Dollar borrowers in Vietnam report massive losses after dong falls

By Hong Suong - Thanh Xuan, Thanh Nien News

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An employee counts U.S. dollar bank-notes near Vietnamese dong bank-notes at a bank in Hanoi. Photo: Reuters An employee counts U.S. dollar bank-notes near Vietnamese dong bank-notes at a bank in Hanoi. Photo: Reuters
Companies with huge loans and payables in US dollars face a big currency mismatch


With the dong declining by around 5 percent against the US dollar so far this year, many local businesses have reported currency-exchange losses of up to tens of millions of dollars.
At a meeting organized by the Ministry of Industry and Trade on September 3, Vu Anh Tuan, deputy CEO of the national mining group Vinacomin, said a stronger dollar increased the company's debt load.
The group is currently operating five coal thermal power plants, making up around 6 percent of the country's electricity output. Like some other state-owned companies, it has taken out huge foreign-currency loans to finance its projects. 
The devaluation of the dong has caused its electricity business to incur a total loss of around VND1.2 trillion (US$56.66 million). 
Ngo Son Hai, deputy CEO of the Electricity of Vietnam, which accounts for 64 percent of the national power output, made a similar complaint, saying that its loss was ten times higher than that of Vinacomin.
Bao Viet Securities Joint Stock Company last week released a list of businesses that it expected to post huge currency-exchange losses caused by the dong depreciation. 
In the electricity sector, Pha Lai Thermal Power Joint-stock Company, may lose over VND213.8 billion ($9.36 million). PV Power Nhon Trach No.2 Joint Stock Company, whose foreign debt was in euros and US dollar, could see its debt obligation increase by nearly VND224.4 billion ($9.82 million), according to Bao Viet.
Similarly, PetroVietnam Ca Mau Fertilizer Joint Stock Company may lose more than VND217.3 billion ($9.51 million).
PetroVietnam Transportation Corporation and Vietnam Ocean Shipping Joint Stock Company were forecast to lose VND94.2 billion ($4.12 million) and VND52.9 billion ($2.32 million), respectively.
Hedging needed?
Several economists said part of the huge losses are caused by businesses' failure to take measures to reduce foreign exchange risks. 
They said up to 90 percent of Vietnamese importers do no hedge against currency risk despite their huge dollar payables. The rate is very high, considering that between 40 and 50 percent in China and Malaysia hedge, they added. 
Ngo Dang Khoa, an expert from HSBC, said Vietnamese businesses often ignored financial products that can protect them from currency-exchange losses. 
Only when the market experiences strong fluctuations do they start to worry, but by then hedging costs have increased, Khoa said.
A manager with a local bank who wished to stay unnamed said the average hedging cost is VND360 million ($15,700) for a payment of $1 million. 
Speaking to Thanh Nien, many businesses said hedging costs are too high.
Do Ha Nam, director of Hanoi-based Vietnam Intimex Joint Stock Corporation, said his company imports and exports more than $1 billion worth of goods a year. But, he has never bought forex instruments because of the high costs, Nam said.
Economist Do Thien Anh Tuan said it is time businesses think about reducing currency risks for their dollar liability, especially with the US Federal Reserve set to increase rates soon. 

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