VietNamNet Bridge - The ‘oil worry’ has spread to financial circles, mostly commercial banks which have provided funds to PetroVietnam’s projects.


JP Morgan’s CEO said in the Wall Street Journal that the US leading financial institution may lose $3 billion as it financed the energy sector. Bank of America, Citigroup, Goldman Sachs and Wells Fargo have said similar statements. 

The oil price falls have caused businesses’ revenue and profit to decrease. Because of this, they don’t have money to pay bank debts.

PetroVietnam, the Vietnamese national oil and gas group, is also facing big difficulties. Analysts say it may have to halt production, close some mines and cut the labor force.

The ‘oil worry’ has spread to financial circles, mostly commercial banks which have provided funds to PetroVietnam’s projects.

PetroVietnam’s problems have raised big worries to financiers. The group’s biannual financial report  showed that by June 30, 2015, the value of short-term loans and finance leasing had decreased by 10 percent compared to the end of 2014 to VND82.070 trillion. Meanwhile, long-term loans and financial leasing had reached VND98.969 trillion by that time. 

As such, PetroVietnam’s total bank debts must be lower than VND181.039 trillion. With the figure, according to financial experts, PetroVietnam is now the biggest banks’ debtor among state-owned conglomerates. However, it remains a ‘good debtor’ as the group’s stockholder equity is large, at VND434.1 trillion. 

PetroVietnam not only borrows in Vietnam dong, but also in foreign currencies. This means that any adjustments in the foreign exchange will affect its financial costs. Its finance report showed that from January 1 to June 30, 2015, the group incurred a loss of VND2.446 trillion from the exchange rate fluctuation.

Analysts believed that the loss from the exchange rate fluctuation would be even higher in the second half of 2015, because the sharpest depreciation of the dong occurred in August 2015.

If the oil price stood at $50-60 per barrel, PetroVietnam’s profit would be more than enough to pay debts. This is why large commercial banks in the past always ‘had the pleasure’ to finance PetroVietnam’s projects.

However, things are worse than thought. The international oil price has been hovering around $30-32 per barrel so far this year. It sometimes even tumbled to $26 per barrel. Meanwhile, as PetroVietnam stated, the average production is at $24.4 per barrel and it needs to sell oil at $45 per barrel to break even.

To collect debt, banks need to help debtors, so that debtors can exist and overcome difficult periods. PetroVietnam needs cash now to exist and wait for the oil price recovery. Who will continue pouring money into PetroVietnam to save the oil group?

The Deputy CEO of a large bank noted that in current conditions, it is necessary for banks to reconsider financing the oil & gas and mining sectors.


TBKTSG