In Vietnam, a shipping line raises alarm over debt

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A security guard sits inside Vinalines' floating dock No 83M, which is anchored at a port in the southern province of Dong Nai. Photo: Reuters

Shipping line Vinalines once symbolized the postwar promise of Vietnam when it began jockeying for global trade.

Today it represents all that has gone wrong since then: a bloated behemoth with 18,000 workers, a fleet of loss-making ships and US$2.1 billion in debt. In recent weeks two senior executives have been arrested, its former chairman is on the run, and the firm has become a byword for mismanagement.

Vinalines and other debt-ridden state companies are turning into a big test of the government's graft-fighting credentials and whether Vietnam is likelier to reclaim its status as a star among emerging markets or sink deeper into an economic malaise rooted in a state sector plagued by red ink and cronyism.

"These companies have operated in secrecy for too long but that must come to an end," said Jonathan Pincus, dean of the Fulbright Economics Teaching Program in Ho Chi Minh City and a former Vietnam economic specialist at the United Nations.

State firms have come under growing scrutiny since the government revealed on June 12 that debt at Vietnam National Shipping Lines, or Vinalines, was VND43.1 trillion ($2.1 billion) at the end of 2011, more than four times its equity of VND9.41 trillion.

That drew comparisons with the near-collapse two years ago of state shipbuilder Vinashin, whose $4.5 billion debt triggered concerns over the health of Vietnam's banks. Vinashin was eventually bailed out, but nine of its executives were sent to jail in March, convicted of mismanaging state resources.

Vinalines' executives fear the same fate. Four have been arrested since February and an international warrant is out for former chairman Duong Chi Dung, accused of deliberately mismanaging the company from 2005 to February this year.

Dung, 55, rose through Vinalines' ranks even as it hemorrhaged money. He was appointed head of the Maritime Administration weeks before investigators uncovered wrongdoing at the company. Before joining Vinalines, he managed a loss-making waterway construction company.

"˜Iron heap'

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Vietnam had hoped to model its state firms on South Korea's expansion-hungry conglomerates, or chaebol. But as it did at Vinashin, the idea went badly awry at Vinalines, founded in 1995 through a merger of more than two dozen companies, a year after the US lifted its trade embargo.

According to a report by government inspectors, Vietnam's largest state-owned shipper and port operator had losses or "irregular expenses" at several of its 14 port projects. Management of its 154 ships, mostly cargo vessels and oil tankers, appeared haphazard. Five were detained in foreign ports as a result of major financial disputes, the report said.

Among the blunders was the purchase of a 43-year-old Japanese-built floating dock from a Singapore firm for $9 million. Repair work raised the cost to $26.3 million, about 70 percent of the price of a new dock.

The unused dock is now mocked in Vietnam's press as an "iron heap," symbolic of Vinalines' losses. The company also built three ship repair facilities between 2007 and 2010 that were not included in a government-approved development plan.

It spent VND22.85 trillion ($1.09 billion) between 2005 and 2010 on 73 second-hand ships, including 17 described in an official report as "too old," according to the media. And it lost VND434 billion ($21 million) in 2011 because of lax corporate management and "protracted wrongdoings in business management," the government report said.

Slimming down the state sector

Prime Minister Nguyen Tan Dung said June 15 that Vinalines would streamline its operations to focus on three businesses: maritime transportation, seaports, and services. Old and inefficient vessels would be sold to cut losses and shipping subsidiaries would be partly privatized.

It has been told to cut holdings in joint-venture ports, in line with a broader government push to have state firms divest from non-core businesses by 2015 and speed up partial privatization.

Less clear is how the government will tighten corporate governance, an issue many regard as crucial for imposing financial discipline on an economy that retains a heavy dose of central planning.

Maintaining the status quo could be dangerous for Vietnam. Vinashin's bad debts have already battered some of its banks, forcing Hanoi Building Bank, or Habubank, into a planned merger with Saigon-Hanoi Bank this year.

Officially, Vietnam's bad debts stood at VND108.6 trillion ($5.2 billion) at the end of April - about 4.14 percent of total loans, according to central bank data.

Unofficially, the non-performing loan ratio is believed to be two to three times that. Habubank put its bad debt at 16 percent of loans as of February.

But there are some positive signs at Vinalines: of VND9.3 trillion ($444 million) of short-term loans and VND33.83 trillion ($1.6 billion) of long-term debt, only about VND207 billion ($9.9 million) was "behind schedule," the government said.

"The recent findings in cases such as Vinashin, Vinalines and there might be others to follow have a good side, in that Vietnam is aiming at more transparency," said Nguyen Chi Trung, a director at HCMC-based Rong Viet Securities.

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