Nov 27, 2012

Vietnam - Awash in debts

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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.

Apart from mounting debts, State-owned enterprises also suffered huge losses last year. Thanh Nien, referring to the aforesaid report, says many groups incurred trillions of losses each. These include Vietnam Electricity with cumulative losses of VND2.59 trillion, excluding losses resulting from the exchange rate differential that amounted to VND11.2 trillion, and Petrolimex with losses totaling VND2.59 trillion.

In fact, several State-owned enterprises have found themselves unable to pay due debts and have to resort to the Government’s support, as admitted by the Finance Minister at the ongoing National Assembly sitting.

Grilled by NA deputies whether the State budget is being used to pay corporate debts, Minister Vuong Dinh Hue says the Government’s funds are being used to pay debts totaling US$109 million for several State-owned enterprises since their debts are guaranteed by the Government, says Thanh Nien. This sum is advanced from a fund set up to pay public debts, not directly from the State Budget, and enterprises will have to reimburse the funding.

Tacking huge debts among State-owned enterprises is quite a difficult task, not only because of the huge sum to be refunded, but also because of the many administrative challenges, according to Sai Gon Tiep Thi.

Almost all properties mortgaged by State-owned enterprises at banks when taking out loans are under State ownership, so it is quite complicated to liquidate such assets. Normally, creditors often sell mortgaged assets at values lower than the original prices to recover capital, but under prevailing regulations, State assets will not be sold at prices lower than the original values or the book values, and therefore, settling bad debts at State groups is beyond the capacity of banks, comments Sai Gon Tiep Thi.

The challenges facing State groups and corporations, especially for those 30 entities whose debt-to-equity ratios are bigger than three, look increasingly insurmountable.

Thoi bao Kinh te Sai Gon remarks that if inflation is not harnessed at a low level as a prerequisite condition to lower the interest rate, these 20 State groups will become insolvent, and their survival is minimal.

The poor performance by State groups and corporations has been repeatedly ascribed to their investments outside the core business spheres among other macro factors and the global economic recession. However, it is the absence of a mechanism to control their operations that has led to the current woes.

Speaking to media on the sidelines of the NA session, Bui Duc Thu, a member of the NA Committee for Finance and Budget, notes that such State groups and corporations have been given strong authority in making investment decisions while there is no effective mechanism to supervise their activity.

“Any major changes to the State Budget spending must be presented to the NA, but State groups and corporations can make investments worth tens of trillions each only on the basis of their strategies approved by the Prime Minister. That is too much liberal,” Thu is quoted by Thanh Nien as saying.

Son Nguyen

The Saigon Times Daily

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