SOEs awash in debts

Nov 25, 2012. The outlook for the State corporate sector is never so dreadful after a report sent by the Ministry of Finance to National Assembly deputies in Hanoi this week unveils the black hole of crippling debts that will likely push many State-owned groups to the verge of bankruptcy. The path to survival looks rocky, and is only to open up in case macro-economic stability is achieved in the coming time.

As covered in local media, the total liabilities of 91 State groups and corporations amounted to nearly VND1,300 trillion last year, or around US$63 billion, a staggering increase of nearly 19% from the previous year. Such an amount of debts, says Sai Gon Tiep Thi, was equivalent to 65% of the national gross domestic product (GDP) in 2011.

Topping the list of debtors is PetroVietnam with nearly VND287 trillion, followed by Vietnam Electricity Group with over VND257 trillion, reports Tuoi Tre.

The grim picture, says the Sai Gon Tiep Thi, is not wholly reflected by the amount of debts, but rather the capacity of State groups in settling such arrears. And this problem is a hard nut to crack.

The newspaper cites the Finance Ministry’s report to depict an alarming scenario as up to two-thirds of capital at State-owned enterprises is credits from banks, given their average debt-to-equity ratio was 1.77 last year. More worryingly, as many as 30 State groups and corporations had this ratio bigger than three, with some even suffering a ratio of ten.

The figures show “the excessive reliance on bank loans, leading to high financial costs and low capacity to repay debts upon maturity.”

In fact, several State groups have failed to repay overdue debts, having amounted some VND10.15 trillion at Vietnam Electricity and VND1.73 trillion at PetroVietnam to name but a few.

Thoi bao Kinh te Sai Gon points out the huge risks of heavy reliance on bank loans among State groups.

“Relying on loans rather than own capital to boost economic development will easily lead to bubbles in the economy,” says the newsmagazine. The paper also shows concern about the high possibility of State groups going bust, saying such entities will become bankrupt if their rate of return is lower than 10% while the interest rate stays at 15% because their own capital accounts for just one-third.

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