VietNamNet Bridge - The increased debt incurred by private businesses will bring risks: the exchange rate and the dollar interest rate will increase.

Enterprises' foreign debt is on the rise

A report the government submitted to the National Assembly showed that while the government’s foreign debt has gradually declined, foreign debt incurred by the private economic sector is on the rise.

In principle, enterprises borrow money from foreign sources and pay debts on their own, without the state’s intervention. 

The government has instructed the central bank to apply necessary measures to tightly control enterprises’ borrowing to ensure that the country’s debt is within the safety line. The debt has been described by Deputy PM Vuong Dinh Hue as ‘not worrying’.

The country’s foreign debt includes government’s external debt and the debt owed by non-state economic sectors. 

Analysts said the enterprises’ debt surged recently, partially because of the two big investment deals, including Sabeco share purchase and Vinfast’s investment project.

Thai Beverage, to pay for Sabeco’s shares, worth $5 billion, borrowed foreign money under the name of a legal entity registered in Vietnam. Meanwhile, Vingroup, to run Vinfast car manufacturing project, has mobilized billions of dollars in the international capital market. 

Fitch has lowered the outlook to Negative from Stable for Vingroup, the largest private domestic corporation. This reflects Vingroup`s heightened business risk.

Once the two big borrowers pay debts, the total amount of enterprises’ foreign debts would decrease rapidly. In theory, the increased debt incurred by private enterprises may lead to an increase in the exchange rate and the dollar interest rate. However, the government has been aware of the risk and taken necessary measures to control the debt.

Phung Huu Hanh, MA in finance, said the credit rating will change soon after Vingroup’s business result is made public, with the information about the sales of Vinfast cars. Vietnamese experts have shown their belief in Vingroup’s debt payment capability following the impressive launch of VInfast’s first two models.

Deputy PM Vuong Dinh Hue has reassured National Assembly deputies that the country’s foreign debt is not worrying. He also stressed that it is not the government, but borrowers, or private enterprises, that have the obligation of paying debt.

Regarding the debt structure, according to Hue, 60 percent of debt in the past was foreign debt, while the remaining 40 percent was domestic. However, the current structure is 40-60. 

However, while the government’s debt has decreased significantly, the private enterprises’ debt is on the rise.

Previously, domestic debts’ term was two to three years on average. However, the government now issues longer-term bonds which means longer time for repayment. In 2017, the government did not act as a guarantee for any projects. In 2018, two power projects got government guarantee.

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