China Eximbank provides $250 million preferential buyer's credit for Ninh Binh Nitrogenous Fertilizer Plant Construction Project

Project narrative

In September 2008, China Eximbank and the Vietnam Ministry of Finance signed a $250 million preferential buyer's credit (PBC) agreement for the Ninh Binh Nitrogenous Fertilizer Plant Construction Project. The PBC carried the following borrowing terms: a 15-year maturity, a 5-year grace period, and a 4% interest rate. On September 30, 2008, the Vietnam Ministry of Finance signed an on-lending agreement (No. 17/ĐLUT/HĐ) with Vietnam National Chemical Group (Vinachem), a Vietnamese state-owned enterprise for this project. The proceeds of the loan were to be used by the ultimate borrower to partially finance a $480 million EPC contract with China Huanqiu Contracting and Engineering Corporation, which was signed on November 15, 2007. As of December 31, 2014, China Eximbank had disbursed $225 million of the PBC and ultimately disbursed $249,999,999. As of March 31, 2017, Vinachem had repaid $62.5 million of the principal. The loan was secured by (i.e. collateralized with) the fertilizer plant that Vinachem developed with the loan proceeds. The Government of Vietnam also issued a sovereign guarantee in support of the China Eximbank PBC. The Ninh Binh Nitrogenous Fertilizer Plant Construction Project was co-financed by Vinachem, Ninh Binh provincial government, and Vietnam Development Bank. The purpose of the project was to construct a nitrogenous fertilizer plant (coal-based urea production plant) in Ninh Phuc Industrial Zone within Ninh Binh province. Upon completion, the plant was expected to provide the domestic market with 560,000 tons of urea fertilizer per year. China Huanqiu Contracting and Engineering Corporation was the EPC contractor responsible for implementation. A project commencement ceremony was held on May 10, 2008 and the plant went into use on March 30, 2012 (after 45 months of construction). It began commercial operations in September 2012, and the plant was operating at 90% capacity as of November 2013. The plant temporarily halted its operations in March 2016 due to financial losses. The plant ended its operations in July 2016. Then, on April 18, 2017, the Ministry of Industry and Trade issued an official letter (No. 3285 / BCT-HC), announcing that Vinachem was not generating enough cash flow to meet its repayment obligations related to the China Eximbank loan for the Ninh Binh Nitrogenous Fertilizer Plant Construction Project. The plant resumed operations on January 22, 2018 at 80 percent of its designed capacity. However, its indebtedness and lack of access to working capital put its long-run solvency in jeopardy. In March 2019, Vinachem Chairman Nguyen Phu Cuong announced that, if the difficulties at the fertilizer plant (the largest, wholly-owned project of Vinachem) were not resolved, the project could "bring down the whole corporation." By the end of 2019, Ninh Ninh Fertilizer Company had negative equity of VND 3,392 billion (VND 9,837 billion in total assets and VND 13,184 billion in total liabilities), and accumulated losses amounted to VND 5,706 billion. China Eximbank ultimately held the Ministry of Finance of Vietnam responsible for loan repayment rather than Vinachem. In August 2023, Vinachem repaid the Ministry of Finance of Vietnam for a total of $340 million, including the $250 million principal, total interest, and management fees. On September 27, 2023, Vietnam News reported that the Vietnam Ministry of Finance then paid off the debt in full to China Eximbank.