Sinking ship builder has only itself to blame

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Workers build a ship for delivery later this year at a Vinashin shipyard in the central province of Quang Ngai. The government has decided to restructure the state-owned shipbuilder, whose debts totaled more than US$4 billion.

Loss-making shipbuilding giant Vinashin has admitted its massive expansion efforts over the past few years had been overconfident and had led to the "necessary" restructuring it is now undergoing.

"We want to apologize to the Party, the government, the public and everyone who put their faith in Vinashin," CEO Tran Quang Vu said in a series of reports published by Tien Phong newspaper last weekend. "We have failed to live up to expectations."

As shipbuilding is a comprehensive industry, comprising many other sectors like steel, machinery and paint, Vinashin had created "an ambitious plan" to build a well-rounded business in order to control quality and cut production costs, said Vu, who took the CEO position at the state-owned company on July 1.

"However, we have to admit that we became overindulgent. Besides shipbuilding, which is our core business, we also invested in stocks, real estate and insurance markets.

"Since our business was based on loans, Vinashin faced difficulties when the economic crisis hit the global market, severing the company from its financial plans."

Vu said the company regretted being "too confident" about raising funds that never materialized.

"If we could have forecast accurately and took aggressive preemptive measures, we would not be in this situation today."

Overhaul

The situation that Vinashin finds itself in now is indeed dire. The government said last week that the shipbuilder's debts totaled more than VND80 trillion (US$4.2 billion).

As a result, it has to be restructured so that it can focus only on its core business, the government said. Projects that are not necessary to the company's development will be transferred to other state-owned enterprises, like Vietnam Oil and Gas Group (PetroVietnam) and Vietnam National Shipping Lines (Vinalines).

"When we are no longer capable, it's better to transfer our subsidiaries to other companies that still want to make investments," Vu said.

"This is a reasonable decision and will benefit the whole economy; much better than us just holding onto them."

But not everyone thinks that the restructuring plan is a good one. Economist Pham Chi Lan, a former advisor to the government, called it "problematic."

"Passing parts of the debt on to other companies doesn't make the debt go away," she said in an interview published on Nguoi Lao Dong newspaper on Monday. "Moreover, it's not rational for the government to continue offering loans to Vinashin while the company hasn't made any change yet to prove their competence. The new capital flows can become new debts in the future."

"The government has chosen the easiest rescue plan for Vinashin by passing the debt burden to the economy, other businesses and, in the end, tax payers," she said.

"˜Too lenient'

MARKET IMPACTS

Le Trong Nhi, independent financial analyst, talks with Thanh Nien Weekly about how Vinashin's loss has impacted Vietnam's bond and equity markets.

"Vinashin's VND80 trillion, or US$4 billion, in losses has affected Vietnam's bond and equity markets. State-owned Vinashin issued US$750 million with guarantees by the government. The big loss has downgraded bonds issued by state-owned businesses and the government on the international market. It will also affect bonds to be issued by the sector and other private corporations in the coming time. PetroVietnam, or National Oil and Gas Group, plans to issue bonds on the international market this year. The group was assigned to share the loss with Vinashin as the latter's affiliates were ordered by the government to merge into the group. The affiliates have also undergone some losses. The group's bonds will be cited as more "expensive" after the Vinashin "scandal."

From what I know, some local banks and financial funds invested in projects introduced by Vinashin, or indirectly in those financed by Vinashin. The loss has shaken financial investors such as the banks and funds which hold listed shares in Vietnam. Some international financial funds which operate in Vietnam have faced pressure from shareholders to divest from the market. This combination will create more pressure on the stock market in the country."

Vinashin was established in 1996 with a charter capital of VND100 billion, according to a government report. The company has made great strides over the years, turning Vietnam into one of the strongest shipbuilders in the world.

But due to the economic downturn, Vinashin faced numerous financial difficulties. Many customers canceled shipbuilding contracts or delayed payments, the government said.

Analysts have said that Vinashin's failures created a storm of outrage among a public that had been kept almost entirely in the dark about the company's operations.

People knew almost nothing about the state-owned company, except that it was "a major shipbuilder," until they found out it was on the verge of bankruptcy and needs a serious overhaul. Many in fact assumed the company was strong.

Analysts said the public had the right to know about the operations of a state-owned company that uses state funds.

Like many state-owned enterprises, the shipbuilder barely disclosed its financial figures, leaving the public oblivious to what was going on, even when it incurred huge losses of billions of dollars.

The issue of ineffective business at Vinashin and other state-owned enterprises has been raised many times but concerned agencies did not pay enough attention to it, Lan said.

"I think both Vinashin and government agencies have to take responsibility. Specific individuals and agencies have to be held accountable because public funds are not charity funds," she said.

"Censure would be too lenient a penalty for Vinashin. Legal actions should be taken against those accountable for the losses and debts at the company."

Favor?

"The government should have let inspectors and auditors find out what Vinashin had been doing over the years, particularly as pertains to its debts, losses and excessive investments," Lan said, noting that the state-owned company had taken advantage of preferential treatment from the government.

Inspections of several large companies, including Vinashin, were delayed last year when the government decided to give the firms more time to recover from the global economic downturn.

Lan said the lack of oversight had allowed Vinashin to always demand large land areas for its projects, which she called "a waste".

In what other experts have called preferential treatment, the government raised $750 million by selling bonds in 2005 and then lent the proceeds to Vinashin. The company late last year won government approval to sell as much as $600 million of bonds overseas to fund construction of new ships.

The government has already rejected speculations that it showed a preference for Vinashin.

Pham Viet Muon, deputy head of the Government Office, told a press briefing last week that the government has supported the shipbuilding sector as it is one of the key industries for the country's development.

"However, the government has not favored Vinashin. The company, like any other business, has to operate in accordance with the laws."

Muon said while Vinashin's business was affected by the global economic crisis, the company had its own weaknesses in financial management.

"The decision to restructure Vinashin aims at four goals: to maintain and develop the shipbuilding industry; to use resources and infrastructure effectively; to prevent negative impacts on credit institutions; and to ensure jobs for workers," he said.

"The lesson learned is that the government has to monitor the operations of businesses closely even after they are given autonomy," he said.

Restructuring a company or an economy is a normal task, Muon said, noting that after Vinashin, other companies will undergo reforms to improve their operations.

BAD REPORT CARD

The authorities have censured Vinashin Chairman Phan Thanh Binh for irresponsibly using state funds and pushing the company towards bankruptcy. According to the Inspection Commission of the Party's Central Committee, Binh also appointed his family members to key positions in the company against state regulations.

These violations have caused serious consequences, inspectors said, noting that Binh may have acted out of his own self-interest.

The Inspection Commission also said Vinashin was dishonest in financial reporting and had invested aggressively beyond its major business of shipbuilding, causing losses to the government's budget. According to a report in Tuoi Tre newspaper Wednesday, Binh was appointed CEO of Vinashin in 1996 and two years later he also took the post of the company chairman. Holding the highest authority in the company, Binh made many investment decisions which other managers and board members said they did not know of, the report said.

For instance, Binh decided on his own to buy a ship worth VND1.39 trillion (US$72.8 million) in 2007 and the purchase had not been reported to concerned ministries beforehand, the report said. Binh also appointed his son Pham Binh Minh, 30, to multiple key positions, including chairman of Vinashin Design Company and deputy general director of Vinashin's Dung Quoc Shipyard, expected to become the largest shipyard in South East Asia.

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