State-owned $325-million fiber plant on verge of bankruptcy

By Bui Hong Nhung, Bach Duong, Dao ToanMarch 31, 2016 | 01:38 am PT
A polyester fiber plant owned by state oil and gas group PetroVietnam and one of its subsidiaries faces bankruptcy due to mounting losses.

The fiber plant lies dormant.

The plant at Dinh Vu in the northern city of Hai Phong began commercial operations in May 2014 but suspended production in September last year. PVTex Dinh Vu JSC, the operator of the plant, planned to resume operations this quarter but the plant remained closed as of March 30.

PetroVietnam, the only state oil and gas group in Vietnam, holds a 74 per cent stake in the plant, while the rest is held by PetroVietnam Fertilizer and Chemicals Corp.

However, the latter excluded its investment in the plant from its latest financial report, and also claimed the value of its stake had fallen to VND198 billion ($8.8 million) in early 2015 from VND562 billion in 2014.

According to a PetroVietnam report, PVTex Dinh Vu JSC incurred losses of VND1.255 trillion last year, even higher than the VND1.085 trillion it lost the previous year. PVTex’s poor financial health has made it impossible for the firm to pay total bank debts of $221.3 million, including $70.7 million in short-term loans.

One of the main reasons behind these losses was the significant fall in 2015 global cotton prices that forced the already low prices of PVTex’s products to sink even lower. In addition, volatile exchange rates last year inflated the cost of input materials, driving the company to face stiff competition from rivals from Thailand, China and other domestic enterprises.

The Ministry of Industry and Trade said: "The financial situation at PVTex is dire as it lacks capital and is unable to pay its debts. The company could go into bankruptcy.”

To solve this problem, PVTex has asked for an additional $34 million to invest in the plant with a 23-year payback clause instead of the previous nine years. PetroVietnam has also asked the government to adopt tariff barriers against imported fibers from China and Thailand, while developing a mechanism to use the company’s products for textile exports.

Work on the plant started in 2008 with the aim of producing about 500 tons of polyester synthetic fiber a day (around 175,000 tons per year), supplying about 30-40 percent of domestic demand. On May 29, 2014, the plant officially went into operation supplying about 236 tons of fiber a day at just 48 percent of its design capacity.

The company expected to make a loss of VND501 billion in 2016, a loss of VND112 billion in 2017, and then reach even and start making a profit in 2018.

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