VEC on the road to recovery

Vietnam Expressway Corporation (VEC) just submitted its operational model and finance restructuring draft plan to the Ministry of Transport (MoT), the third submission after garnering useful inputs from the ministries of Planning and Investment and Finance.

As of June 2012, VEC completed capital assignments for five major highway projects 540 kilometres long worth VND106 trillion ($5 billion). However, capital assignment success has made VEC Vietnam’s biggest public debtor as these projects’ investment capital is mostly sourced from commercial loans when VEC’s chartered capital is merely VND1 trillion ($47.6 million).

VEC’s deputy general director Luong Quoc Viet said since highway projects featured low financial efficiency and long capital recouping process and VEC’s operational model was still being trialed in light of current state regulations on public debt management  VEC would incur several following critical faults.

First, VEC’s current debt/chartered capital rate is 106 against 3 regulated ceiling level as stated in Decree 09/2009/ND-CP presenting regulations on state companies’ financial management and management of state investment capital at enterprises.

Second, as its chartered capital is tiny against an investment project’s capital scope VEC fails to satisfy the requirement requiring a project developer to have at least 30 per cent of owner capital in an investment project, regulated in the Law on Public Debt Management, Clause 34.

As 90 per cent of its investment capital is loans, VEC’s capital structure is then highly susceptible to risks, particularly exchange and interest rate volatility.

To empower its operations, VEC is proposing a policy framework with specific mechanisms such as those on bond issuances and foreign loans subleasing for implementation of its highway projects.

Accordingly, VEC proposed the government to shift VND46,586 billion ($2.2 billion) of debts derived from site clearance and construction of above-mentioned five highway projects into government debt and credit into VEC owner capital. This will help VEC come on par with the requirement requiring the developer to have at least 30 per cent of owner capital in an investment project.

In case the proposal is not green-lighted or only partly satisfied, VEC asked the government enact a specific regime allowing VEC to be immune from enforcement of state regulation on debt/chartered capital rate paving the way for VEC to raise capital and that on its business efficiency appraisal.

“The trial model state enterprises handling highway projects as in VEC case would drop due to default factor if we are still obliged to follow such set stringent state regulations,” said VEC’s general director Mai Tuan Anh.