Expressway developer in danger
25-10-2012 20:54:06+07:00
Expressway developer in danger
The Vietnam Expressway Corporation VEC is facing the risk of falling into insolvency, and if so, it may get involved in a lawsuit to be raised by VEC bond holders.
VEC reportedly still cannot arrange money to pay the 500 billion dong worth of the principal and interests to VEC bond holders when the bonds mature.
The Ministry of Finance (MOF) has released the document No. 12761, requesting VEC to arrange legal capital sources to make payment for the matured bonds to Dai-i-chi, a life insurance company.
The document is seen as the MOF’s refusal to the VEC’s request to help it seek capital to pay debts. This means that VEC, the biggest investor in the expressway projects, should not expect the financial support from MOF. In this case, this means that VEC may become the defendant in a lawsuit to be raised by VEC bond holders.
“The MOF’s document makes us understand that MOF has refused to fulfill the duty of a guarantor for VEC bond payment,” Luong Quoc Viet, Deputy General Director of VEC said on Dau tu on October 19.
The noteworthy thing is that VEC’s only legal finance source is the fee collected from those who use the Cau Gie – Ninh Binh expressway, estimated at 700 million dong per day.
However, since VEC has to prioritize to make payment for the contractor who executed the Cau Gie – Ninh Binh expressway project, it may not be able to pay the due interests to Dai-i-chi and some other bond holders.
Reports showed that by mid October 2012, VEC still owed 516.1 billion dong to bond holders, including 100 billion dong worth of principal and 416 billion dong worth of interest.
The bonds were issued in a campaign aiming to seek 4400 billion dong worth of capital to develop the Cau Gie – Ninh Binh expressway project and the Noi Bai – Lao Cai project, guaranteed by MOF.
Since the VEC bonds have the short term of five years, while it would take at least 30 years to take back the investment capital in the two above said projects, the investor has got the nod from the government to issue new bonds to get money to pay old debts.
However, the capital channel has suddenly got stuck, since MOF in early September 2012 announced it would not act as the guarantor for the bond issuance any more.
The announcement was made by the ministry, even though it, prior to that, agreed to the VEC’s plan to issue 1819 billion dong worth of bonds. The money to be raised from the bond issuance was scheduled to pay for the due principal and interest as well as for the project implementation.
“VEC still cannot satisfy the requirements to issue corporate bonds with the government’s guaranteeing, if referring to the Decree No. 90 dated in 2011 on corporate bond issuance,” said Nguyen Thanh Do, Head of the Debt Management and External Finance Department under MOF, explaining the ministry’s decision.
The decree stipulates that in order to get the guarantee from the government, the bond issuers must make profits in the last fiscal year. However, this proves to be an “impossible mission” for VEC, which is still in the very early stage of investment.
Meanwhile, Vietnam from VEC said the overly high interest rates of the loans, the high depreciation costs and the low income would make VEC unprofitable until 2021.
Worries have been raised that if MOF insists on refusing to act as guarantor, there would be no capital for expressway projects, which means that the VEC model, which is expected to become the “suitable model of the future” would come into deadlock.
vietnamnet
