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With a VND77 billion ($3.6 million) loss after more than a year up and running Thai Nguyen Cement is at the crossroads, continuing its fading existence or going bust due to financial distress.
Thai Nguyen Cement project, developed by Vinaincon, benefited from an array of state incentives like concessionary loans, sourcing foreign loans with state guarantee, borrowing from Ministry of Finance’s (MoF) accumulation fund to pay foreign debts and using commercial loans in a total sum reaching 95 per cent of the project’s total investment capital, tantamount to VND3.046 trillion ($145 million).
However, since construction took seven years, and sponsoring banks failed to arrange capital as undertaken the project had to source part of its investment capital overseas with Vietnamese government acting as underwriter.
Going into production at the time of economic slump when a raft of construction projects faced delay, progress extension or being cut to save costs Thai Nguyen Cement ran at less than 60 per cent designed capacity. By late 2011, the plant saw around 300,000 tonnes unsold stock of cement and clinker valued at VND113 billion ($5.3 million).
Thai Nguyen Cement currently does not have any capital sources to pay debts, according to the MoF.
Thereby, in July 2011 as a guarantor the MoF had to pay over 4 million euros of Thai Nguyen Cement due debt at France-based BNP Paribas.
To deal with the project’s current financial woes, the MoF had proposed the Ministry of Industry and Trade (MoIT) and developer Vinaincon three scenarios - letting the cement plant go bust, shifting the plant to state cement conglomerate Vicem or transferring state capital part of the plant at developer Vinaincon to the State Capital Investment Corporation (SCIC).
However, these three scenarios are perceived as ineffective at this point of time.
First, if the cement plant went bust, the state could loss a huge capital amount since it is rather difficult to sell the project at its real value in current context.
Second, Vicem did not want to acquire a project bogged down in debt like Thai Nguyen Cement as it is also burdened with debts, according to Vicem’s chairman Luong Quang Khai.
Third, in case the plant was transferred to SCIC, industry experts assumed the plant’s performance could hardly be noticeably improved since SCIC did not have much experience in governing and managing cement business and construction industry.
Besides, it takes time for the MoF and SCIC to mull the plant reshuffle plan.
According to Vinaincon’s chief accountant Hoang The Hien, Vinaincon is still waiting the government’s instruction about how to deal with Thai Nguyen cement debts. The plant now runs at 50-60 per cent capacity which fails to cover high borrowing cost and machinery amortisation fees.
To get additional income sources for paying debts, the plant must reach at least 80 per cent capacity, a target now out of reach in the face of low cement market consumption.
Thai Nguyen cement’s total designed capacity is 1.51 million tonnes per year. Its official cement brand is Quang Son.