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Banks weeping over the loans to steel manufacturers
Steel manufacturers in Hai Phong City had still owed trillions of dong to commercial banks by the end of August 2011. The majority of the debts are the third, fourth and fifth group debts, i.e subprime and irrecoverable debts.
A credit officer of a bank branch in Hai Phong said, that commercial banks have become “vigilant” to the proposal to borrow money from steel mills.
“The loans given to steel manufacturers prove to have high risks at this moment, because the steel market keeps quiet, while it is rather difficult for banks to arrange capital, and because of the high lending interest rates,” the officer said.
“In the past, steel manufacturers could borrow money and use steel products as collateral. But now we demand mortgaged assets as well,” he added.
Steel manufacturers bogged down in debts
The policy on tightening credit in order to help fight against inflation has pushed many steel mills in Hai Phong City against the wall. Since the end of July 2011, electricity has been cut at a series of steel mills of Van Loi Steel Joint Stock Company, because the mills of the company still could not pay 11.2 billion dong for the electricity bills.
In fact, Van Loi has stopped production, and if it still keeps production, it is just because the production has been put under the strict control by commercial banks.
Six credit institutions have claimed as the creditors of Van Loi.
An officer of the Hai Phong Electricity has revealed that the power company many times threatened to cut electricity at the steel mills of Van Loi. However, just several hours before the cut time, the company informed that it had arranged money to pay to the company. Van Loi cannot pay the electricity bills since the second quarter of 2011.
Meanwhile, according to the Hai Phong City’s Social Insurance, by the end of July 2011, Van Loi’s subsidiaries had owed 6.7 billion dong in social insurance to the agency.
The current gloomy situation proves to be quite different from the prospect of Van Loi “drawn up” one year ago. In July 2010, on the OTC market, Van Loi was introduced as having 14 subsidiaries with the revenue of 10 trillion dong per annum, while the figure was hoped to increase to one billion dong dollars by 2012.
Also in Hai Phong City, the branch of a big commercial bank reportedly has to put the debts of 250 billion dong and 3.4 million dollars incurred by a steel manufacturer into the fight group of debt, i.e the bad irrecoverable debts, but the bank does not dare to distrain the manufacturer’s assets.
Van Loi is not alone. Many other steel mills are also facing big difficulties at this moment. After making profits in the first phase of operation, the Dinh Vu Steel Company has been taking loss over the last few years. Analysts say that though 70 percent of the stakes have been sold to an Australian investment group, the production and business performance of the company has not been improved yet.
The Song Da Steel Company, a subsidiary of the Vietnam-Italia Group, which has been operational for one year, still cannot run at full capacity, even though the steel mill is using advanced technology which allows to churn out high quality and competitive products.
Banks dare not distrain steel mills
Most of the steel projects in Hai Phong have the capacity of 300-500,000 tons per annum and have the investment capital of one trillion dong. And the majority of them have been developed with borrowed capital. Especially, the steel mills’ working capital is also sourced from loans. Therefore, when the steel market became gloomy, steel mills immediately fell into crisis.
When steel mills cannot sell products, they do not have money to pay bank debts. As a result, banks have to put the loans given to steel mills into the list of loans subject to the special control.
The director of a steel mill has estimated that the total short term and long term debts incurred by steel mills in Hai Phong City, might have reached four trillion dong, most of which are bad debts.
However, it is quite a surprise that banks do not try to distrain the steel mills and apply drastic measures to force the debtors to pay debts. It is because banks think that it would be rather not to put too hard pressure on the steel manufacturers at this moment, and that the manufacturers would be able to pay debts when the market recovers.
vietnamnet, SGTT
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