Vinalines faces uphill task to repay its debts

Vinalines has been focusing on three areas including shipping, port management and maritime services and logistics.- Photo vneconomy

An official from Vinalines told Viet Nam News on June 24 that VietinBank led the list of creditors with VND2,230 billion, or $106.19 million (including principal and interest), followed by VDB, Asian Commercial Bank, OceanBank and Vietcombank. Natixix, a French corporate and investment bank, is the biggest foreign creditor of Vinalines with a loan of VND1 trillion ($47.6 million).

Vinalines has been focusing on three areas including shipping, port management and maritime services and logistics. Shipping services contributed the largest share of revenue for the group earlier.

However, this sector has been suffering from the after-effects of the global recession in recent years. The recession has stopped operations of many giant shipping firms in the world, with some even going bankrupt. This shows that the Vinalines' difficulties were caused by both subjective and objective factors.

Apart from that, the group is unable to repay its debts because it is dealing with a difficult trade and production situation, coupled with a drastic reduction in shipping freight–that has led to a serious decline in revenue.

"In 2013 the losses were over VND3.1 trillion or $147.6 million, more than triple as compared to 2012. It will continue to bleed heavily this year as well," said the official.

The group's business situation is unlikely to improve in the near future because the predictions for the shipping market itself are not too bright. This means that with the task of paying such a huge debt, Vinalines will also be dealing with a large number of difficulties in payment.

In addition, almost all the funds borrowed from credit institutions were invested in ships, which have been mortgaged as security, and are being assessed at a price much lower than the book value.

Government support

The Government has approved the debt restructuring plan for Vinalines in an effort to rescue the shipping fleet from bankruptcy. However, the firm is still very much in need of financial support from credit institutions to solve its problems and salvage its operations.

Under the approval signed early this month, the Government has agreed to wipe clean the Vinalines' debt of loan interest worth VND416 billion or $19.8 million from Vietnam Development Bank (VDB) and reschedule the principal debt worth VND2 trillion or $95.2 million for two years, from December 31 2013 to December 31, 2015.

However, the Government's support has been only for the group's debt from the VDB. As for other commercial banks, Vinalines has been trying incessantly to seek a solution to resolve the problem. Although the debt reschedule will ease financial pressure on Vinalines, in the long term it will still be difficult because the shipping market is not sure of recovery any time soon.

Opportunities for banks

It is in the context that Vinalines has been proposing an equitisation plan in 2015 following the Government's request. It will be difficult for the banks and credit institutions to get back enough of their loans.

The official said that his group's debts have swollen day by day, and few investors would have thought of buying back the debts, which are seen as bad debts. Therefore, Vinalines has proposed to the Government that they allow the Debt and Asset Trading Corporation (DATC) to buy the group's debts from banks and credit institutions.

The resource of the funds that DATC will use to pay for the banks and credit institutions will come from the divestment and the equitisation of Vinalines ports. However, even this resource is estimated to be very limited, only from VND2 trillion to VND2.5 trillion, or $95.2 million to $119 million. Therefore, priority will only be given to banks that get in touch with DATC soon.

Additionally, the system of sea ports from the north to the south is one of the advantages Vinalines has. The firm owns 12 port companies in cities including HCM City, Da Nang, Hai Phong, Quy Nhon, Vung Tau and Can Tho and northern Quang Ninh and central Nghe An provinces.

According to Vinalines' Chief Executive Officer Le Anh Son, who has worked for the group for 15 years, Vinalines has been supplying transport services ashore and in inland water areas as well. The warehouse and logistics service companies have been working effectively.

"My group has completed its launch of the IPO of Hai Phong, Quy Nhon and Da Nang ports. We are going to equitise other ports and then launch the IPO of Vinalines in the first quarter of next year," said Son.

There are too many challenges facing Vinalines with regard to equitisation, as banks and credit institutions will be faced with more difficulty in getting back their loans. This is because when getting through the equitisation process, the State-owned capital will reduce and the State will not be the only shareholder in the group to determine the payment of debts.

But it is true that there will be a chance for banks with regard to the method that converts the loan into contribution of capital at the group's companies, which are carrying out the IPO.