Vietnam shipbuilder close to default on first debt repayment

Dec 7, 2010, 7:09 GMT

Hanoi - International creditors of Vietnam's troubled state-owned shipbuilding firm said Tuesday that they would reject government requests to delay a first bond payment due December 20.

A source close to Credit Suisse Group, representing the lenders, said the consortium of lenders 'will not be willing to extend the payment of the first 60 million dollars.'

If confirmed, the rejection would set the stage for a showdown between the Vietnam Shipbuilding Group (Vinashin) and foreign lenders that could damage the credibility of Vietnam's government and raise investment risk ratings for the entire country.

Vinashin secured a bond issue of 600 million dollars through Credit Suisse in 2007. On November 29, the company requested an extension of the first of 10 repayment installments, which are due at six-month intervals.

If the request is rejected, 'it will be considered an 'event of default,'' the source said. This in turn 'will have very bad consequences for Vietnam's foreign financing capabilities for many years.'

'This is especially damaging as the government had intended to go to the international debt market for funding of all kinds of infrastructure projects,' he said.

A default would be hard to reconcile with the government's promise to guarantee Vinashin's foreign debts after the company's massive debt and cash-flow problems emerged in a string of scandals in the middle of this year.

But a senior Vinashin officer who asked to remain anonymous said investors had little choice but to accept a delay.

'There is no collateral for this loan,' the officer said. 'To be honest, if they really want to negotiate, they will get something, but if they don't negotiate, they will not get anything.'

The consortium was expected to give a formal answer to the request later Tuesday or Wednesday.

Whatever the decision, foreign officials said the Vinashin affair was already damaging international investor sentiment.

'There must be other Vinashins,' said Antony Stokes, British ambassador to Vietnam. 'How can the government ensure that the trade and investment community can see with confidence that they are identifying [them]?'

As well as Credit Suisse, the stricken company's international creditors include Britain's Standard Chartered Bank Plc, German-Irish DEPFA Bank PLC and the National Bank of Kuwait SAK.

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