In an effort to ensure public debt security, the Prime Minister has decided that from 2017, the government will temporarily stop acting as a guarantor for state-owned enterprises (SOEs) that borrow money.
The Prime Minister will consider granting a government guarantee to SOEs in specific cases if necessary.
The instruction has caused concern among state-owned economic groups and general corporations as their projects in power, aviation and transport infrastructure may be interrupted because of difficulties in loan access.
A report of the Ministry of Finance (MOF) shows that by December 31, 2015, the total capital the government committed had reached $26 billion. This included $21.8 billion worth of loans from foreign sources, which accounted for 84 percent of total guaranteed loans.
By the end of 2015, the total real capital which the government had granted a guarantee for had reached $21 billion. This included the debt guaranteed to restructure SBIC, initially named Vinashin, the nation’s largest shipbuilder. The figure accounted for 17.6 percent of total public debt and 11.1 percent of GDP.
Also according to MOF, in 2015, the guarantee was mostly granted to large-scale projects, such as Vietnam Airlines’ fleet expansion program, electricity generation plant development and the Ho Chi Minh Road project.
Cement manufacturing is the sector where many projects are meeting difficulties and need debt restructuring. These include Song Thao Cement Plant (developed by Song Thao Cement JSC), Thai Nguyen (Vinaincon) and Ha Long (Song Da Corporation).
A high-ranking official of the MOF’s Debt Management & External Finance Department said the government acted as a guarantee for SOEs’ loans in the past in order to help enterprises more easily access loans in their early development stages. However, as enterprises have ‘grown up’, they need to manage themselves to accumulate money for investment.
Nguyen Van Bien, deputy general director of the Vietnam Coal and Minerals Industry (Vinacomin), said on Tuoi Tre that enterprises ‘will meet big difficulties’ if the government stops granting a guarantee for loans.
“The power projects that Vinacomin is implementing need huge investment capital. We still hope the government would agree on granting guarantee for the project,” Bien said.
In general, according to Bien, the projects of this kind need government guarantee to receive loans. If the government does not act a guarantee, enterprises will have to borrow money at high interest rates, which will require higher investment rates.
Dinh Quang Tri, deputy general director of the Electricity of Vietnam (EVN), said EVN has asked foreign commercial banks not to require the government’s guarantee. Domestic banks have not required this for the last two years.Vietnamnet