In a report sent to National Assembly delegates, the Ministry of Industry and Trade (MoIT) said it is prioritizing the bankruptcy option for Dung Quat Shipyard (DQS), one of 12 loss-making projects belonging to the ministry, foreshadowing losses in the hundreds of millions of dollars for PetroVietnam.

There were three options considered for the shipbuilder in the report: an ownership conversion through valuation, auction of assets and liabilities, and allowing it declare bankruptcy or restructuring the company.

“Based on careful consideration regarding lawful matters and the actual situation, MoIT proposes prioritizing the bankruptcy option for DQS in accordance with the law,” the report stated.

Plans for ownership conversion through valuation or an auction of assets and liabilities may still be considered if investors meeting requirements are identified, the ministry noted.

Originally a wholly-owned subsidiary of Vinashin, which went belly up in 2012 and was renamed the Shipbuilding Industry Corporation (SBIC) in 2013, DQS came under PetroVietnam’s umbrella in July 2010, shortly before being tasked with several shipbuilding projects and eventually descending into extreme debt.

According to financial statements as at June 30, 2010, the shipbuilder had charter capital of VND3.76 trillion ($165.8 million) and total losses of VND7.44 trillion ($328 million), including bank loans of VND4.8 trillion ($211.6 million), 70 per cent of which were in foreign currencies.

After taking over the management of DQS, PetroVietnam pumped VND5.1 trillion ($224 million) into the company, including charter capital of nearly VND2 trillion ($88 million) and VND3.1 trillion ($136 million) for paying its debts. These contributions, though, will be irrecoverable if the shipyard goes bankrupt.

Figures from MoIT show that by the end of June last year, DCS’s total debts were VND6.89 trillion ($307.6 million), accumulated losses VND3.68 trillion ($164.3 million), and negative equity VND1.18 trillion ($52.7 million).

As at the end of last year, most equipment at DQS was backward, inappropriate, and failed quality requirements for manufacturing and production processes, resulting in a large annual depreciation cost for the shipbuilder, according MoIT’s assessment.

The shipbuilder still has three large loans pending: one of VND490 billion ($21.6 million) from the Vinashin Finance Company (VFC), one of VND528 billion ($23.3 million) from the Viet Nam Development Bank (VDB), and one of VND548 billion ($24.2 million) from YMC-Transtech, a DQS contractor.

In an earlier proposal sent to the government, MoIT suggested a fourth option: returning the shipbuilder to SBIC’s management.