Challenges at Vinashin

Frustration over Vietnamese state-run shipbuilder Vinashin’s failure to repay loans it defaulted on last year is intensifying among creditors, potentially jeopardizing Vietnam’s plans to draw more investment to improve its infrastructure and reduce the bottlenecks that threaten its growth.

The problems at Vinashin point to the risks of investing in what is one of the world’s most attractive emerging markets. The entire $ 750 million proceeds of the country’s first-ever sovereign bond were channeled to Vinashin in 2005. In 2007, the government provided a letter of support for the company to enable it to secure an additional $ 600 million syndicated loan to make the most of a rapid economic boom in the country.

But when Vinashin defaulted on that debt in December 2010, in the aftermath of the global economic crash, the government refused to step in to help pay off the debt, which had been bought by investors around the world. Dozens of financial institutions invested in the loan, including, among others, Standard Chartered PLC, Credit Suisse AG, Depfa Bank PLC and hedge fund Elliott Advisers Ltd.

For many, the government’s letter of support was the only reason they felt sufficiently secure to lend to the company. This month, a group comprising just over half the lenders’ group sent a letter to Vietnam’s government demanding payment on the first $ 60 million, which was due in December.

Analysts say Vietnam needs to attract more foreign investments to build up overburdened road and rail networks and to build power plants to provide the energy Vietnam needs to keep its economy briskly expanding. Deputy Prime Minister Hoang Trung Hai said earlier this month at the annual Asian Development Bank meeting in Hanoi that the country hopes to attract as much as $ 300 billion in investment and aid to fund an infrastructure effort that he said is needed to push the country onto a more robust growth path.

The Vinashin crisis, though, is an ongoing drag on Vietnam’s prospects, damaging both its reputation among international lenders and potentially slowing the inflow of foreign investments that have helped drive the country’s economy in recent years.

Investors involved in the $ 600 million syndicated loan say they have been surprised by the unresponsiveness of the Vietnamese government to their concerns.

In the meantime, the financial situation at Vinashin itself appears to be growing more precarious. “They’re not making any money on the ships and the government is asking local banks to extend more loans and asking suppliers to lend more support,” says the person familiar with the situation at Vinashin.

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