Vietnam shipbuilder fights to stay afloat

Vinashin, Vietnam’s prized shipbuilder and export group, this week appointed its third boss in two months as the government scurries to avoid a debt default and salvage its vision of state-led development.

Vinashin’s troubles, stemming from the confluence of a global industry downturn and the proclivity of Vietnamese state companies to wander into unfamiliar lines of business, are even threatening the career of Nguyen Tan Dung, the prime minister.

With Vinashin at the fore, Dung has championed a development strategy that envisioned turning big state companies into communist versions of the chaebol, the South Korea conglomerates like Samsung which drove that country’s rise from poverty to the ranks of Asia’s wealthiest. Some $750m from the country’s first sovereign bond issue was channelled to Vinashin.

Dung, who has been in office since 2006, hopes to be elected next year to the post of Communist party general secretary, Vietnam’s most powerful job.

“Vinashin was one of the jewels in the crown,” Carl Thayer, a Vietnam expert at the Australian Defence Force Academy, wrote recently. The company’s troubles had “added weight to a growing internal party consensus to keep Nguyen Tan Dung in place as prime minister,” Prof Thayer said.

Vinashin’s troubles are worrying foreign banks and investors, who hold a $187m ( UK pound 122m, �147m) bond issue and $600m in outstanding loans. But Nguyen Hong Truong, the deputy transport minister overseeing the company’s restructuring, says banks have been directed to extend credit to Vinashin again. “If banks cannot provide enough credit, the government will issue new bonds” to meet the company’s obligations, he told the Financial Times.

Some observers see a bright side in the unusual openness with which the government has acknowledged Vinashin’s problems. Many say the company was handicapped by Pham Thanh Binh, the founding chief executive whose vow to make Vietnam the world’s fourth-largest shipbuilder turned into expansionist hubris.

“Binh was always hanging around like an evil genius, thinking up things that didn’t fit with our plans,” said an officer at a foreign shipbuilder that has a joint venture with Vinashin. “We hope that now things can only get better.”

The government sacked Binh on July 1 after an audit found $4.6bn of debt at Vinashin against assets reported at $4.8bn. He was expelled from the Communist party and arrested for mismanaging state assets.

Last Friday the government sacked Binh’s replacement, citing his failure to resolve problems at a subsidiary unable to complete a floating storage unit for PetroVietnam, the national oil company. This week, the government named the company’s chief business officer as acting chief executive.

Vinashin’s rise was only slightly slower than its fall. In 2004, it took in the first of dozens of orders for bulk carriers from Graig Group, a British shipping company. By 2008, it had $6bn of orders on its books, two-thirds of them from overseas. In a few years, shipyards went from building 10,000-tonne freighters to 150,000-tonne floating storage units as the corporate structure sprawled into 28 shipyards and 200 subsidiaries. One subsidiary took on the Tam Dao Belvedere, a resort hotel north of Hanoi.

The 2008 global downturn’s impact on Vinashin was compounded by its dependence on imported components for 70 percent of the value of its ships. As new orders dried up, the company began running out of foreign currency to pay for components to complete existing contracts. By last September, customs officers were refusing entry for components for Vinashin because it had fallen so far behind on paying duties, according to a report by Oxford Analytica. Salary payments were up to $13m in arrears.

After the July audit, the government announced it would be breaking up Vinashin. Six big subsidiaries were assigned to PetroVietnam and seven to Vinalines, a state shipping conglomerate. Nguyen Sinh Hung, the deputy prime minister heading a restructuring committee, said payments to foreign debtholders might be postponed.

Since then, foreign investors say they have heard little and were not asked to approve waivers on the transfer of Vinashin assets.

But Nguyen Quoc Anh, now acting chief executive, said foreign investors should be reassured by the government’s commitment. “[The Politburo decision] is very clear,” he said. “Vinashin cannot go down. Vinashin must be stronger. But Vinashin must be restructured.” -FinanceTimes

Tags: Vietnam Shipbuilding industry, Vinashin