Government-guaranteed bond good for Vinashin restructure: economist

Posted on April 17, 2013
Workers build a ship at a Vinashin shipyard in the central province of Quang Ngai.Workers build a ship at a Vinashin shipyard in the central province of Quang Ngai.

Guaranteeing a new zero-coupon bond issue to repay the defaulted US$600 million loan by state-owned shipbuilder Vinashin is the best way to support the firm’s restructure, member of the National Monetary Policy Advisory Council, Cao Sy Kiem tells Vietweek.

The Ministry of Finance has decided to guarantee a $623-million, 12-year bond issue by Vinashin. A majority of the firm’s creditors have consented to a swap with its defaulted $600 million loan plus accrued and unpaid interest of $23 million. It will be issued at a discount to face value, carry zero percent interest, and accrete at 1 percent a year.

Vietweek: How do you assess the move?


Cao Sy Kiem: This is a successful debt restructure solution, a common method in the market. It is acceptable to the lenders since their loans would be definitely paid after 12 years because of the guarantee by the government.

Meanwhile, new lenders could buy Vinashin’s bond at low prices. I think it is a rather attractive investment for them.

The measure could help Vinashin accelerate its restructure, deal with its loans, and reduce banks’ bad debts. So it is a good solution for Vinashin in the current situation.

However, the measure could also pose a risk if Vinashin cannot redeem the bonds?

The state will not pay, only guarantee the new bond to replace its defaulted loan. After issuing the bonds, it would have an opportunity to restructure better. If its business recovers, it will have the resources to repay. But if the shipbuilder does not operate well, it could go bankrupt. At that time, it could be resolved under the bankruptcy law. There will be solutions for every situation.

Guaranteeing a new bond issued by Vinashin, in the current situation, is a better solution than any other.

Vinashin now also owns huge sums of money towards employees’ salaries and insurance premiums and equipment import. Its revenues are not enough, so how can it redeem the bonds?

If it does not repay because it has not turned around, it will go bankrupt. At that time, we could deal with it under the bankruptcy law. If it does not do it because it is too weak and needs a longer period or greater support from the government, it could ask for more support. The government could also consider allowing it to merge with other firms. The government should accept risks to rescue the firm, instead of leaving it to shut down.

Thus, we should take measures to help revive it.

Why shouldn’t we let Vinashin go bankrupt now?

The firm is implementing a restructure. In fact, the Ministry of Transport is considering a plan for Vinashin’s restructure in both the short and long terms.

Going bankrupt should be the last resort as it could cause the firm to lose its capital. The ability of lenders to recoup their loans is also very low. If Vinashin goes bankrupt, it could cause big losses to the whole economy.

If the government guarantees the new bonds issue, it will have to pay if the company defaults. Is it necessary for the government to take such a risk?

Obviously, the move is a backward step. In this case, the government has considered all aspects. If the backward step is not effective, we have to accept the risk. The government will have to take responsibility for its wrong policy which causes financial losses.

It is easy to say that the government should take responsibility. But won’t it be taxpayers’ money that will be used to redeem the bonds?

Obviously it is not worth using money coming from tax collection to pay for the risk. However, in our country, companies’ poor performance is not only due to their bad management but also the wrong policies of the government. Therefore, firms should review their responsibilities so that mistakes do not recur. Nevertheless, some of the government’s mistakes have to be paid for using taxpayers’ money. There is no other way in this case.

Won’t the government’s support to Vinashin cause state-owned to borrow and use funds recklessly?

There will be stringent regulations for the borrowing and using of funds and close oversight of Vinashin to prevent the creation of [such] a precedent.

TOO RISKYVo Tri Thanh, deputy head of the Central Institute for Economic Management, said if the government wants to keep Vinashin in business, it would be imperative for the firm to restructure its debts, clean up its balance sheet and define the role of lenders, who could decide new business strategy and establish a new board and new governance systems.”These are the three essential things for the restructure of Vinashin. However, we have not yet done the three things.”The government should not guarantee the bond issue since bankruptcy is a good option, he said. “The government could let the firm go bankrupt and then restructure it.”After going bankrupt, it could still develop, he said, whereas if the government supports Vinashin now, it could face risks later since no one can ensure it would earn profits to redeem the bonds. There are various scenarios possible, and the government should consider all the risks since taxpayers’ money would have to be used, he warned.