Vinashin's debt troubles to hurt Vietnam banks' credit quality, S&P says

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Vietnam Shipbuilding Industry Group's potential failure to make debt payments is likely to undermine the credit quality and profitability of Vietnam's banks, according to Standard & Poor's.

The state-run company, known as Vinashin, may default on foreign-currency debt due in "in the near term," highlighting the need for lenders to assess the creditworthiness of each government-controlled entity, S&P said in a statement Monday.

Vinashin may represent as much as 3 percent of the individual loan portfolios of some state-owned Vietnamese banks, according to Moody's Investors Service. Banks that had counted on government bailouts in the event of problems in lending to state-run firms may post larger-than-expected credit losses, S&P said Monday.

"Vinashin is the first signal that state-owned banks have more doubtful loans than appeared to be the case in the past," Alain Cany, the Ho Chi Minh City-based chairman of the European Chamber of Commerce in Vietnam, said by telephone on Monday. "This may reduce the valuations of state-owned banks, but the problem is that not many people know the extent of it yet."

Vinashin had debt of about VND86 trillion ($4.4 billion) as of June, the government said in August. The shipbuilder may delay a $60 million payment on a $600 million loan, Moody's said last month in a note.

One-year delay

"All eyes are now on an impending syndicated loan repayment that the company must make," Vietnam Holding Ltd., a UK-listed fund, said in a note posted on its website Monday. "Vinashin's management is seeking a one-year delay in the timing of the payment, for want of sufficient cash."

Nguyen Ngoc Su, chairman of Vinashin, didn't immediately respond to telephone calls, while Chief Executive Office Truong Van Tuyen wasn't immediately available on his mobile phone.

"Vinashin's woes highlight the lack of transparency, weak accountability and poor corporate governance in Vietnam," Ivan Tan, a credit analyst at S&P, said in the note Monday. "A wide disconnect exists between industry-reported non-performing loan ratios and the true state of the system's asset quality."

Government-controlled companies in the nation account for 30 percent to 40 percent of loan books at state-run banks, S&P said.

While Vietnam's government is "restructuring Vinashin's projects" to help the company operate profitably, the shipbuilder should make its $60 million debt payment on its own, Minister of Planning and Investment Vo Hong Phuc said Dec. 8.

Company's credit quality

The government's stance on Vinashin indicates that it expects creditors to lend to government-related entities based on each company's credit quality, "without an expectation of timely extraordinary government support when required," S&P said.

The government is coping with a budget deficit and doesn't want to come to Vinashin's rescue, Vietnam Holding said.

"Until now, commercial banks -- both foreign and local alike -- have tended to regard loans made to large state-owned corporations as having an implied government guarantee," said Vietnam Holding. "It now looks like Vinashin will serve as the acid test for this perception."

Vinashin's problems are also unlikely to stop capital injections into state-owned lenders in Vietnam, it said, citing the banks' systemic importance, and the government's majority ownership and history of providing support.

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