Vietnam's state enterprise sector is not making money despite huge debt pileup

Thanh Nien News

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 A file photo of a ship belonging to Vietnam National Shipping Lines (Vinalines)
A recent government report has again shed light on the vulnerable situation of Vietnam's state-owned enterprises, whose revenues rise slowly but debts pile up quickly. 
The combined revenues of 781 businesses owned wholly or partly by the government grew only 1 percent last year to VND1,709 trillion (US$74.63 billion), local media reported, citing the government report prepared for the National Assembly. 
Their net profits fell 1 percent to nearly VND187.7 trillion ($8.19 billion).
The report also focused on 93 of the biggest companies, including industry leaders or monopolies such as Electricity of Vietnam, PetroVietnam, and Vietnam Airlines, to see how they had performed financially.
Together these conglomerates saw a year-on-year increase of 8 percent in their debts to over VND1,567 trillion ($68.43 billion) last year, of which foreign debts accounted for 24.3 percent.
A third of the giants exceeded the safety debt-to-equity ratio of 3 set by the government. Among them are Lilama, a known contractor for power plants and other major public projects, with a high ratio of 11.67, and Vietnam Airlines with 5.87.
The report also showed that 19 of the big firms accumulated losses totaling over VND24.45 trillion ($1.06 billion) as of 2014.
Notably, shipping giant Vinalines alone accounted for almost 85 percent of the combined losses.
Under control
Commenting on their reported debts, many SOEs said they need to borrow money to do business, but their debts are within control, Tuoi Tre newspaper reported on Wednesday.
Le Van Tuan, CEO of Lilama, was quoted as saying that his company's equity is small, valued at about VND700 billion ($30.57 million), but it is often contracted for big projects which can be worth up to $1.4 billion.
Even though Lilama's debt-to-equity ratio is high, the finance ministry's inspections have confirmed that it is safe, Tuan said.
Nguyen Van Bien, deputy CEO of coal mining group Vinacomin, also said its debt-to-equity-ratio was still within the safe zone. 
He said the company will continue to borrow more in the future to be able to meet the increasing demand. 
The report has again raised concerns among many economists who have for years warned that the SOEs' underperformance and huge debts could pose threats to the sustainability of Vietnam's public debt position.
Ngo Minh Hai, an economist at the Central Institute for Economic Management, told Tuoi Tre that the government guaranteed about 63.5 percent of SOEs' foreign debts.
If the businesses fail to repay their loans, the government will have to, he said.
Hai warned that state companies can quickly get into financial trouble with a few ineffective projects. 
The government needs to get tough on SOEs, forcing them to improve their business and reduce costs to reduce such risks, he said.
Economist Vu Dinh Anh agreed, saying that if the government does not tighten its control over SOEs' borrowings, Vietnam's financial security will be threatened. 
Foreign debts are subject to changes in foreign exchange rates, Anh said, adding that whenever the central bank adjusted its reference rates, state-owned corporation such as Electricity of Vietnam and Vinacomin would complain about increases in their liabilities.
Anh also sounded alarm on high debt-to-equity ratios among SOEs, saying that they are especially risky, given both the local and global economies are still unstable.
"Businesses can take loans to finance big projects, but the question is whether these projects are effective and whether they can pay off the debts," Anh said.
Vietnam's public debt is expected to reach 61.3 percent of gross domestic product at the end of December, while foreign debt is set to hit at 41.5 percent.

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