Vietnam Shipbuilding Industry Group, the state company whose near-bankruptcy contributed to credit downgrades and banking system concerns, said it will fire 14,000 employees, or more than half of its workforce.
The company, known as Vinashin, plans to initially eliminate 8,000 employees who have no work and carry out further job cuts later, according to a Sept. 16 posting on the company’s website.
Vinashin’s job cuts may offer a clue to how the government of the Southeast Asian country, whose economy last year grew at the slowest pace since at least 2005, restructures the state sector. State-owned companies are a key source of economic vulnerability, the International Monetary Fund said last month.
“If they handle this well and limit the social impact and are able to compensate workers and perhaps retrain them, it might smooth the process,” said Dominic Mellor, a Hanoi-based economist at the Asian Development Bank. That would avoid “strengthening the case of vested interests who want to slow the restructuring process down.”
The company’s units have found it “almost impossible” to raise funds for production, Vinashin said in the posting. The shipbuilder said it plans to retain about 8,000 positions at the end of its restructuring from 26,242 employees as of the end of July. The company did not say what it will do with more than 4,000 current workers unaccounted for or when the restructuring will be completed.
Vinashin’s acting Chief Executive Officer Vu Anh Tuan declined to comment when contacted by Bloomberg news today on his phone. Minister of Transport Dinh La Thang wasn’t immediately available to comment.
Job cuts will “not be simple” because of a lack of available funds to pay outstanding salaries and social, health and unemployment benefits, according to Vinashin’s posting. The company had more than 70,000 employees as of mid-2010 and has been forced to merge, sell or dissolve units as part of its restructuring, according to government reports.
Vinashin, which the government had wanted to turn into a flagship industrial exporter, defaulted on an internationally syndicated $600 million loan in 2010. The default cast doubt over the financial health of other state companies as the deterioration of the quality of their assets poses a risk to banking system stability, Moody’s Investors Service said last year.
Vinashin was the recipient of the $750 million proceeds from Vietnam’s first dollar-denominated bond sale in 2005. By 2010, the company had built up debts of about 86 trillion dong ($4.1 billion), according to the government.
More than two years after the Vietnamese government set out to reform its state-owned enterprise sector, progress has been “limited,” the World Bank said in July, citing a low number of share sales of government companies.
State-owned companies dominate key industries in Vietnam, accounting for an estimated one-sixth of employment and half of corporate income tax revenue, the International Monetary Fund said last month.
“I’m not sure that the extent of job cuts at Vinashin can be replicated at other SOEs where there is continuity of management and where the managers are used to thinking of employment generation as a kind of performance indicator,” said Mellor. “Vinashin is a special case because they’ve really got their back to the wall and they’ve got new management.”