* Analysts say cost of capital for companies will go up
* Vinashin default would raise sovereign questions
By John Ruwitch
HANOI, Dec 6 Standard & Poor's on Monday cut
its long-term credit rating on Vietnam's state mining group
Vinacomin after signs the government might not help a similar
state-owned company, troubled shipbuilder Vinashin, with debt
What happens to Vinashin will set the tone for Vietnamese
borrowing in the near future. Should Vinashin fail to make its
debt payments, not only would the cost of capital rise for
other state-owned companies, but questions may be asked about
the government's ability to service its debt, analysts say.
"We downgraded Vinacomin to reflect our view of the 'low'
likelihood of extraordinary government support to the
company... in the event of financial distress," S&P said in a
Vinacomin on Nov. 23 postponed an effort to sell up to
$500 million in 10-year dollar bonds on which it had been
looking to pay 7.25 percent, citing adverse market conditions.
Previously, S&P had rated the chances of such intervention
as 'extremely high'. However, recent developments in the case
of the heavily indebted Vietnam Shipbuilding Industry Group,
or Vinashin, have led to a change in that view.
With top-level government support, Vinashin expanded into
non-core businesses and racked up debts worth about $4.4
billion before nearing bankruptcy this summer, prompting the
authorities to step in to restructure the over-extended
Analysts and creditors are watching to gauge the extent of
Hanoi's backing for Vinashin ahead of Dec. 20, when a $60
million payment is due to a group of international creditors
on an eight-year, $600 million loan.
Vinashin has asked for a postponement and the creditors,
led by Elliott Advisors and Standard Chartered Bank, will meet
on Tuesday to discuss the delay.[IDnSGE6B206U]
S&P analyst Wee Khim Loy said uncertainty has grown and
"our expectation is that Vinashin might default on its debt".
The new overall rating of 'BB-' on Vietnam National Coal
and Minerals Industries Holding Corp Ltd (Vinacomin) reflects
its stand-alone credit profile. Its previous rating was 'BB'.
MORE EXPENSIVE CREDIT
The Vietnamese government handed Vinashin the proceeds
from its first foray into the international debt market, a
$750 million bond sale in 2005 .
"You would think that the government would support a
company that it provides financial transfers to," said Tom
Byrne, senior vice president and Asia regional credit officer
at Moody's Investor Services.
"But this doesn't appear to be the case, so it raises the
question: To what extent will the government support other
state-owned enterprises that have borrowed or intend to borrow?"
"If Vinashin were to be allowed to default on foreign
currency obligations you'd start to think whether the country
itself has adequate amounts of foreign exchange reserves to
meet other obligations," he added. Moody's is reviewing
Vinacomin for a possible downgrade.[ID:nWLA9611]
Fitch, another ratings agency, downgraded Vietnam's
sovereign credit rating in July to four notches below
investment grade, citing a stop-and-go macroeconomic policy
and other problems.
Fitch sovereign ratings analyst Vincent Ho said he had not
ruled out the possibility of government support.
"We are aware of Vinashin's request of its creditors to
postpone the payment ... which means that the situation is not
looking very good," he said.
"That could drag (on) the creditworthiness of the
Vietnamese government if the situation gets worse."
Jonathan Pincus, dean of the Fulbright Economics Teaching
Programme in Ho Chi Minh City, called the Vinacomin downgrade
a "good news bad news story".
"Communicating to the companies and to creditors that
there is no implicit government guarantee will force creditors
to consider loans to Vietnamese corporates very carefully," he
"The bad news is that this will make it more expensive for
everyone in Vietnam to borrow overseas."
(Editing by Daniel Magnowski)