Monday, June 30, 2008

Vietnam Scraps $1 Bil. Contract With POSCO

By Kim Yoo-chul

Staff Reporter

The State-owned Vietnam Shipbuilding Industry Corporation (Vinashin) has decided to scrap plans to invest $1 billion in a $5 billion steel mill joint venture with South Korea's POSCO, as part of the government efforts to curb rising inflation.

The planned POSCO-Vinashin Steel Complex, located on a 970 hectares area of land in the central province of Khanh Hoa's Van Phong Bay, formed part of the Asian steel giant's ambitious goal to link a `steel belt'' from its home-turf, India, China and Vietman.

Vinashin Chairman Pham Thanh Binh said it would also postpone or suspend some 40 other projects worth a total investment of $395 million.

``We will go ahead with that plan regardless of the withdrawal from the Vietnamese government. We are abundant in cash,'' POSCO spokesman Kim Dong-wan said.

In April, POSCO said it will start construction of the plant in April 2009 though concerns were running high over environmental issues as the area is one of Vietnam's most beautiful bays.

``The decision by Vinashin either to quit or extend the implementation of 49 projects, is likely to hit us as POSCO is on a expansionary track in the highly-promising country,'' Kim added.

Vinashin maintains constructive relationships with local shipbuilders. Hyundai Mipo owns 55 percent of Hyundai-Vinashin shipyard, while Hyundai Heavy Industries constitutes some 10 percent of the joint venture. STX Shipbuilding, a smaller local shipbuilder, is known to view a possible joint investment with one of the State-owned companies.

``In the case of POSCO, no drawbacks are seen for POSCO to push the project on its own considering its internal cash reserves,'' said Kim Kyoung-jung, an analyst at Samsung Securities.

The Vietnamese government, grappling with seven straight months of double-digit inflation and a tripling trade deficit that has hit investor confidence in the economy, ordered state-run businesses to change their business plans.

Economists and analysts say state-backed Vietnam companies need to focus on their specialty rather than expansion into various sectors.

Credit growth was 54 percent last year and record amounts of foreign direct investment poured into the Southeast Asian country.