DATC busy being a firm fireman

As a purchaser of debt, what is your view of the state-owned enterprises’ (SOEs) bad debt load?

There are no official statistics. However, DATC, which is in the business of solving debt issues and corporate restructuring, finds that the number of SOEs with bad debts is relatively high. This includes some Ministry of Transport infrastructure construction corporations, Ministry of Construction corporations, Ministry of Agriculture and Rural Development corporations and some Vinashin member companies.

Bad debt is mainly a banking problem. Why don’t the bankers turn to the courts or sell mortgaged assets?

That is one way, but it normally takes three to four years if a bank takes a case to court to request bankruptcy to collect on a loan. The debt amount reclaimed is not high after liquidating a debtor’s assets. And selling a debtor’s assets is not easy due to low liquidity.

Is transferring debt to DATC, so DATC can manage that debt, the best choice?  

It is not the best solution. DATC only helps in difficult times. When an enterprise can stand by itself, DATC will exit and move on to other enterprises. DATC provides guarantees, regularly reclaiming its investment capital via share issuances or transferring debts into equity. We want more cooperation from banks in continuing extending loans to  enterprises after their bad debts are removed.

Do you think that some enterprises will intentionally hide their debt conditions when negotiating with DATC?

Indeed that happens but not often because trading in debt requires a clarification of enterprises’ conditions. With our experience, we can see if an SOE is being transparent about its bad debt.  Some private companies did  not want to make public all their bad debts and in such cases DATC did not want to jump in. For some enterprises, DATC solves just a part of their bad debt problem due to our limited ability.

Currently some state-owned business groups have huge debts. Can DATC trade in such debts?

DATC can do it, but under current regulations we are not allowed to. For example, these groups’ bad debts are huge and if they want us to buy all the debts, it’s just impossible.

From the catalogue of big SOEs, DATC has purchased the debt of around 20 corporations, including the Thang Long Construction Corporation, the Central Construction Corporation and the Bach Dang Construction Corporation. In fact, debt restructuring is more complicated than equitisation. Therefore, debt solutions that are linked to restructuring would be more effective if debts are sold to DATC.

The number of enterprises that are going bankrupt is on the rise. Besides lowering interest rates and taxes, do you think cleaning up balance sheets is a good choice?

One of reasons why enterprises are having financial difficulties is that they obtained cheap loans over a long period of time and they invested that money unwisely. No capital support measure can succeed if an enterprise is so in debt that no bank wants to lend to it.

DATC is supporting the Binh An Seafood Company. We believe that Binh An can avoid bankruptcy and survive because Binh An and its creditors are finding solutions like deferred debt payments. An enterprise would go bankrupt if all of its creditors jumped in and insisted that they be paid back.

How much debt can DATC purchase now?

DATC has been buying 28-30 per cent of the original debt annually during the past years. So, DATC can buy up to VND5 trillion ($240 million) in bad debt.

DATC is asking the Ministry of Finance to let DATC become a corporation by 2015 so that it can actively solving bad debt problems and restructure enterprises. What’s the progress on that?

We proposed that DATC’s chartered capital be raised to VND5 trillion ($240 million) and we would like to set up shareholding debt trading companies.

DATC’s principle is to pull out of companies which successfully reclaim all debts, especially small companies. For enterprises which are larger and have more potential, DATC will stay in longer and divest efficiently under a roadmap. For some enterprises, DATC will not divest but wait until they become strong enough to partner with DATC in trading debts at other companies.

What needs to be done to set up a professional debt market in Vietnam?

Currently, on the official list regulating economic sectors and business registration, corporate debt trading and restructuring is not present, meaning there is no debt market in Vietnam. To make a legal corridor, I think that we should make a circular regarding DATC’s restructuring enterprises with valuations lower than debts they owe when equitising.

There also must be specific regulations that address commercial bank and credit institutions’ bad debts, with a focus on selling debt and fixing debt solving timelines.

If DATC’s available capital is not sufficient to buy corporate debt linked to corporate restructuring, the state should give DATC more capital (and reclaim later). DATC should be allowed to issue DATC bonds to raise capital to handle debt problems at enterprises. In the meantime, it is necessary to amend regulations regarding the Vietnam Development Bank’s bad debt so that this bank can be more active like a commercial bank.