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Vinashin kicks off debt settlement process   2012-04-04 - TBKTSG

The Vietnam Shipbuilding Industry Group (Vinashin) may issue bonds under the government’s guarantee to pay a part of its huge debt, Thoi bao Kinh te Saigon has reported, quoting a source from a finance institution.


The information proves to be reliable, especially when it coincides with the information from another source – a creditor of Vinashin – that the creditors would get 25 percent of money back in bonds (this would be applied to the loans with mortgaged assets).

Vinashin’s debts and the bank restructuring process

All the overdue debts incurred by Vinashin have been listed by commercial banks and finance companies as bad debts. Meanwhile, banks all have to make risk provisioning for the debts. The provisioned sum is about one trillion dong on average.

It is still unclear of what percentage of the Vinashin’s debts have mortgaged assets. The creditors all said that the loans were mortgaged with land, ships and vehicles. A creditor said that in 2011, while some banks, who held the mortgaged ships of Vinashin, struggled to sell the ships to collect debts, he was lucky selling cars and other kinds of vehicles to recover a part of the debt.

Creditors expect the bond issuance with patience

The creditors of Vinashin prove to be the ones who most expect the bond issuance, because this can help them reduce the bad debts and reduce the provisioning, which means that they can obtain higher profits this year.

However, 25 percent is a low percentage, in the eyes of the banks. The creditors have been told that the State would set up a policy to help settle another 30 percent of debts within1-3 years. However, no further details have been released.

A source said that the Ministry of Finance is also considering swapping old debts for new bonds, which, by the nature, is not far different from the solution of paying 25 percent worth of debts in bonds. The problem is that if the swapping ratio is too low, creditors would be the disadvantaged.

Analysts have commented that the bond issuance by Vinashin would help speed up the process of restructuring the banking system. This shows the State’s ability to come forward and buy back bad debts under different modes.

A foreign investor has predicted that after finishing dealing with the domestic debts, Vietnam would be likely to settle the foreign debts of the conglomerate.

One of the possible scenarios is that Vinashin would issue international bonds to settle the debts. This proves to turn realistic, especially when the Ministry of Finance recently had more meetings with foreign credit rating firms.

By December 2012, Vinashin’s overdue debt had reached 180 million dollars out of the total debt of 600 million dollars the conglomerate has to pay 10 percent in every six months, commencing from the first payment in December 2010.

The Vinashin’s debt price in the world market has been decreasing sharply. In Vietnam, the domestic bonds issued by VInashin or the conglomerate’s subsidiaries before cannot be sold.

Some creditors offered to sell Vinashin’s debts at the price just equal to 50 percent of the original price. However, buyers only accepted the prices equal to 20-30 percent of the original prices.

With the news that Vinashin may issue bonds under the government guarantee to settle debts, analysts believe that the price of Vinashin’s domestic bonds would increase.

Under the plan to restructure the banking system in 2011-2015, settling bad debts is one of the key tasks. State owned banks will have to apply necessary measures to “clean the balance sheet” and reduce the bad debt ratio to less than 3 percent, in accordance with Vietnamese standards.

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