In Vietnam, a shipping line raises alarm over debt (SOEs)

Jun 26, 2012. Shipping line Vinalines once symbolised the postwar promise of Vietnam when it began jockeying for global trade after the United States lifted sanctions on its former enemy in 1994.

Today, it represents all that has gone wrong since then: a bloated behemoth with 18,000 workers, a fleet of loss-making ships and $ 2.1 billion in debt. In recent weeks, two senior executives have been arrested, its former chairman is on the run, and the firm has become a byword for mismanagement.

Vinalines and other debt-ridden state companies are turning into a big test of the government’s graft-fighting credentials and whether Communist-run Vietnam is likelier to reclaim its status as a star among emerging markets or sink deeper into an economic malaise rooted in a state sector plagued by red ink and cronyism.

“These companies have operated in secrecy for too long but that must come to an end,” said Jonathan Pincus, dean of the Fulbright Economics Teaching Program in Ho Chi Minh City and a former Vietnam economic specialist at the United Nations.

It adds to a catalogue of problems that have overshadowed Vietnam’s promise – bureaucracy, creaking infrastructure, a debilitating trade deficit and, until recently, spiralling inflation and a stumbling currency.

State firms have come under growing scrutiny since the government revealed on June 12 that debt at Vietnam National Shipping Lines, or Vinalines, was 43.1 trillion dong ($ 2.1 billion) at the end of 2011, more than four times its equity of 9.41 trillion dong.

That drew comparisons with the near-collapse two years ago of state shipbuilder Vinashin, whose $ 4.5 billion debt triggered concerns over the health of Vietnam’s banks. Vinashin was eventually bailed out, but nine of its executives were sent to jail in March, convicted of mismanaging state resources.

Private companies in Vietnam face high borrowing costs and double-digit interest rates, but credit is cheap for state firms such as Vinalines, which received cash injections from the state budget, soft loans from the Vietnam Development Bank for new vessels, privileges in paying corporate tax and a guarantee from the government in order to access overseas loans.

Those findings, detailed in the inspectors’ report, could strengthen criticism of a controversial policy that puts a third of the economy under the control of state-owned companies to ensure a tight government grip on strategic industries.


The unlearned lesson: Vinashin, VinaLines, and other SOEs’ inefficiencies, Saigon Times, May 26, 2012

Additional background

According to the Committee for Enterprise Reform and Development and the Ministry of Planning and Investment, state-owned enterprises hold 70% of the total real property in the economy, account for 20% of investment capital throughout society, and devour a staggering 60% of the credit in the commercial banking system, 50% of state investment capital and 70% of official development aid capital.

However, these same enterprises are responsible for only 25% of total sales revenues, 37% of pre-tax profits and 20% of the value of national industrial output. The rate of credit use by state-owned businesses to generate revenue is definitely higher than that of other enterprises. It takes VND2.2 in capital to create VND1 in revenue compared to VND1.2 in capital spent by businesses outside the state corporate sector and VND1.3 in capital expenditures by foreign enterprises operating in Vietnam.

OECD Guidelines on Corporate Governance of State-Owned Enterprises (SOEs)