This confirmation was made by Mr Pham Manh Thuong, Deputy General Director of Debt and Asset Trading Company (DATC) in an interview with Vietnam Business Forum on transparent and effective use of ADB loans. “ADB is a major sponsor for Vietnam; thus, to gain more trust and support from this sponsor, we need to use loans transparently and effectively,” said Mr Thuong.
As one of three State-owned companies selected to receive US$2.7 million loans from ADB, how has DATC planned to use this funding in the most effective way?
Debt trading is a new form of business in Vietnam. Insufficient, ineffective and inconsistent legal provisions impede debt purchase and settlement as well as business restructuring. Thus, when DATC borrows capital from the State and the Asian Development Bank (ADB), the company will utilise this fund to improve operating capacity, review legal regulations, build an all-inclusive operating strategy, and establish short, medium and long-term targets, propose operating strategies for the Government and the Ministry of Finance to approve, and issue strong legal framework for debt trading and settlement. With this funding, DATC will focus on two main tasks:
First, DATC will enhance its operating capacity, improve the legal framework, build operating strategy, improve management process, develop human resources and build information management system.
Second, the company experimentally lends 2 - 3 companies in the process of restructuring basing on debt trading and settlement. After seven years of operations, DATC has purchased bad debts worth over VND7,000 billion and restructured more than 40 loss-making and insolvent enterprises. Restructured companies have recovered and operated well, with many attaining return on equity (ROE) of 30-40 percent and listing their shares on the stock market. This result proves that the decision on the formation of DATC is right and our ways are suitable to the Government-backed business reform. ADB loans will surely help DATC to pilot financial support for restructured enterprises as a particular profession of debt purchase and settlement. The company will assess results and draw experiences to report to competent State authorities for introduction of more proper policies.
What difficulties is DATC confronting and is the capital source a matter of concern?
Capital is always an important element to any business activities, especially backlog debt trading and asset settlement like DATC. The Government and the Ministry of Finance issued regulations allowing DATC to apply various measures to raise capital when it is necessary. However, with its current capacity, capital is not our most important factor. The biggest difficulty facing DATC is now mechanisms and legal framework for debt trading and settlement. According to experiences reported in some successful countries, this activity requires peculiar legal provisions, even particular laws. Although Vietnam has issued legal provisions for this activity, they are insufficient, inconsistent and ineffective to support this activity. Thus, highly practicable regulations are necessary to boost this activity, including a reduction of liabilities, guaranteed lending, debt to paid-up capital swap, discounted debt collection, and block debt trading. The contents of agreements between DATC and ministries and provincial People’s Committees concerning the conversion of loss-making State-owned enterprises also need consistent, specific instructions to avoid administrative or self-governed interventions. Thus, in the ADB-funded “State-owned Enterprise Reform and Corporate Governance Improvement” programme, DATC was granted a concessional loan of US$2.7 million to partly fund legislative and governance process improvement. New legislations will help DATC fulfil assigned tasks on the one hand and shape and develop a debt trading market in Vietnam on the other, thus enticing domestic and foreign investors to join this market.
The 44th Annual Meeting of the Asian Development Bank is an open forum for businesspeople to express new ideas about business management and share challenges and successes. You are very interested in this event, do you have any suggestions?
ADB is a major donor for Vietnam and the country has also used this source of capital quite effectively. Vietnam is in the process of positioning and restructuring its economy to grow intensively and sustainably and to avoid the middle-income trap. Vietnamese businesses are also developing and integrating into the world economy. Thus, I propose to ADB to continue trusting and supporting Vietnam and providing capital for Vietnamese businesses. ADB should have clearer and simpler policies to widen access to capital, even conventional loans, for businesses. As for the Government of Vietnam, I propose the Government adopt speedier public administration reform and provide stronger support for businesses to access capital sources of international financial institutions. Vietnamese enterprises need to thoroughly understand and uphold the slogan of “using capital transparently and effectively” to strengthen faith of international lenders. With its goal of becoming a leading institution of debt trading and business restructuring, DATC will have a great demand for investment capital; therefore, DATC plans to borrow from ADB in particular and international credit institutions in general.
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