beyondbrics

Vietnam’s prime minster Nguyen Tan Dung’s pet project to turn state run companies into chaebol-esque conglomerates seems to have been foiled yet again. Vietnamese police arrested another senior executive at the troubled state-owned shipbuilding conglomerate Vinashin over the weekend, the sixth in the last two months.

The saga comes as Vinashin is grappling to manage its heavy debt burden and it is a source of worry for foreign investors who hold hundreds of millions of dollars of that debt.

Previous arrestees have included Vinashin’s last two CEOs and the latest alleged perpetrator is To Nghiem, chairman of the board of Vinashin subsidiary Cai Lan Shipbuilding Co, who stands accused of corruption on equipment purchases for the construction of a diesel-fired power plant.

Nghiem had apparently paid top dollar for “new” power-plant equipment which, on delivery, turned out to have been manufactured in 1995.

The difference in price between the new and used equipment, the government says, seems to have gone astray.

As for why the Cai Lan Shipbuilding Co. was building a diesel-fired power plant … well, this is exactly the sort of frenzied non-core business activity that got Vinashin into trouble.

Vinashin had ambitions to become the world’s largest shipbuilder and borrowed heavily to set up shipyards and expand into sectors which might have been money-spinners during the heady days of Vietnam’s boom, but became a black hole when markets turned.

Since July, when government inspectors revealed massive debts and mismanagement at Vinashin, leaders have pledged to bail the troubled company out.

But with a government reorganization committee transferring some of the company’s healthiest subsidiaries to other state-owned entities, and executives being carted off to jail one after the other, foreign investors holding Vinashin debt began to worry.

Foreign creditors hold most or all of $600m in loans issued through CreditSuisse and a $187m corporate bond issued via Deutsche Bank, both in 2007.

Last week, state media announced a government move that should give foreign investors some rest. The state will likely grant Vinashin $300m drawn from the state’s $1bn sovereign bond issue in January. (The immediate need is to pay off Vinashin’s debts to French bank Natixis.)

The State Bank has already ordered domestic commercial banks to suspend all demands for payment on Vinashin’s debts until 2013.

The government officer in charge of the company’s reorganization, Nguyen Hong Truong, says the company has sufficient income from its ongoing foreign shipbuilding contracts to make payments to foreign creditors. The first $60 million payment on the principal of the CreditSuisse loans is due in December.

Paying off foreign creditors, to maintain access to international credit markets, is clearly the government’s top priority in the Vinashin affair. That should calm investors.

But the arrests and revelations of internal shenanigans that continue to emerge from the company are giving outsiders a window into the way business is done at Vietnamese state-owned enterprises.

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