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Vinashin's debt troubles to hurt Vietnam banks' credit quality, S&P Says
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 today.
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 today.
“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 today. “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 86 trillion dong ($4.4 billion) as of June, the government said in August.
The shipbuilder may delay the $60 million principal payment on a $600 million loan, Moody’s said last month in a note.
‘Wide Disconnect’
“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 today. “A wide disconnect exists between industry-reported non-performing loan ratios and the true state of the system’s asset quality.”
Nguyen Ngoc Su, Chairman of Vinashin, didn’t immediately respond to telephone calls. Chief Executive Office Truong Van Tuyen wasn’t immediately available to comment.
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.
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.
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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