In an interview with VET, Mr. Pham Hong Hai, Deputy CEO of HSBC Vietnam, said he believes that the success of Vietnam's ten year, $1 billion sovereign bond issue creates a premise not only for the government but also for local enterprises to seek opportunities to raise capital in the international market.
Vietnam has successfully issued $1 billion worth of ten-year international bonds. What comment would you care to make?
This is the first international bond issuance in US dollars by Vietnam’s government since 2010 and the first debt management transaction by Vietnam to restructure its debts. The innovative transaction is the second-fastest debt swap transaction in Asia (in one day, to avoid being affected by market fluctuations), proving Vietnam’s ability as a national level issuer. At the auction the Ministry of Finance received trading applications totaling $1.1 billion (equivalent to $1.2 billion in market value) from investors, with a participation rate above 61 per cent. This is the highest level of participation ever seen in debt swaps in one day.
Unlike the two previous issuances, these new ten-year bonds strongly attracted investor attention from all over the world, creating a record order of over $10 billion from more than 450 investors. This allowed the transaction to be valued at 4.8 per cent, which is at the lower end of the most-recently announced price range. With a yield of 4.8 per cent, Vietnam has achieved the lowest yield for a ten-year issuance in below-investment-standards countries in emerging markets in 2014. This is also the lowest cost of capital in Vietnam’s history of capital raising in the international bond market and sets a new standard for interest rates, creating a firm platform for subsequent issuances in Vietnam. However, investors will not only look at whether the overall economy is becoming better but will also try to understand the growth potential of each business. The economy getting better does not mean that all businesses are getting better as well. This is what businesses need to note when preparing to conduct meetings with investors.
Compared to the two previous issuances, this time Vietnam changed its approach to the market. What do you think about this change?
We have found that Vietnam’s approach to the market has now been more strategic. With the aim of promoting and updating Vietnam’s market situation for international investors in 2013, HSBC, together with the Ministry of Finance, has conducted meetings with investors around the globe. Senior officials from the State Bank of Vietnam and the Office of the Government have met hundred of investors to answer their questions about Vietnam and hear about their remaining problems and propose solutions. The meetings expressed the desire of the Ministry of Finance as well as Vietnam’s government to create a channel for exchanging information clearly and transparently with the international market.
As the interest rate on US Treasury bonds remains low, market conditions are more stable and the recovery of Vietnam’s economy has been recently recognized by international credit rating agencies, with international investors expressing interest in holding Vietnamese government bonds. With a plan to actively manage debt effectively when market conditions allow, the Ministry of Finance has chosen the right time to conduct meetings with investors to announce developments in the implementation of policies proposed in 2013 and their positive results in the early stages to strengthen the trust of investors in Vietnam’s market.
HSBC acted as joint deal manager and joint book runner on the new issue. Can you share the thoughts of foreign investors about the bond issuance and Vietnam’s macro-economy in 2014?
Probably there is no more objective review than the record bids from investors. In fact, the most difficult situation in the issue was about how to decide on the distribution of bonds, as demand exceeded the offer many times. The amount of new bonds issued after the debt swap was only $273 million (because $727 million remaining is for the old bonds swap). The order of over $10 billion was 35-times higher than the number of newly-issued bonds.
The majority of these loans are for debt conversion but the loans still put pressure on the budget and public debt. In your opinion, what are the solutions to easing pressure on the budget and public debt?
A major success in this approach by the government to the international market is the conduct of debt restructuring for issued bonds maturing in 2016 and 2020. This is an extremely important improvement in the management of Vietnam’s public debt, reducing pressure on repaying debt in the short term. In my opinion, we need to continue the reform of financial investments to be able to collect benefits and make up for the cost of capital. Local authorities should be responsible for the necessity and effectiveness of their projects. Essential economic and social infrastructure should be prioritized according to a plan and the effectiveness of a project should be evaluated regularly to determine whether more investment is needed. Because of the critical nature of effectively using borrowed capital, in meetings in October the government agreed to use the loans to invest in economic and social infrastructure with tightened control to improve efficiency and avoid losing any capital.