Arrested development: the future of the planned resort in Nha Trang remains unclear
Over the past few years, Rusalka Resort has been touted as the most prestigious and beautiful tourism project in Nha Trang after Nguyen Duc Chi founded the Rus-Invest-Tur Corporation and won a licence for investment in 2002.
However, the resort’s construction has progressed so slowly that there have been rumours about the investors’ shortage of capital to proceed with the project. Such rumours were proven to have substance when Chi was arrested 10 days ago for alleged fraudulent trade.
Initial investigations by police unravelled a convoluted financial trail that the resort owners are finding hard-pressed to solve. Police found that when Chi bought 30,338 tonnes of rice worth $5.7 million from Tra Vinh Food company for sale in Russia, he only paid $3.27 million in addition to handing over a $700,000 villa in Ho Chi Minh City as a guarantee for the outstanding debts.
Chi was also involved in purchasing a contract of Cosmos Bowling centre in Hanoi. The businessman had bought stakes from his friends to set up LCM company that then leased a building from Giang Vo Electronic Company to establish an entertainment centre.
Chi then sold the centre to Lam Vien, a company under the management of the Defence Ministry, but failed to pay rentals to Giang Vo Electronic Company, which then took Chi to court.
The man was ordered to pay the electronic company back-rental of $1.5 million. Instead of paying cash, Chi agreed to transfer all assets in the centre to the leasor, leading to dispute between Giang Vo Electronic Company and Lam Vien.
Investigations into Chi’s numerous frauds are still going on, but initial results have shown that Chi has managed to sell his stake in the Rusalka Resort in order to pay debts. Rus-Invest-Tur reportedly owed a large amount to construction contractors.
According to Rusalka’s investment licence, Chi is currently representative of Elaitrox, Luzhniky DHL and DHL Cargo, three founding members of Rus-Invest-Tur Corporation. Elaitrox reportedly holds a 60 per cent stake in the corporation and Luzhniky 20 per cent.
However, Rusalka was not financial viable as Rus-Invest-Tur failed to persuade banks to lend money to the project. The Ministry of Planning and Investment (MPI) quoted Rus-Invest-Tur’s report as saying that banks feared the company’s default risk on debts because the investment licence did not permit Rus-Invest-Tur to transfer stakes during the construction process.
As a result, Rusalka’s construction has gone on longer than initially expected and the solution appears to lie with the company’s proposal to sell stakes to outside investors.
After Chi’s arrest, Rus-Invest-Tur general director Mehmet Kin told Vietnam Investment Review that the company is now hoping to win the MPI’s approval to transfer Chi’s stakes in the resort to other investors so that Chi can pay debts to Tra Vinh Food and construction contractors, and the project will receive finance to resume construction.
Rus-Invest-Tur initially discussed a deal with the Lam Vien Company that would allow the latter to contribute $5.5 million to increase the resort’s legal capital to $10 million. However, Lam Vien then changed its proposal to set up a joint venture with Rus-Invest-Tur.
Rus-Invest-Tur then asked MPI for permission to transfer Chi’s stakes in the company to Tra Vinh Food to settle his debts with the food company. At the request of the developers, the MPI in March submitted a proposal to the prime minister asking for a greenlight for the stake transfer.
However, Rus-Invest-Tur suspended its proposal to transfer stakes to Tra Vinh Food to the following month. The company instead sought approval to sell a 65 per cent stake to Bach Lan, a subsidiary of Vietnam Partners LLC, an American company.
MPI sources revealed that Vietnam Partners expressed willingness to purchase the 65 per cent stake at the price of $5.25 million, with the condition that the US company would raise another $12 to $13 million to pay debts for Rus-Invest-Tur and complete the project.
Kin confirmed Rus-Invest-Tur had talked with the American investors over the transfer deal and submitted the deal to the MPI for approval, claiming that it was crucial to the survival of the resort as well as all concerned.
“I hope that the MPI will approve that because it is good for all parties,” said Kin, adding that the deal, if approved, was beneficial to Tra Vinh Food, Lam Vien, and construction contractors.
After receiving Rus-Invest-Tur’s proposal, the MPI has outlined two options to handle the resort’s problems. The first asked for the liquidation of the project on the ground that the resort’s construction was slower than committed and the company had violated provisions in the investment licence as it allowed other people to contribute capital without approval.
MPI argued that this option would radically solve all problems of the project, which if resumed later by new investors, would have nothing to do with Chi’s debts. However, it might lead to protracted dissolving procedures and will not allow two other state-owned companies to recover debts.
The MPI favoured the second option that would permit Rusalka’s developers to transfer stakes to Bach Lan. However, a question was raised over whether this solution violates the investment licence as Article 7 does not allow any stake transfers during the project’s construction.
MPI minister Vo Hong Phuc said the second proposal was made after taking into account the current law on stake transfers and at the request of Tra Vinh People’s Committee.
In a letter to the investment minister last month, Tra Vinh People’s Committee chairman Tran Hoan Kim convinced the MPI to agree to the stake transfer proposal, claiming that Vietnam Partners LLC would then pay debts owed to Tra Vinh Food and Lam Vien after acquiring stakes in Rusalka.
Kim said Tra Vinh Food was a key purchaser in the poor province and did not have enough funds to operate due to Chi’s debts.
Phuc said the MPI supports the stake transfer proposal after looking into all of the positives and negatives of such a deal. The minister said the transfer would allow Rus-Invest-Tur to have funds to pay Chi’s debts, avoiding losses for two state-owned companies.
The main problem with the resort is that the investment licence did not permit any transfer during Rusalka construction’s and the MPI had to seek prime minister’s approval of the issue.
If the transfer is approved, Phuc said the financial abilities of Bach Lan will be investigated and there should be requirements for new investors to maintain a speedy construction pace on the project.
The MPI has also asked the prime minister to permit the Finance Ministry to manage the deposits that Vietnam Partners had proposed before clarifying the actual capital contribution Chi had made to the project. If Chi is prosecuted, this asset would be handled by court.
Kin said he was waiting for the MPI’s approval of the company’s proposal so that he would be able to resume construction of Rusalka Resort that he has invested time, effort and money into over the last five years.
“It is a very beautiful and imaginative project,” said Kin.