State firms seeks bailout from government to pay off massive debt

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The Song Thao cement plant project, which opened in 2010. The plant is incurring losses and is millions of dollars in debt, prompting state-owned firm HUD, its biggest investor, to seek help from the government to pay off debts.

State-owned Housing and Urban Development Corporation has called for help from the government to repay millions of dollars in debt just as Vietnam's massive public debt problem has come under the national spotlight.

HUD, as the company is known, has sought help from the Ministry of Finance to cover debts arising from its investment in the Song Thao cement plant, in which it holds a nearly 81 percent stake.

Three years after opening, the project has accumulated losses of US$14.6 million due to low demand amid a stagnant economy.

It has yet to run at full capacity while cement prices have fallen 25 percent since the plant opened.

The plant owes over $28.9 million in total to its local and foreign debtors, according to a VnExpress report.

HUD repaid $2.15 million last year but the project's other two investors the LILAMA 18 JSC and Phu Tho Cement JSC have been unable to repay anything they owe.

The Ministry of Construction has asked the Ministry of Finance to help the corporation pay off its remaining debt in the project by lending it $5.4 million taken from a government fund sert aside to repay foreign loans.

If the proposal is approved, HUD would have to repay the fund by 2016.

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HUD asked for help to repay debts after the National Assembly's Economic Committee published a report aiming to raise awareness of the risks and threats of the country's mounting public debt.

Public debt in 2011 reached VND1.4 trillion ($68.8 billion), accounting for 55 percent of gross domestic product that year. The government said that was still a safe level as it hopes to keep the figure from exceeding 65 percent of GDP over the next two years.

But the statistics included only central and local government debts and loans backed by the government, the report said, adding that public debt in 2011 could have risen to 95 percent of economic growth if debts run up by state-owned firms had been included.

Analysts have suggested that HUD not to be helped by the government in this case as public debt does not include public firms' loans.

Lao Dong quoted Le Dang Doanh, former head of the Central Institute of Economic Management, as saying he feared that the government's favor to the state-owned segment will increase public debt.

The state-owned segment is a "giant and exhausted" elephant in the room, he said, referring to its ineffective performance, which has become a "noticeable problem" for the economy.

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