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.

Read more

The unlearned lesson: Vinashin, VinaLines, and other SOEs’ inefficiencies

May 26, 2012. The Vinashin graft scandal is still fresh in the minds of people, with the former chairman and CEO of the nation’s biggest shipbuilder, Pham Thanh Binh, sentenced by a court in Haiphong City in late March to 20 years in jail on charges of having intentionally violated State regulations on economic management that caused serious consequences. During the go-go years, Vietnam National Shipbuilding Industry Group (Vinashin) made huge inefficient investments in a range of fields, resulting in a huge loss of nearly VND900 billion.

But this is not the last and only case involving state conglomerates that are seen as the mainstay of the economy. Another state economic giant, Vietnam National Shipping Lines (Vinalines), has made big headlines in local media in the past week. The former chairman of this company, Duong Chi Dung, has been on the run since the police issued a nationwide arrest warrant for him.

Under the leadership of Duong Chi Dung, whom the Ministry of Transport picked to lead the Vietnam Maritime Administration in February this year while Government inspectors were scrutinizing Vinalines’ investment irregularities, the shipbuilder racked up losses of around VND1,685 billion, or US$ 81 million, in 2009-2010 alone.

Vinalines has not been financially efficient in its core operations. The firm has never made profits from its ship fleet, which is mostly secondhand. Last year, a total of 40 Vinalines vessels were detained in China, India and Japan, including Hoa Sen, Vinalines Star, Cai Lan 4, Vinalines Glory and Vinalines Global.

Running a loss-making business like Vinalines, Dung still got promoted.

Both Vinalines and Vinashin got involved in non-core operations, executed ill-conceived investment plans, purchased old vessels and equipment and caused whopping debts. But the two had not been brought to light until Government inspectors stepped in.

The two cases have raised eyebrows over the state of state-run conglomerates and corporations. Others like Vietnam Coal and Mineral Industries Group and Vietnam Electricity Group are also found to have committed serious violations.

Economic expert Pham Chi Lan is quoted by Tuoi Tre newspaper as saying that ministries seem not to have learned the lesson of the Vinashin scandal.

Lan says it had been possible to prevent Vinashin and Vinalines cases from happening if there had been rules forcing SOEs to ensure transparency in business dealings. “Companies listed on the stock market are owned by thousands of shareholders, so they strictly follow information disclosure regulations. SOEs, which actually belong to the country’s population of over 86 million, must act as listed enterprises do,” Lan suggests.

Read more …

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)

Hedge Fund Elliott Associates Takes Vietnam to Court

Dec 12, 2011. New York hedge fund Elliott Associates LP is challenging another sovereign in court. This time it’s Vietnam’s state-owned shipbuilder Vinashin.

Elliott is suing troubled Vinashin in the U.K. for defaulting on a US$ 600 million syndicated loan that originally had the Vietnamese government’s backing. After defaulting on the loan in December 2010, Vinashin offered repayment of 35 cents on the dollar to bondholders, according to a person familiar with the matter. Elliott is suing for nothing less than par value of its investment.

Past experience suggests that Elliott is willing to play a very long game, a strategy that has worked in the past.

Read more

Interpol hunts former executives of Vietnam ship-building corporation

Interpol has issued a global search warrant for two former officials of Vietnam’s troubled state-owned shipbuilder, state media said Sunday.
The wanted pair are Ho Ngoc Tung, former chief finance officer of Vinashin (Vietnam Shipbuilding Industry Group) and Giang Kim Dat, former business manager of a Vinashin subsidiary, Tuoi Tre newspaper reported.

The two men are among 10 officials under investigation over the group’s debts, which amounted to at least 80 trillion dong (4.3 billion dollars). The other eight are in police custody.

Giang and Tung went abroad before cases involving them were prosecuted in August 2010 by the Ministry of Public Security. Tung went to Australia for medical treatment and has not returned to Vietnam since, the paper reported.

Read more

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.

Read more