Vinashin fallout rolls on

Vu Hoang Chuong, head of investment at Electricity of Vietnam (EVN) Finance Joint Stock Company, said Vinashin’s debt distress had made it hard for Vietnamese enterprises to mobilise foreign capital and pushed up the costs for bond issuances.

“EVN is still choosing an  advisory partner for its planned $1 billion overseas bond issuance, which is likely to be Standard Chartered Bank. But when we can issue bonds is unknown. It might not even be done within 2011 due to the impact of the Vinashin case,” said Chuong.

EVN is one of the three state-owned big boys which planned to issue overseas bonds in late 2010 or early 2011. The two others are PetroVietnam and mining group Vinacomin.

But at a 2010 wrapping-up meeting last week, PetroVietnam’s chairman Dinh La Thang announced that the state-owned oil and gas group had halted its plan to issue $1 billion international bonds, previously planned for the fourth quarter of 2010, due to current unfavourable market conditions.

In late November 2010, Vinacomin also stated it had to stop its $500 million international bond issuance scheme due to difficulties after Vinashin case.

Vinashin is facing serious debt woes. As of June 2010, the ship builder’s total assets was estimated at around $5.4 billion while its liabilities reached $4.5 billion. 

Its chairman Nguyen Ngoc Su recently confirmed Vinashin was not capable to repay the first due installment of $60 million out of the $600 million it owes a group of foreign creditors led by Credit Suisse. Whether the government bails Vinashin out of this first debt portion remains a secret.

Standard & Poor’s Ratings Services on December 23 last year, lowered Vietnam’s long-term foreign currency sovereign credit rating by one notch to BB-, three levels below investment grade, a week after a similar move by Moody’s Investor Services to cut the Vietnamese government’s foreign currency bond rating to B1 from Ba3 and to keep the outlook as negative which is partly due to the Vinashin’s financial woes.

“It will be very difficult for Vietnamese state-owned enterprises to issue bonds in the international market during the next several months, for reasons both external and internal,” Frederick Burke, managing partner of Baker & McKenzie law firm, told VIR last week.

Burke said the internal reason was well-known, basically, Vinashin’s difficulties in meeting its debt obligations and the consequent impact on Vietnam’s credit ratings by Moody’s and Standard & Poors. 

“This is creating downward pressure on the Vietnamese dong which makes inbound investment, even in debt instruments, riskier,” he added.

Burke said the external factor was that many foreign governments, especially in Europe, were offerring high interest rates to raise capital and this means that Vietnamese issuers had to compete at the same or even higher rates to reflect the risk perception.

“On the other hand, we are still seeing very healthy foreign direct investment inflows in the “real economy” such as manufacturing and services, much of it export oriented. Plus Vietnam’s exports are at an all time high and continuing to grow,” Burked added.

“Even in the bond market, Vietnamese issuers have an advantage in so far as they are relative “new kids on the block” and therefore, there is more appetite from the big international funds who would like to spread their investment risk more evenly,” said Burke.