Vietnam - Why Elliot decides to drop lawsuit against Vinashin?

VietNamNet Bridge – The information that the US hedge fund Elliot Advisors decided to drop the lawsuit against Vinashin has set everybody’s curiosity agog. Why did the fund make such a decision after four months of intensively preparing for the case?

>> Two Vinashin’s international creditors raise their voices

>> Vinashin kicks off debt settlement process

Nguyen Ngoc Su, Chair of the Vietnam Shipbuilding Industry Group (Vinashin), has confirmed the news reported by foreign newspapers, saying that the decision was informed in a letter to Vinashin dated March 16, 2012.

Before taking legal procedures against Vinashin in early November 2011, Elliott Advisors and other creditors received a proposal from Vinashin that the shipbuilder would pay the debts immediately at the prices equal to 35 percent of the par value, or 210 million dollars.

It was clear that Vinashin did not have money to pay the debt. However, a banker appeared, saying that it would be ready to buy back the debts at the price level. Elliott Advisors and other creditors refused the suggested deal, because they believed that the offered price was too low to be accepted.

After that, a domestic multi-field conglomerate, jumped on the bandwagon, offering similar prices, but with flexible and diversified methods of payment. The conglomerate’s relations with the international finance circle, including well known investment funds, allowed it to approach the creditors easily.

There are two factors that convinced the creditors to sit for the negotiation. Firstly, they can recover a part of the debts immediately in cash if they want, while the remaining sums would be paid later in other kinds of debt instruments, convertible into money after a certain period. The debt instruments are diversified which have different terms.

In this case, the creditors can see the possibility of collecting debts at the level higher than 35 percent of the par value. And if they accept long term debt instruments, for 5-10 years, for example, they may collect 100 percent of the debts, or even earn more money, once the debt instruments bring profits.

In fact, accepting long term (5-10 year) debt instruments would not be a bad thing. When negotiating with Vinashin in 2011, the creditors once suggested a solution that the old contracts would be swapped into new 15-year contracts with the interest rates calculated by the Libor plus 150 percentage points. Meanwhile, the interest rate in the next five years, from the 11th to 15th, is higher by 50 more percentage points.

If the creditors get ready to accept a 15-year contract, the 5-10 year debt instrument would be worthy for them to consider.

Secondary, the conglomerate which intends to buy Vinashin’s debts really has powerful financial capability, which has hundreds of millions of dollars and it is able to pay all the debts of Vinashin at the original prices immediately.

Moreover, this is really a business with good corporate governance, and high annual turnover and profit growth. Becoming the partners of the conglomerate would be a good choice for the creditors. As such, if giving the nod to the suggested solution, the creditors would be able to turn the commercial loans into investment deals.

As such, the door to the Vinashin’s 600 million dollar debt settlement has opened. It is not by chance that the information comes out at the time when the Ministry of Finance has more contacts with international credit rating firms. The ministry has hired one more financial consultancy firm after working out with the big names such as Moody’s or S&P.

Analysts say this should be seen as a preparatory step of the Vietnamese state agencies to pave the way for domestic enterprises to issue international bonds. Good credit ratings would allow enterprises to issue bonds at reasonable interest rates, without the guarantee by the government.

It is clear that the low interest rate maintained by the US FED has created best conditions for enterprises to issue bonds. Vietinbank, one of the biggest equitized banks in Vietnam, has kicked off the campaign on issuing 500 million dollar worth of international bonds.

Vietcombank, another big bank, has consulted its shareholders about the issuance of 1 billion dollars worth of bonds this year. BIDV is also planning to issue international bonds.

Source: TBKTSG

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