Vinalines' in process of determining which strategic partner of Haiphong Port offers the best future.
The Vietnam Oman Investment JSC (VOI) is one step ahead of VietinBank as a potential strategic partner of Vinalines' Haiphong Port.
The government agreed on January 6 that Vinalines would transfer between 19.68 per cent and 29.68 per cent of its shares in Haiphong Port to VOI. Vinalines and VOI can now continue to discuss the next steps towards signing a formal contract.
The move will reduce Vinalines' ownership from 94.68 per cent to a maximum of 51 per cent, in accordance with its restructuring plan for the 2012-2015 period. The aim is to provide Vinalines with millions in cash as a financial resource for its restructuring.
In the meantime, VietinBank, a creditor of Vinalines, wants to convert the debt into shares in Haiphong Port rather than have it remain as a bad debt. Becoming a shareholder in Haiphong Port would resolve a number of problems for the bank.
For VietinBank to become a shareholder there would need to be changes in the financial mechanism. There is a regulation in place stating that banks are not able to invest more than 11 per cent of the charter capital of the investee enterprise. Haiphong Port's charter capital is $153.09 million, while Vinalines' debt to VietinBank stands at $93.66 million.
Vinalines is also unwilling to convert its VietinBank debt because Haiphong Port is earning money that can be used to settle debts. Selling to VietinBank to clear away debt is not the same as selling to VOI, which would provide cash flow and give it access to substantial capital resources to develop its business and improve efficiency.
Haiphong Port failed to find a strategic partner last year after conducing two unsuccessful share sales.
The failure was not the fault of Haiphong Port itself but the result of the transfer policy and transfer method. The State capital's ratio was too high, at 75 per cent, which makes it unattractive to investors. At such a ratio it would be difficult for other large shareholders to influence corporate governance and efficiency would never improve.
The State has now reduced its ownership in the port and other ports to a maximum of 51 per cent or even withdrawn totally. This has made port trading become vibrant once again because out of Vinalines' three main business areas, only ports are profitable and stable even though the profit is not high. For example, in 2013, when the parent company was going through a tough time, Haiphong Port earned revenue of VND1.5 trillion ($70.245 million) and profit of VND150 billion ($7.02 million). Profit equal to 10 per cent of total revenue was a bright spot at a time when the port business was in a slump.
In addition, Haiphong Port is still potentially profitable once it finds investment and is managed and operated under new methods with lower costs and greater efficiency, especially if a foreign partner was involved. Some may be concerned that when Lach Huyen Port, 10 km away from Hai Phong Port, will be put into operation in 2018 then Haiphong Port will lose customers. This, though, is unlikely to happen because Lach Huyen's target segment is large vessels with a capacity of 100,000 tons while Haiphong Port's target segment is smaller vessels.
On the other hand, after a five-year period VOI could sell its shares at perhaps a better price than the current purchase price. Or they can propose a functional conversion to transform Haiphong Port into an integrated port for tourism, like Nha Trang Port.
In its first IPO last summer, Hai Phong Port was only able to sell about 17 million shares, or 5.3 per cent of its charter capital and representing just 21.27 per cent of the total offering. In the following sale, only 2,000 shares were sold.