Steel giant heads abroad for forex

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The move follows the Vietnamese government’s thumbs down on the company’s requests for a mechanism that would see its dong earnings converted into forex.

Last year, the Taiwanese investor made a concerted push to obtain foreign exchange balance support from Vietnamese authorities. The company needs to guarantee it has enough capital to import raw materials required to run its mammoth steel complex in central Ha Tinh province’s  Vung Ang Economic Zone (VAEZ).

According to the firm (FHS), the company needed $2.8 billion a year to import iron ore, coke coal and other materials for its $16 billion steel project, which had the capacity to produce up to 7.5 million tonnes of steel in the first phase of operation.

The first phase, developed to the tune of $8.9 billion, is scheduled to start commissioning from around 2013. FHS will be able to get its hands on around $1.4 billion, or half of its required working capital, from selling its steel products abroad.

The remaining half of the firm’s products, including steel shape, plate and billet, were originally planned to be sold in the Vietnamese market, which would bring earnings in local Vietnam dong.

So, mid last year FHS asked the Vietnamese government for a “particular mechanism on foreign exchange balance” to ensure sufficient forex supply. In that way, the company hoped to convert its Vietnam dong earnings and carry out constant input material imports.

The assistance, however, was not forthcoming.

“We have not yet received any agreement from the Vietnamese government, though we are still seeking their in-principle nod. We also understand that Vietnam has limited forex reserves which cannot meet the requirement of all investors with similar requests,” said FHS representative Chu Xuan Pham.

“The company therefore has to change its operations by focusing more on overseas markets to earn more forex to serve its import requirements,” Pham told VIR.

The FHS representative said the company would cooperate with China Steel Corporation (CSC), a 5 per cent stakeholder of the project, to expand their exports to Southeast Asian countries, the biggest market for their products.

“CSC has a wide ranging sales network in regional countries, particularly Indonesia, the Philippines and Thailand, which will be very useful for FHS’ steel products,” Pham said, adding that those products would also be exported to Taiwan where Formosa Plastics Group is a  big client.

According to Pham, CSC obtained its 5 per cent stake in the $16 billion steel project from four other Formosa Group’s affiliate companies, which originally held 90 per cent of the project’s investment capital.

FHS received its investment licence for the steel complex project in June 2008. The Taiwanese investor then obtained site transfer from Ha Tinh province in October last year. The company is currently carrying out ground levering for project’s 2,146-hectare site and is preparing the construction of Son Duong port, a part of the steel project complex.

Pham said the investor would invest some VND7,000 billion ($338 million) in building the first wharf of the port.