Vietnam - Vietnam’s big bank willing to buy back Vinashin’s debts

An unnamed big bank in Vietnam has expressed its willingness to buy back Vietnam Shipbuilding Industry Group (Vinashin)’s debts, Thoi Bao Kinh Te Saigon (Saigon Economic Times) newspaper reported on November 17.

“We are willing to buy back whole debts of Vinashin with a price of equaling to 35% of par value, or $210 million compared with the principal value of $600 million, and payment will be implemented at once”, Chairman of that Vietnamese big bank said.

Several other financial institutions and foreign investment funds also are interested in buying the debts. The matter is how much money is offered.

During the last 13 months, debt price of Vinashin, the national shipbuilder has increased rapidly in the international market depending on various periods and buyers, sellers. In September 2010, corporate bonds of Vinashin were offered at around 60% of par value. The bond price jumped to 70% of par value one month later and at that time, a foreign fund in HCM City caught the chance to sell out $50 million (principal value). Then, the price decreased and almost stayed at 50% of par value throughout the time Vinashin and creditors were negotiating to find a way-out.

In November early (2011), Netherlands’ Elliott Vin, a hedge fund and one of foreign creditors, sued Vinashin and its 21 affiliates to London Supreme Court to take money. At that time, the debt price ranged at around 40% of par value. Where will the lawsuit be going after nearly one year of negotiations has not reached any fruition?

Last December, the national shipbuilder had to repay first $60 million (consisting of principal and interests) out of total $600 million debts which a group of foreign banks had lent before. After that, Vinashin was forced to repay another $60 million every six months, equivalent with 10% of total debts. Therefore, according to the contract commitments, Vinashin will have to repay $180 million by coming December.

Creditors are feeling “anxious” as even they have not received first principals and interest. Singapore-based Credit Suisse, the biggest creditor cum the institution underwriting Vinashin debts, has consecutively requested negotiations on repayment. In April 2011, a committee of four creditors namely Credit Suisse, Depfa Bank, Maybank, Elliott Advisors was formed. Standard Chartered Bank first was the committee member but then left it.

New leaders of Vinashin were clearly aware of repayment responsibility and possible affects of the case to the national finance rating. After some local banks gave green light, Vinashin officially offered two proposals with creditors. The group [Vinashin] or repay immediately the foreign debts at 35% of initial par value, or swap old contracts to new ones with new terms.

In return, creditors also recommended: or swapping old contracts to 15-year borrowing contracts with Libor yield rate of +150 percentage points a year, thus the yield rate will increased by 50 percentage points from the 11th to 15th years.

Why was 35% of par value of bonds proposed?

Firstly, one of local banks interested in buying back debts of Vinashin explained 35% of par value of bonds was suitable because it will take 10 years for Vinashin to repay enough principals. As buying debts, the bank will have to purchase insurance at high fees to avoid risks. In a reply to the proposal, Vinashin is only the linkage between foreign creditors and local debt buyers. Now the group cannot repay debts. With local creditors, Vinashin is able to postpone repayment. Foreign lenders also saw that Vinashin’s debt repayment is impossible at this time, but they are traders and never accept the price because of big losses.

Secondly, a foreign investment fund said they would consider buyback if the price is less than 40% of par value of bonds. The fund is professional bond trader who had sold out Vinashin debts at 70% of face value. This proposal is actually debt rescheduling that may be attached with interest increases.

Elliot refused both above proposals of Vinashin. The firm is a hedge investment fund experienced in debt trading and has won a lot of similar lawsuits. Vinashin violated the credit contract and would probably fail in the Elliot lawsuit.

It is assumed that Vinashin failed and had to implement the London Supreme Court’s determination, Elliot’s expected sales of assets of Vinashin and its member companies would not happen because those assets are in Vietnam and do not belong to Vinashin anymore. In addition, the majority of 21 Vinashin affiliates were transferred to two groups namely Vinalines and PetroVietnam.

The only measure Elliot can apply on Vinashin is to propose to block all payment transactions of Vinashin with foreign partners through the international banking system. In the last one year, Vinashin has continued delivering completed ships to foreign customers. The payment of the ships to be delivered, if being blocked, will cause big hitch for the group.

At least 13 foreign banks bought Vinashin bonds and provided loans to the shipbuilder. A familiar source of Saigon Economic Times said that some banks transferred small debts of ranging between $10 and $20 million. More than a half of creditors do not want to join the lawsuit against Vinashin for the fear of influence to their business in Vietnam, who is operating in Vietnam under the form of representative offices or foreign banks with higher benefits than joint lending for Vinashin.

Vietbiz24

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