Case study: VINASHIN

Hello every one!

My name is Nguyen Anh Dung, and I’m so glad to be here to give you the presentation.
This was one of the most considerable issues of Vietnam last year, and I think that most
of you have known abt this. It is the Debt of Vinashin.
1. Overview

Vietnam Shipbuilding Industry Group (“Vinashin”) is one of the largest state-owned

enterprises in Vietnam and offers shipbuilding, ship repair, shipping, heavy industries and
other services to enterprises within Vietnam as well as internationally.
Vinashin was established as the Vietnam Shipbuilding Union which was set up in 1972 to
consolidate the country’s shipbuilding industry.
Vinashin is the largest shipbuilder in Vietnam by capacity, accounting for approximately
70%-80% of total domestic capacity.
2. Recession:
a. Actual situation:

Vietnam Shipbuilding Industry Corporation (Vinashin) is worth an over VND 90 trillion

sbut is in about VND 80 trillion of debt according to a government official. Vinashin got
a $600 million(=12000 billions VND) loan in 2007 from banks led by Credit Suisse
Group AG that paid interest of 1.5 percentage point more than the London interbank
offered rate ( according to data compiled by Bloomberg). While it made a $6.8 million
interest payment on Dec. 23, the company missed a Dec. 20 deadline to make a $60
million principal payment and asked lenders for a one-year extension.

By early June 2010, its total debt reached 86 trillion VND (over $4.5 billion), including
around 45 trillion VND of long-term debts and 14 trillion VND of due debts. The debt
that Vinashin has to pay is 11 folds more than its capital. The group was on the brink of
bankruptcy. Earlier, it didn’t honestly report to the government its actual situation. It still
reported to earn 750 billion VND of profit in 2009 and nearly 100 billion VND in the
first quarter of 2010.

More than 5,000 Vinashin workers, or nearly 10 percent of the workforce, have lost their
jobs and the firm has failed to pay 234 billion VND ($12.3 million) in salaries and social
insurance to workers.

b. Reasons:

The limitation and weakness originate from many reasons, consist of both objective and
subjective reasons, but the objective ones are essential. They belong directly to the
responsibilities of Board of directors and managers of the Group.

+ To the objective reasons:

- Corporate model is in its pilot period, there is no preliminary review and evaluation
of effectiveness.
- The world financial crisis and economic recession have recently affected the
development of shipbuilding industry, maritime transport, including Vinashin. "

+ To the subjective reasons:

- Spread investment: Vinashin ambitiously wanted to make the shipbuilding industry in
Vietnam perfect. Beside the bond issued international 750 millions USD, Vinashin
planed to issue $3 Billion bonds to raise the localization ratio on each exported products
to 70-75%. This is “a 2 edge knife”. To minimize damages to the source, Vinashin
extended production franticly, invested in to constructing many factories to assembly
vessels. After a short period, there existed more than 200 subsidiaries. Many epic projects
were deployed/ conducted at the rate of a turtle. Other investments were not effective, for
instance the investment in Hoasen Vessel which cost 1.300 billions VND.

- Weakness and irresponsibility in managing: Vinashin’s Board of Directors made many

mistakes in managing the Group, especially in determining the business field, managing
the subsidiaries, investment and control the capital, stock… Moreover, the
irresponsibility of Government is also a reason. There have been 11 times of audit and
inspection but actually they could not report exactly the financial situation.

3. Impact on Vietnam’s economy:

Vinashin’s recession may cause many serious consequences:

- It’s a waste of money, natural and human resources. Because of this ineffective
investment, we lost trillions of Dollars-> Deficit in Budget occurs, State bank may
have to print more money and easily it cause the increase of inflation.
- It reduces the prestige of state-owned company in borrowing money not only to
Domestic but also international banks
- It reduces the belief of People to Government, terrorists may arise because they have
more reasons to oppose to government.
- This is just a first ship sunk in a lot of rusty ships in Vietnam, and may cause a chain
reaction of collapsing.