Steel-makers’ hearts beating alarmingly

Van Loi Steel Joint Stock

In late July, steel-refining factories under big player Van Loi Steel Joint Stock incurred power-cuts as the factories owed VND11.2 billion ($540,000) in power charges.

In addition, Van Loi member businesses owed over VND6.7 billion ($323,600) in social insurance fees to Haiphong Social Securities by the end of July, 2011.

“Lending to steel-makers is quite risky at this point of time on the back of a dormant construction market. Usually, steel firms mortgage their products at banks to take out loans, now we demand them to present other collateral,” said a Haiphong banking official.

Banks’ tightening credit lines had exaggerated steel-makers’ woes.

Van Loi steel firm has halted production as it reportedly owes huge amounts to six credit organisations.

Van Loi’s current woes are in contrast to the rosy perspective the firm painted a year ago. By July 2010 in the over the counter (OTC) market Van Loi claimed it consisted of 14 member units with an annual revenue of VND10 trillion ($483 million) which would peak $1 billion in 2012.

Many Haiphong steel-makers are in a similar predicament to Van Loi.

The Dinh Vu Steel Joint Stock Company ran at losses in the recent years. The firm’s current production has not improved despite transferring a 70 per cent stake to an Australia-based investment group.

Song Da Steel Joint Stock Company, a member of Vietnam-Italy Steel Joint Stock Company is also running below capacity though it came online more than a year ago and employed state-of-the art technology.

Reality shows that most of Haiphong’s steel and iron production plants can produce 300,000-500,000 tonnes per year and each have chartered capital of around VND1 trillion ($48.3 million).

Construction of these plants as well as their working capital was heavily reliant on bank loans.

Steel firms’ woes have prompted banks to call in debts with VND4 trillion ($193.2 million) owed as of August 2011.