What criteria does DATC use to select loans to purchase?

Trading debt is in fact rather complicated. There are many criteria we consider before making a deal. However, there are three key factors on which we usually base our decisions.

First, we need to be sure the company that took the loan is able to eventually make a profit if their debt burden is temporarily eased. We have to determine if they have potential markets for their product or services.

This first criterion is decisive because DATC is a profit seeking enterprise, just like other State-owned companies.

We would never buy debt belonging to a company that runs sluggishly, has unqualified employees or poor infrastructure, and is ill equipped with out-of-date machinery. There is nothing left for us to restructure in this case - the company should go bankrupt.

To date however, we haven’t faced such a case.

Second, a company’s executives and other creditors must be willing to work with DATC in finding suitable solutions to overcome financial problems.

Third, trading debt should contribute to the process of renewing and restructuring State owned enterprises, which could solve unemployment issues for thousands and stabilise the country’s socio-political environment.

As you may know, in rural areas a sugar mill can employ thousands of residents. If the company were allowed to go out of business, unemployment would surge and potentially cause socio-political instability.

After restructuring, we are allowed in principle to hold a controlling stake in these companies. DATC is willing to commit up to 50 per cent of charter capital into a company, with the remaining 50 per cent being sold to investors and staff.

Has DATC ever been encouraged by the Government to assume debt from state owned enterprises?

It should be emphasised that the Government created the asset management company in order to help renew and equitise State-owned companies, the same time, DATC runs an independent auditing system and we absolutely control our finances.

In principle, the Government can order DATC to assume debt in certain cases. However, the Government does not fix prices in any deal. We have a right to negotiate for the best price possible, and then we must be responsible for the company’s efficiency.

Is the local debt market promising?

Viet Nam has hastened the equitisation of State-owned enterprises. At the same time, many of these companies face financial problems, especially in handling debt.

Asset management is a way to solve these problems, in which case I think the market has a lot of potential. However, the market is only just taking shape.

DATC so far this year has signed nearly 35 contracts worth VND352 billion (US$22 million). By the end of this year, I predict that there will be more than 100 cases sent to DATC.

Do you think that DATC should join forces with foreign companies in managing debt?

It depends. DATC will co-operate with foreign partners under certain conditions. For example, if we want to buy debt in a foreign invested companies, large projects or export companies, we would invite offshore investors to provide financial support.

We also have specific criteria for selecting partners. If we must restructure a cement company for example, we are happy to work with the packaging firm that supplies the cement bags. Such co-operation, to some extent, should ensure a profit.

Global institutional investors like Deutsche Bank, VinaCapital, Golden Bridge, and other global fund managers have expressed interest in working with us on certain deals.

To restructure a company that produces household goods, we would give priority to domestic partners.

Are there any problems with trading debt in Viet Nam?

This kind of asset management seems rather strange to most Vietnamese business, and I personally think that trading debt is quite complicated. When possible, I hope the Government and relevant ministries work together to popularise information on debt and asset management companies.

Legal documents regulating buying and selling debt products are not succinct or well enforced. In some deals, we have to conduct several auctions due to inaccurate asset appraisal or negotiations with creditors.

We expect these laws will soon be perfected in order to increase transparency and minimise illegal trading.

When will DATC equitise?

Well, I expect the company will equitise before the end of 2010 by which time all State banks will have been equitised in accordance with the Government timetable.

Source:  Vietnam News.