In the document replying to the Hai Phong City Economic Zone Management Board, MOF flatly rejected the plan to increase investment capital by VND2 trillion, or $90 million, requested by LG Display Hai Phong, a subsidiary of LG Electronics from South Korea.

LG Display wants to increase capital to build 13 buildings to accommodate 10,000-12,000 workers from now to 2020.

According to MOF, the documents submitted by LG Display to ask for permission did not explain where the capital would come from. 

LG Display’s documents showed that the company’s contributed capital to the project remains unchanged, at $100 million. Thus the proposed investment capital increase would come from borrowing.

The Ministry of Finance’s (MOF) move to reject LG Display’s plan to increase investment capital by $90 million to $1.59 billion shows state agencies’ concern about possible financial imbalance if foreign-invested enterprises rely heavily on loans.

If the investment capital is raised to $1.59 billion, the capital contribution from LG Display would account for only 6.29 percent of total investment capital.

MOF believes that if the additional capital is from loans, this would lead to unhealthy financial capability which cannot ensure the stability of production. 

The ministry also asked the Hai Phong Economic Zone Management Board to tell the investor to consider adjusting the contributed capital proportion so as to ensure healthier financial capability.

LG Display Vietnam Hai Phong project, with initially registered capital of $1.5 billion, makes OLED screens for mobile devices with the capacity of 7-8 million products a month, and 90,000-100,000 OLED TV screen products.

An analyst said that MOF is persisting even though LG is among the most powerful conglomerates in South Korea in electronics manufacturing sector and its total investment capital in Hai Phong City has reached $3 billion.

The risk that MOF worries about is that if LG Display Hai Phong falls into financial imbalance which may lead to insolvency, the local economy and tens of thousands of workers will be affected. 

The analyst said that one year ago, the Government Office conveyed PM’s instruction requesting relevant ministries to report about the foreign invested economic sector’s capital structure (the ratio of contributed capital to total investment capital). This was an assessment of the risks of foreign invested enterprises’ reliance on loans.

In related news, the Republic of Korea was the largest among 91 countries and territories investing in Vietnam in the first five months of 2017, with total  foreign direct investment (FDI) of 4.41 billion USD, 36.4 percent of total FDI in the period.

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Thanh Lich