Banks keep shipbuilding sector afloat

Vietnam’s shipping industry is emerging as a major player

The state-run Vietnam National Shipping Lines Corporation (Vinashin), signed a deal with the UK’s Graig Investment last January to build five 53,000-dwt cargo ships for $112 million.
Under the contract, the buyer agreed to pay Vinashin an advance of 35 per cent, or $40 million, if Vinashin could get a bank guarantee for the sum.
Now, the Bank for Foreign Trade of Vietnam (Vietcombank), the Bank for Investment and Development of Vietnam (BIDV) and the Industrial and Commercial Bank of Vietnam (Incombank) have stepped in and agreed to provide the guarantee.
Vinashin general director Pham Thanh Binh praised it as a landmark event in the development of Vietnam’s ship building industry not only because of the large sum involved but also because it was an unsecured guarantee, or one not involving a mortgage.
In addition to this letter of guarantee, Vinashin is expected to receive preferential loans from the Development Assistance Fund, a state-run fund established to support projects significant to national development such as shipbuilding and roads, to secure the remaining capital for the contract.
“It gives us motivation considering this 53,000-dwt ship will be our biggest export so far,” Binh said.
“It also encourages us to sign similar large contracts with big international ship owners in future.”
Binh revealed that the Graig Investment deal was just one part of Vinashin’s ambitious export programme.
After completion of the Graig order, the company plans to build an additional 17 ships of the same size within five years.
“We will also consider building bigger vessels, such as those with capacity of 75,000 dwt, in order to achieve our export target of $1 billion by 2010,” he said.
Graig Investment, one of the world’s biggest ship owners, meanwhile viewed the guarantee agreement as proof of the Vietnamese government’s commitment to supporting the shipping industry.
“Shipbuilding contracts are often of large value and always need bank guarantees,” Graig Investment’s general director, Chris Williams, said.
“The support from the Vietnamese government through its financial arms, the state-owned banks, helps us to feel more secure when entering into deals with Vietnamese ship-builders like Vinashin.”
In the last 10 years, China has been a regular builder for Graig, supplying 60 large cargo ships.
However, according to Williams, Vietnam has gradually emerged as a significant exporter of cargo ships as a result of its competitive prices, good labour force and improved delivery commitment.