Vietnam may spur privatization after $4.5 bln shipyard debt

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Vietnam may accelerate plans to privatize and break up state-owned companies after the nation's largest shipbuilder almost collapsed under VND86 trillion (US$4.5 billion) of debts.

"Vietnam's policy is to speed up the process of equitization," the state's name for privatizations, said Nguyen Xuan Phuc, chairman of the Government Office, which oversees implementation of state plans. "The Vinashin case won't slow the equitization program," he said by phone on Aug. 6. The ex-chairman of Vietnam Shipbuilding Industry Group, known as Vinashin, was arrested last week amid a probe into losses.

Hastening the privatization push may boost management standards at local companies and help the South Asian nation pare a budget deficit that contributed to it being downgraded by Fitch Ratings last month. The government delayed plans to sell stakes in Bank for Investment & Development, Vietnam Airlines and other state-owned companies in the last two years as global stock markets plunged during the worldwide recession.

"Vinashin is a good example of why the equitization process needs to progress more quickly," said Matt Hildebrandt, a Singapore-based economist at JPMorgan Chase & Co. It will "ensure that credible leaders run and grow Vietnam's most important companies."

Vinashin investigation

Pham Thanh Binh, Vinashin's ex-chairman, was accused of "intentional violations of state regulations on economic management that have resulted in serious consequences," according to a statement posted on the government's website on Aug. 4. He was suspended from Vinashin last month before being detained by an investigation agency under the Ministry of Public Security.

Binh, 57, had run Vinashin since the company's formation in 1996, holding posts including general director, chairman and secretary of the group's party unit, according to Thanh Nien newspaper. The government set up Vinashin by combining shipyards and related companies held by the Ministry of Transport, according to the shipbuilder's website.

Fitch cut Vietnam's long-term foreign and local-currency ratings by one level to B+ on July 29. That's four steps below investment grade. The nation's budget deficit will likely stay at 7.6 percent of gross domestic product this year, the ratings company said.

Smaller privatizations

Vietnam has focused privatizations this year on smaller companies or units of larger groups. Last week, it raised VND129.2 billion selling shares in BIDV Insurance Co., an arm of BIDV, the nation's second-biggest lender by assets. Mekong Housing Bank, a state-owned commercial lender, said last week that it plans to finish its privatization this year.

The government intended to conduct an initial public offering of BIDV as early as 2007. The sale was delayed because of concerns about an oversupply of new shares and then because of the global financial crisis. Vietnam Airlines' offering was planned for 2008. No date has been set yet for either sale.

Bao Viet Holdings, Vietnam's biggest insurer, raised VND4.3 trillion in an initial public offering in 2007 before listing shares on the exchange in 2009. Joint-Stock Commercial Bank for Foreign Trade of Vietnam and Vietnam Bank for Industry & Trade, the nation's third-biggest and fourth-biggest bank by assets, also listed shares last year.

The benchmark Vietnam Stock Index, or VN Index, has dropped 4.5 percent this year, compared with a gain of 19 percent for the benchmark index in Thailand and of 21 percent in Indonesia. The MSCI Emerging Markets Index, which tracks 756 companies worldwide, has climbed 2.4 percent.

EVN, PetroVietnam

The government should prioritize selling stakes in some of the largest companies still fully under state control including the nation's biggest power company, Electricity of Vietnam, or EVN, and oil producer Vietnam Oil & Gas Group, said Matthias Duehn, Ho Chi Minh City-based executive director of the European Chamber of Commerce in Vietnam, a business group.

"EVN is probably the most urgent one to address because Vietnam is experiencing serious energy problems in the medium- and long-term," he said. "It is proven by many cases, most recently Vinashin, that state-owned enterprises are often lagging behind in efficiency, funds allocation and corporate governance."

Vietnam plans to restructure Vinashin, which has already fired about 5,000 workers to cut costs and "was facing the risk of bankruptcy" in June, according to an Aug. 4 government statement. The company should focus on shipbuilding and maintenance, Deputy Prime Minister Nguyen Sinh Hung said last week. The shipyard had invested in projects including shipping, industrial zones and cement-making.

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. "It would also be an example of the need for equitization."

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