Vinashin reshuffle:debts should be converted to shares

The Government-backed reshuffle of loss-making shipbuilder Vinashin is seen as a safe and sound choice by economic experts. However, this roadmap is believed to be hard work, possibly the hardest ever, and Vietnam lacks experience in dealing with such a problem.

The biggest problem in settling the country’s largest shipbuilder is its big debt but small equity. As of December 31, 2009, Vinashin incurred debts of VND80 trillion (more than US$4 billion) and interest rate payments mounted to more than VND10 trillion a year. The group’s debts exceeded its assets. Vinashin’s investments are ineffective, given high prices for aging ships and low profit from ship operations. Many assets do not make profit as noncore business investments, finance investments, land investments, etc while funds for these activities are loans. Moreover, many Vinashin-member companies are strong enough (finance, corporate governance) to take part in the restructuring process.

Besides, according to the Vietnam Association of Financial Investors (VAFI), the group’s current board of directors is not a strong management to lead the restructuring. “To find out an excellent executive in the shipbuilding industry is very difficult because it is rare to see talents in this industry and it must take a very long time to build up a strong board of directors,” VAFI stressed.

On the other hand, the Vinashin Restructuring Steering Committee is administratively strong – an advantage, but it lacks specialists excellent at corporate finance administration and restructuring.

Mr Nguyen Hoang Hai, Secretary General of VAFI, said Vinashin restructuring is a difficult and challenging process but Vietnam can build a highly competitive shipbuilding industry to tap the country’s advantages of long coastline and low-cost labour.

So, according to VAFI’s proposal, Vinashin should liquidate ineffective, unpromising investments and assets to supplement working capital although it incurs losses from this action.

“Ineffective investments like Hoa Sen (Lotus) ship need to be liquidated soon. It would rather suffer a loss than pay money to keep it unused and pay interest rate for the loan to buy it. Financial investments or subsidiaries without involvement to core businesses need to be sold to take back capital,” Hai explained.

Besides, Hai said debts need to be restructured soon. It is right to request lenders to freeze or reschedule debts but Vinashin Group borrowed too much while takings from shipbuilding and repairing are not big and rates of returns are low; thus, the group needs better measures to restructure its debts.

According to VAFI, to avoid debt pressures, the best solution is to convert debt into share capital, or in other words, creditors will become shareholders at Vinashin’s member companies. This is a good experience in the world. Presently, it will come to a failure if Vinashin sells shares at its affiliates to the public because its units are not attractive.

Under the regulation, Vinashin can convert most its member companies into joint stock companies with creditors being initial shareholders. This process should be implemented as soon as possible (within three months).

To make this process successful, the concept of “the group must keep controlling holding” needs to be changed and member companies need to be given more autonomy in corporate finance and governance to develop better.

Specifically, after completing the conversion of its units, Vinashin must further strengthen corporate governance, enhance financial transparency and boost marketing activities to attract foreign strategic investors to its member companies. Vinashin was successful in attracting Hyundai to set up Hyundai – Vinashin shipyard and the similar results are also viable. – VCCI

Tags: Vietnam Shipbuilding industry, Vinashin