Vietnam - Creditors sinking with heavy bad debts from shipping firms

VietNamNet Bridge – The huge assets worth trillions of dong lying in the ships have been drifting on the open sea, while commercial banks and finance leasing companies cannot call them back.

The part of the iceberg under the water

Tien phong has quoted its reliable sources as reporting that by the end of 2011, the total ship chartering outstanding loans provided by eight finance leasing companies had reached 8.7 trillion dong. ALC 1 and ALC 2, the companies belonging to Agribank, and BLC of BIDV Bank all had the outstanding loans worth more than one trillion dong.

The figure would be even bigger if counting on the ships purchased with the funding from banks and finance leasing companies. It’s obvious that the irrecoverable loans provided to shipping agents account for a big proportion in the total bad debts of the banking system.

Nguyen Thi Anh Thu, Director of ALC 1, said that when borrowing loans, all shipping companies affirmed that they had stable clients; therefore, paying debt was quite within their reach. Meanwhile, they now complain that the high expenses, low revenues and few customers have pushed them against the wall.

Since 2008, the sea shipping service market has witnessed tragic falls with the freight down by 50-60 percent. Meanwhile, they have to pay higher for fuel, workers’ salaries and bank loan interest rates. As a result, a lot of ship owners have incurred heavy debts.

“They have contacted us and asked to delay the debt payment,” Thu said, adding that ALC 1 has stopped providing finance leasing to shipping firms over the last three years, while it has been focusing on collecting debts.

ALC 1’s ship chartering outstanding loans have decreased to one trillion dong (112 ships).

Thu also said that ALC 1 has reduced the lending interest rates four times since August 2011, from 18.5 percent to 15 percent. ALC 1 worked out with the borrowers in August 2012 on the plans on debt restructuring and the debt payment schedule.

“However, despite our efforts and compromise, the borrowers still cannot fulfill its new commitments about debt payment,” she complained.

In fact, the three ships of ALC 1, including Minh Sang 07, Van Xuan 18 and Truong Xuan 09 still keep in operation. However, the borrowers could only pay a part of the committed debt amounts in recent debt payment stages.

High risks

Dam Duc Long, Secretary General of the Vietnam Finance Leasing Association, said the finance leasing of ships is really a tough business field for finance leasing companies.

Even big shipping firms like VOSCO, Vitranschart, Bien Dong and Vinalines now face big difficulties, let alone small firms. Meanwhile, most of the clients of finance leasing firms are small companies with weak financial capability. Therefore, when they meet difficulties due to the changes in policies or the tough business climate, they would rather give up ships and lay off crew.

The two ALC 2’s ships Dynamic Bright and Dai Phat with the tonnage of 5700-6900 tons, for example, and New Sun (invested with a syndicated loan) have been abandoned at the Hai Phong port for the last several months.

In late February 2012, An Phu 18 (3060 tons) of ALC 1 got stuck in East Timor because of food, fuel exhaustion. Meanwhile, An Thanh Phat 386, the client of ALC 1 did not have money to “rescue” the ship and the crew.

Finally, ALC 1, in an effort to save the ship, advanced 2 billion dong to preserve its assets. An Phu 18 has been carried to Vietnam for exploitation.

Tien Phong

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