Vinashin cuts jobs as Vietnam overhauls state companies

In a litmus test for restructuring of state firms, shipbuilder Vinashin plans to lay off half of its workforce

The 53,000-DWT Thor Brave transport vessel, built at Vinashin’s Ha Long Shipbuilding Factory, is prepared for transfer to Thailand’s Thoresen Company in this 2012 file photo

Vietnam Shipbuilding Industry Group, the state company whose near-bankruptcy contributed to credit downgrades and banking system concerns, has said it will fire 14,000 employees, or more than half of its workforce.

The company, known as Vinashin, plans to initially eliminate 8,000 employees who have no work and carry out further job cuts later, according to a September 16 post on the company’s website.

Vinashin’s job cuts may offer a clue to how the Vietnamese government restructures the state sector, still considered the “leading force” of the economy which last year grew at the slowest pace since at least 2005. State-owned companies are a key source of economic vulnerability, the International Monetary Fund said last month.

“If they handle this well and limit the social impact and are able to compensate workers and perhaps retrain them, it might smooth the process,” said Dominic Mellor, a Hanoi-based economist at the Asian Development Bank. That would avoid “strengthening the case of vested interests who want to slow the restructuring process down.”

‘Almost impossible’

The company’s units have found it “almost impossible” to raise funds for production, Vinashin said in the post. The shipbuilder said it plans to retain about 8,000 positions at the end of its restructuring from 26,242 employees as of the end of July. The company did not say what it will do with more than 4,000 current workers unaccounted for or when the restructuring will be completed.

Vinashin’s acting Chief Executive Officer Vu Anh Tuan declined to comment when contacted by Bloomberg news on September 18 on his phone. Minister of Transport Dinh La Thang wasn’t immediately available to comment.

Job cuts will “not be simple” because of a lack of available funds to pay outstanding salaries and social, health and unemployment benefits, according to Vinashin’s posting. The company had more than 70,000 employees as of mid-2010 and has been forced to merge, sell or dissolve units as part of its restructuring, according to government reports.

Vinashin, which the government had wanted to turn into a flagship industrial exporter, defaulted on an internationally syndicated US$600 million loan in 2010. The default cast doubt over the financial health of other state companies as the deterioration of the quality of their assets poses a risk to banking system stability, Moody’s Investors Service said last year.

No liquidation

Vinashin was the recipient of the $750 million proceeds from Vietnam’s first dollar-denominated bond sale in 2005. By 2010, the company had built up debts of about VND86 trillion ($4.1 billion), according to the government.

Deputy transport minister Nguyen Van Cong said Vinashin was not allowed to file for bankruptcy because the government would then “not have been able to keep eight major shipbuilding enterprises that make up 70 percent the national shipbuilding capacity.”

Many other enterprises and contractors would have gone bankrupt too, and the whole process could have taken “decades,” Cong said in an interview with the ministry’s newspaper Giao Thong Van Tai.

He said the government would consider issuing shares for the eight shipbuilders when shipping demand recovers and the financial market stabilizes, or in “favorable conditions.” Proceeds from the privatization process would be used to pay debts, Cong said.

Vinashin also plans to withdraw investments from, equitize, sell or liquidate another 236 companies by 2015, according to Cong.

He said the group’s restructuring process has been slow because of the shrinking market, an economic slump, and tightened monetary policy and conservative public spending on the part of the government.

Vinashin reported that revenues in the first eight months reached VND2.7 trillion, equivalent to 40 percent of the year’s target.

A report on theasset.com website on September 6 said Vinashin had received a UK High Court sanction for an arrangement scheme with some of its creditors related to a defaulted US$600 million loan. The creditors earlier rejected the company’s debt restructuring proposals.

The shipbuilder had earlier announced that a majority of its creditors had consented to a proposal to replace the loan with a 12-year government-guaranteed bond.

Limited progress

More than two years after the government set out to reform its state-owned enterprise sector, progress has been “limited,” the World Bank said in July, citing a low number of share sales of government companies.

State-owned companies dominate key industries in Vietnam, accounting for an estimated one-sixth of employment and half of corporate income tax revenue, the International Monetary Fund said last month.

“I’m not sure that the extent of job cuts at Vinashin can be replicated at other SOEs where there is continuity of management and where the managers are used to thinking of employment generation as a kind of performance indicator,” said Mellor. “Vinashin is a special case because they’ve really got their back to the wall and they’ve got new management.”