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Construction sites are seen among Hanoi's skyline. Once tipped as Southeast Asia’s next economic star, Vietnam has been hit by debt crises at its state-run businesses. (KHAM/REUTERS)
Construction sites are seen among Hanoi's skyline. Once tipped as Southeast Asia’s next economic star, Vietnam has been hit by debt crises at its state-run businesses. (KHAM/REUTERS)

Vietnam’s star fades in wake of debt blowouts Add to ...

From the rural heartlands to traffic-choked cities, Vietnam Electricity Group is hard to miss. It builds apartments, runs a bank, oversees a stock brokerage, provides electrical power to millions of homes and employs 100,000 people.

Today, Vietnam’s sole retail power supplier, known as EVN, looks badly overextended, according to a senior industry official with knowledge of its business. It is the latest state behemoth to face scrutiny in the wake of debt blowouts that have shaken investor confidence and symbolized the decline of a country once tipped as Southeast Asia’s next economic star.

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Some fear that the debt problem at EVN could dwarf that at shipbuilder Vinashin, whose default on a $600-million (U.S.) loan damaged Vietnam’s reputation among foreign investors, although the monopoly has garnered far less international attention.

“I can tell you that its debt is far worse than Vinashin, maybe hundreds of trillions of dong,” said the industry official with first-hand knowledge of EVN’s debts who asked not to be identified.

The arrest this week of high-profile tycoon Nguyen Duc Kien, the multi-millionaire founder of Vietnam’s fourth-most valuable bank, Asia Commercial Joint Stock Bank, adds to deepening fears of financial malaise in the Communist-run country of around 90 million people.

His detention inflamed worries about a sector strained by ties to debt-laden state companies, including many like EVN that have strayed well beyond core businesses as policy makers sought to build world-beating conglomerates in the mould of South Korea’s “chaebol.”

The central bank was forced to make a rare public assurance that funds in ACB were safe as depositors queued up to withdraw their money, while Vietnam’s main stock index has fallen around 9 per cent this week.

The near-collapse of Vinashin in 2010 and deep troubles at shipping line Vinalines this year, with combined debts of $6.5-billion, prompted a government vow to redouble reforms of state firms, which take up a third of the economy and crowd out private investment.

But the latest proposals announced in July appear to fall short of tackling the cronyism and muddled priorities that have allowed the 100 largest state-owned enterprises (SOEs) to run up debts of $50-billion – equal to nearly half Vietnam’s annual economic output in 2010.

The problems, say bankers and industry experts, extend well beyond Vinashin and Vinalines.

“They are the tip of the iceberg,” said David Koh, a Vietnam expert at the Institute of Southeast Asian Studies in Singapore.

A failure at EVN, for example, could have a far bigger impact on the overall economy by disrupting the cheap energy supply that is the lifeblood of its manufacturing sector.

A report in the Saigon Times in May citing a State Audit body document said that EVN had debts of 240-trillion dong ($11.5-billion) at the end of 2010, nearly three times that of Vinashin at the same time.

The Tuoi Tre newspaper reported in December that EVN had losses from production of 8.4-trillion dong, more than 12 times the amount reported by EVN itself, according to the same report.

Those and other unflattering figures on SOEs were omitted from the State Audit’s official report sent to media in July.

EVN officials did not respond to several calls from Reuters seeking comment.

The true financial health of EVN, Vietnam’s fifth-largest company with revenues reported by state-run media at nearly $5-billion in 2011, is hard to know. The monopoly reported losses of 3.5-billion dong in 2011, but many economists doubt the accuracy of its financial announcements.

EVN announces some results to local media, but does not publish detailed financial accounts.

Despite its problems, Vietnam remains a manufacturing powerhouse, emerging over the past decade from the hangover of war to play a central role on Asia’s factory floor, producing everything from footwear to computer parts. An economy once built around carpet-bombed rice paddies now boasts gleaming shopping malls and imposing skyscrapers.

But in recent years its problems have overshadowed its promise – from spiralling inflation to red tape, creaking infrastructure and towering debts in an opaque financial system.

Credit growth has slowed sharply this year and the economy is growing at an annual pace of around 4 per cent, down from nearly 7 per cent in 2010.

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