When its fertilizer plant funded by Chinese bank loans was bogged down by losses, state-run Vietnamese chemical giant Vinachem immediately turned to the government for help, instead of seeking solutions to revitalize the loss-making project.

In 2007, Vinachem closed a US$250 million loan deal, mature in 15 years, with China Eximbank to finance the construction of its nitrogenous fertilizer plant in the northern province of Ninh Binh.

As of March 2017, the state-run chemical giant had made seven payment installments worth a combined $87.5 million.

Of the $162.5 million outstanding loan, the principal is $125 million and the remaining is interest.

Even though it is capable of repaying the debt on its own, Vinachem has called on the government to help clear the original debt.

In a petition submitted to the government earlier this week, Vinachem suggested that the original $125 million debt be cleared using money from the state budget in a five-year period ending January 2022, while the company itself will only cover the interest and fee for the loan.

The operator of the Ninh Binh fertilizer plant suffered losses of VND1,132 billion ($49.87 million) in 2016, with Vinachem admitting that the facility will continue to operate at losses in the next five years.

Vinachem has acknowledged that it will have to use its own money to supply financial support to the Ninh Binh plant, even though it also incurred VND895 billion ($39.43 million) in losses last year.

It is not uncommon for the Vietnamese government to guarantee foreign loans taken out by state-run enterprises.  

The government has had to bail out many loss-making state-owned enterprises after they were unable to repay huge government-backed debts, which are treated as ‘public’ debts.

Petition rejected

The Ministry of Finance is not unfamiliar with such a call for help from state-run enterprises when it comes to foreign debts. However, this time it has decided to reject the plea from Vinachem.

In a report to the government, the finance ministry said the fund dedicated to repaying debts owed by state-run firms is running out as it is being used to help many other enterprises and projects.

“There are no resources left to cover the debt of Vinachem,” the report said.

The ministry asserted that Vinachem is financially able to resolve the debt on its own.

“Considering the balance sheet and business plan of Vinachem in 2017-21, the company is capable of arranging capital for repaying the debt to China Eximbank,” the ministry elaborated.

“Vinachem will also have more money for the debt repayment if it starts withdrawing from non-core businesses.”

The finance ministry has also complained that Vinachem did not mention any restructuring plan to improve the performance of the loss-making Ninh Binh fertilizer plant in its petition.

In conclusion, the finance ministry suggested that the enterprise consider clearing the China Eximbank debt the top priority in its financial plan and submit a detailed roadmap for a scheme to exit non-core businesses.

“Vinachem should focus all resources on repaying the debt for the Ninh Binh fertilizer plant,” the ministry said.

The finance ministry also advised that the central government “not discuss debt rescheduling or charge-off on the Vinachem debt with China Eximbank,” as it will ruin state reputation and Vietnam’s credit ratings.

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