Will The Default Of A Vietnamese State-Owned Company Be The Black Swan Of 2011?


Vinashin, Vietnam’s national shipping company, just missed a debt payment, according to The Guardian.

This may not seem like a big deal at first. Vinashin is owned by the state, so it’s unlikely to have a direct impact on a lot of investor’s portfolios.

But if it was to need a bailout, the cost would be big. Vinashin has $4.4 billion in debt, which is equivalent to 5% of Vietnam’s GDP in 2009, according to The Guardian.

Sounds like another emerging markets crisis that struck fear in the world about a year ago.

Dubai World was bailed out at a cost of $10 billion to the Abu Dhabi sovereigns in 2009-2010.

Now that company’s debt was way bigger than Vinashin’s. Dubai World carried debts of $59 billion in 2009. But Vietnam doesn’t have a rich emirate next door to bail it out.

Vinashin is not the only reason the world is worried about Vietnam. The country’s currency is in freefall as its citizens flood into the dollar. They’re fleeing the dong for several reason, according to the WSJ:

  • The government has flooded the market with cash in a bid to drive growth
  • That includes government loan growth of 30%
  • The result has been rising inflation, which is scaring citizens into the dollar

That sounds like another recent crisis, when Thailand’s Baht collapsed and sparked the Asian financial crisis.

Senior VP of Moody’s Tom Byrne says that if the Vietnamese dong continues to fall, it could lead to a dept repayment crisis.

Bad debts in the country’s banking system are already rising, now at 2.5%, up from 2.03% last year.

Yesterday, Ambrose Evans-Pritchard mentioned a banking rescue in Vietnam as being the source of the 2011-2012 hard landing for the region. Could this be the trigger he had in mind?

Check out Societe Generale’s 6 macro themes to watch in 2011 >

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