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Shipbuilding group to slough off subsidiaries, focus on core areas

A Vinashin shipbuilding factory in the central province of Quang Ngai on February 23, 2009

National shipbuilder Vinashin, brought to the verge of collapse with US$4.5 billion of debts, will undergo a major restructuring under orders from the government.

Industry insiders have said that specialization will be key to the success of the restructuring efforts.

The Politburo, the highest decision making body of the Communist Party, has ordered the restructuring of state-owned Vinashin to begin immediately, with the group focusing only on its core competencies - shipbuilding and repairing, supporting industries and personnel training.

Subsidiary companies of the group that work in other areas will be equitized, sold or transferred to other investors and companies and the proceeds will be used for its core business and debt repayment, the Politburo said in a statement published on the government website Sunday.

Pham Dinh Da, former director of Vinashin's Bach Dang Shipyard, feels specialization is what the group should be pushing for. Each of the group's subsidiaries need to focus on a single product line, for instance, small ships of less than 13,000 tons, or larger ships of 53,000 tons, or just tankers, he said.

"This will make workers more skillful and allow the subsidiaries to focus their investment on certain kinds of equipment," Da said.

Other industry insiders said one of the major problems at Vinashin, as the Vietnam Shipbuilding Industry Group is commonly known, is its centralized mechanism, under which subsidiaries are assigned projects by the parent company with limited knowledge about the contracts. One of them likened it to going out to sea without a compass.

Nguyen Duc Than, general director of Ha Long Shipbuilding, a Vinashin subsidiary, said his company has signed many contracts to build ships despite no proven profitability.

"When the group is restructured, I hope it will give more autonomy to member companies," he said. "The group will develop strategies and introduce clients while shipbuilding subsidiaries will be allowed to negotiate prices, delivery schedule and technical issues. Only then can we know for sure the profitability of each contract."

Than said Vinashin should not even spend resources on supporting industries because "the country already has other large corporations majoring in machinery and steel production."

"In tough times like these, it will be difficult if Vinashin wants to produce steel and machinery by itself," he said, suggesting coordinated efforts between state-owned enterprises to develop the local shipbuilding industry and increase the local content ratio.

"˜New blood'

According to the Politburo's statement, the state-owned shipbuilder has made giant strides in various fields since its establishment in 1996. It developed the infrastructure for the country's shipbuilding industry and posted an average growth rate of 35-40 percent a year until 2006.

The group, however, is undergoing huge difficulties and revealing many serious weaknesses and wrongdoings, the Politburo said. It is on the verge of bankruptcy, with a debt of VND86 trillion ($4.5 billion), which is 11 times higher than its net assets.

The Politburo blamed the group's managers, specifically its chairman, for establishing too many subsidiaries in non-core sectors at too fast a pace. It also held government agencies, at both central and local levels, accountable for not fulfilling their role in monitoring Vinashin's performance.

The ex-chairman of Vinashin, Pham Thanh Binh, was arrested last week amid a probe into its losses.

In order to raise the group's capital and clear its debts, especially those relating to the state budget, the Politburo has asked the government to map out measures in accordance with Vietnamese and international laws to avoid the collapse of other corporations, groups and credit organizations.

Le Dang Doanh, a former senior economist at the Ministry of Planning and Investment, said the restructuring of Vinashin should be accompanied by a market study to find out what kind of ships the group should build now.

Doanh also said new blood has to be brought in to affect real change.

It will be a "painful" task because all the "tumors" have to be removed or the group won't get better, Doanh said, referring to inefficient subsidiaries.

Equitization program

In a report published this week, Bloomberg said Vietnam may accelerate plans to privatize and break up state-owned companies in the wake of Vinashin's debacle.

"Vietnam's policy is to speed up the process of equitization [as privatization is referred to in Vietnam]," said Nguyen Xuan Phuc, chairman of the Government Office. "The Vinashin case won't slow down the equitization program," he told Bloomberg on August 6.

The government has delayed plans to sell its stakes in Bank for Investment and Development, Vietnam Airlines and other state-owned companies over the last two years as global stock markets plunged during the worldwide recession. Hastening the privatization push may boost management standards at local companies, the report said.

The government will likely save the shipbuilder as it employs skilled workers and generates export earnings, said Lawrence Wolfe, director of business development at DongA Securities Co. in Ho Chi Minh City.

"It's a company and a group that the government would like to save," he said in the report. "It would also be an example of the need for equitization."

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