Vinashin urges Vietnamese investors to write off 90% of bond default

Restructuring since the arrest of state-owned shipbuilder’s top management sees bondholders lose millions while government stands back

FOLLOWING its default on a local currency bond in April, troubled Vietnam Shipbuilding is asking investors to write off up to 90% of funds owed and wait four years for their next payment.

State-owned Vinashin, which is saddled with debt of $4bn, has being undergoing restructuring since last summer following the arrest of top management. They were accused of gross mismanagement of the company’s business interests by making poor investment decisions in non-core areas and expanding activities too rapidly.

Sabeco Fund Management general director Pham Viet Bac told Bloomberg that Vinashin made the plea last week at a meeting in Hanoi. Sabeco holds around $1.5m in Vinashin bonds.

Foreign bondholders have also lost out. In December last year, Vinashin missed its first 10% repayment, or $60m, on a bond issue of $600m via Credit Suisse and other creditors in 2007.

Analyst Christian de Guzman of Moody’s sovereign risk group in Singapore said Vinashin’s action in relation to domestic bondholders, if true, was further evidence of the Vietnamese government’s attempts to distance itself from past economic policies of supporting large state-owned conglomerates.

“It is a political issue,” he said. The size of principal repayments could have been accommodated by the government if it chose to do so, he added.

Mr Guzman said the government had been tightening the screws on the economy in the six months since the important National Congress of the Communist Party of Vietnam in January, including devaluing the dong.

On May 20, the State Bank of Vietnam announced new rules designed to curb bank lending growth to 20% this year. In a research note, Moody’s applauded the move, saying it would make it more difficult for companies to avoid default.

Meanwhile, a source at Vietnam Shipping Lines, which was compelled by the government to prop up Vinashin by purchasing 40 vessels from the shipbuilder’s shipping units as well as acquire part of Vinashin’s massive debt, said it was “struggling” as a result of difficult economic conditions in Vietnam and the burden placed on the company arising from the Vinashin restructuring.

Vinalines had a plan to acquire 40 newbuildings by 2015. The source said that “due to a lack of capital the project is at a standstill”. He added: “I hope things get better by the end of the year and we will have more (positive) things to discuss.”

Overheating of the economy, a widening trade deficit and a drawdown of foreign exchange reserves were among the macroeconomic challenges facing the country, Mr de Guzman said.