulations and policies on land ownership and usage can influence on FLC's real estate development plans

2.2.2 Economic

 Fluctuations in foreign exchange rates may impact FLC's financial performance, especially since the company has a significant amount of foreign debt

 The COVID-19 pandemic has greatly affected Vietnam's tourism industry, the resort service segment has declined, and the construction and handout of real estate products have also been affected, leading to a loss in revenue and profit for FLC about VND 465 billion in the first quarter of 2022 (Hà, 2021)

2.2.3 Social

 The Vietnamese population is becoming more affluent, which could lead to greater demand for luxury hospitality services like those offered by FLC

 Vietnamese society places a high value on family and community, which could mean that FLC's family-oriented resorts and amenities are well-received

2.2.4 Technology

 FLC has invested in technology to enhance their guests' experiences, such as the FLC App that allows guests to manage their bookings and access information and services

 Keeping up with technological advancements in the real estate industry may be necessary for FLC to remain competitive

 FLC's reliance on technology could also make them vulnerable to cyber threats

2.2.5 Enviroment

 FLC has faced criticism over the environmental impact of their developments, particularly with regards to land use and resource consumption and FLC need to consider ways to reduce their carbon

2.2.6 Legal

 FLC must comply with Vietnamese labor laws, which could impact their operating costs and labor practices

 FLC's properties must also comply with local zoning and land use regulations

2.3 SWOT analysis (MISA AMIS Corporation, 2022) ; (Phan tich bao cao tai chinh cua

tap doan FLC 2020, 2021)

2.3.1 Strengths:

 Diversified portfolio with presence in a number of sectors, including agriculture, hospitality, real estate, and aviation

 FLC has a large source of funding including equity capital, contributed capital from investors, bank loans, customers purchasing the project's products and from suppliers FLC has increased its charter capital from 18 billion dong at its inception in 2008 to over 6,380 billion dong in 2016

 Strong market familiarity and brand reputation: FLC was voted in the Top 50

"Vietnam's most effective business companies" by Nhip Cau Investment magazine

in 2015; FLC Group received the title of "Strong Brand" in 2016 along with large enterprises such as Viettel, Vietjet, ViettinBank, Vingroup (Hà, 2021)

 FLC has a large land bank with potential projects in Phu Quoc, Ha Giang, Sam Son, Binh Dinh and Hanoi According to the assessment of Savills, FLC Group's projects are currently being invested with a value of over 3 billion USD

 A substantial, affordable workforce and always open to new initiatives Capable of assimilating new building technology from industrialized nations and using them

in a variety of projects

 Good financial potential thanks to raising capital from the stock market in recent years

2.3.2 Weaknesses

 The administrative procedures are cumbersome, causing difficulties for the construction and construction work

 Small-scale enterprises have poor bidding capacity and use of outdated

technology, which accounts for a large proportion of the industry The state of capital, extending the construction period continues

 Mobilizing capital on the stock market to invest in real estate projects, so it has not yet generated cash flow and profits immediately Profitable results from the project only come after 1-2 years

2.3.3 Opportunities

 The trend of urbanization is increasing along with the need to build houses, factories, and urban infrastructure, resort tourism also tends to increase The domestic real estate market shows signs of recovery

 Prices of construction materials for FLC's projects remained low Interest rates tend to increase again but at a low level, helping businesses to easily mobilize capital to serve new projects

 FDI capital has also increased significantly, opening up more cooperation opportunities with foreign enterprises According to a report by the General Statistics Office, in 2020, FLC Vietnam ranks 9th in the list of enterprises with the largest FDI investment in Vietnam

2.3.4 Threats

 Due to the characteristics of the industry, FLC Group still has to rely heavily on raw material prices The level of consulting, supervision and management of projects is still poor

 The increase in FDI capital has led to the entry of large construction contractors from abroad into Vietnam, increasing competition pressure with enterprises in the industry

 Global economic slowdown impacts investment demand and affects the country's overall economy

III RM applications 7Rs and 4Ts

Figure 3 7Rs &4Ts diagrams

3.1 Recognition of risk:

3.1.1 Collapsed by the scandal of President Trinh Van Quyet

The peak of confidence in legal knowledge and a series of wrongdoings, the chairman of the board of directors of FLC Group Joint Stock Company, was decided to prosecute the case of stock price manipulation with 74.8 million FLC shares This act of

"inflating the price" with the aim of making illicit profits of more than 530 billion VND After that, the Ministry of Public Security issued a notice to find investors who suffered damage when buying stock codes FLC, ROS, ART, HAI, AMD, and GAB,(BBC NEW, 2022)

After Mr When Trinh Van Quyet was arrested, investment capital transactions were also frozen by the state for investigation, and a series of proposals and changes in the board of directors led to companies under the management of the company They (FLC) continued to report losses and stretched (Mai Phương, 2022)

3.1.2 Thirst for investment capital and state intervention:

After the scandal and freezing of the stock market, the FLC, investors feel threatened which had a great impact on their psychology, from there they withdraw their investment capital, and sell off their remaining shares with the hope to avoid the highest loss case,

thus leading to the impact of investment in the real estate sector and leading to the bad consequence of not having the capital to maintain FLC Group Joint Stock Company (FLC) announced its financial statement for the third quarter of 2022, down 70% compared to the third quarter of 2021 with more than 430 billion VND in revenue The cost of capital is more than 525 billion dong, causing the company to suffer a gross loss

of more than 96 billion dong (VN Express, 2022)

And more than 10 localities decided to withdraw the policy of projects and research that FLC had invested in, such as Thanh Hoa, Binh Phuoc, Hoa Binh, Kon Tum, Quang Ngai, Lam Dong (Thanh Phương, 2022)

3.1.3 Crisis of the real estate market

The FLC stock market collapsed after the controversy of Mr Trinh Van Quyet, and the real estate project of FLC was delayed without capital for continued investment and support from the bank The real estate market after the Covid-19 epidemic has severely affected many projects that have lost value, FLC real estate is also affected by the risk from Nova Land - an investor contributing capital to many real estate projects when Nova Land collapsed, FLC was also dragged along, thus leading to a crisis and unstable in the real estate market leads to an extremely high risk of FLC

Figure 3.1.3 FLC business result in 2022

3.2 Ranking/ evaluation of risks.

This is a case of hazard risk because the level of high risk and probability of occurrence is extremely high, which can lead to extremely large losses and a high probability of bankruptcy

Figure 1.2 Matrix of FLC risk

3.2.1 High likelihood: On January 18, the State Securities Commission issued a

decision to impose an administrative fine on Mr Trinh Van Quyet of VND 1.5 billion, the highest level under regulations At the same time, the chairman of FLC Group was also subject to the additional sanction of suspending securities trading activities for 5 months Thus, the "FLC family" including FLC, AMD, KLF, ART, HAI, ROS, and GAB has

so far no longer traded on the listed market Since then, many localities have taken action

to stop the operation of a series of FLC projects such as Thanh Hoa, Binh Phuoc, Kon Tum, Hoa Binh, Lam Dong, and Quang Ngai , for the planning projects of the group have not yet been implemented; investment procedures and land lease contracts have not been completed (VN EXPRESS, 2022)

3.2.2 High Magnitude: financial loss caused by distrust of investors and customers is detrimental to revenue, so FLC aggressively seeks capital and increases debt This leads

to the quality of the project as well as the loss of the brand image, along with the investor's interests not being resolved satisfactorily, the prestige of FLC is no longer there