The State Bank of Vietnam (SBV) has sent a document to ask Prime Minister Nguyen Xuan Phuc’s opinion about the debt restructuring to be applied to Hoang Anh Gia Lai.
Two important points were mentioned in the document. First, the central bank plans not to change Hoang Anh Gia Lai’s debt classification for some important loans provided by 11 commercial banks, while loan interest rates would be restructured.
Second, SBV may consider refinancing commercial banks so as to support restructuring.
A report showed that by March 31, 2016, the total short-term and long-term loans provided by banks and financial institutions to Hoang Anh Gia Lai had reached VND28.107 trillion. This includes VND26 trillion worth of debts incurred to domestic banks.
What if the suggested plan cannot get approval from the Prime Minister? The answer is that the Vietnamese banking system will have an additional trillions of dong worth of bad debts. If so, banks will have to make higher provisions against bad debts and see their profits decrease.
If the Prime Minister says ‘no’, this will be bad news for Hoang Anh Gia Lai. It will have to pay debts on schedule, and as it cannot, it will bear the penalty interest rate and be burdened with financial costs. More importantly, it has no capital to maintain production and make money to pay debts.
Therefore, the Prime Minister’s nod is what both commercial banks, the creditors, and Hoang Anh Gia Lai, the debtor, expect at this moment.
Hoang Anh Gia Lai will be able to revive from difficulties, while banks would be able to collect debts.
If Hoang Anh Gia Lai is not saved, it will have to sell some of its assets to pay debts, cut the workforce and scale down production. Experts have warned that as Hoang Anh Gia Lai is under debt payment pressure, it may have to sell assets cheaply.
Nevertheless, if the government agrees to save Hoang Anh Gia Lai, the watchdog agency will face the question about unfair treatment to enterprises. People will ask why Hoang Anh Gia Lai was saved, but other unprofitable businesses were not.
A financial expert commented that Hoang Anh Gia Lai should be saved, because it is too big to fail. He believes that the cost the national economy have to pay to rescue Hoang Anh Gia Lai would be smaller than the cost that involved parties have to pay if they let the group sink.