Vietnam's third bond issuance sees major interest from foreign investors.
Vietnam offered $1 billion worth of ten-year international bonds to the market on November 6. According to Finance Asia, there are 450 accounts queuing up for the bonds, with total demand of $10.6 billion, exceeding the issue by ten-fold. The yield on the bonds has been set at 4.8 per cent. Consulting organizations for the issuance are Deutsche Bank, HSBC, and Standard Chartered.
This is Vietnam first issue in five years and takes place at a time when Fitch Ratings and Moody have upgraded Vietnam’s credit rating from “BB-” to “B+” and from “B2” to “B1”, respectively.
In an interview with the Financial Times, one banker said that the bond issuance could attract major attention from investors in emerging markets because Vietnam’s new debt is low, interest rates are attractive, and its economic stability is improving.
Vietnam’s international bond yield maturing on August 1, 2020, which were issued in 2010, has now fallen to about 4 per cent as global investors seek higher yields while interest rates around the world are at record lows.
“Investors favor dollar-denominated issues,” Mr. Rajeev De Mello, head of Asian fixed-income at Schroder Investment Management Ltd. in Singapore, said prior to the issuance. “The search for yield is still there. We haven’t seen Vietnam in the market for a while. Its macro situation has stabilized. All of these factors will be good for the issue.”
According to the Ministry of Finance there are two main reasons behind the success of the issuance. Firstly, the yield was at 4.8 per cent per year, lower than the expected initial offer of 5.125 per cent per year, which saved about $32.5 million in bond interest payments over ten years. Secondly, it exchanged 54.4 per cent of the original value of international bonds in 2005 and 25.4 per cent of the original value of international bonds in 2010, for a total benefit after the exchange of $13.9 million. This helped restructuring public debts by extending the loan term and reducing pressure on debt repayments.
In addition, the positive outlook and Fitch and Moody’s comments also contributed to high demand from foreign investors. They are taking opportunities because of Vietnam’s improved macro-economic stability, thriving economic growth, and better balance of international finance.
The government expects that GDP will grow 5.8 per cent this year and the target for next year has been set at 6.2 per cent. Inflation this year may fall below 5 per cent from over 18 percent in 2011. The VN-Index has increased 18 per cent since the beginning of the year.
However, according to the Financial Times, Vietnam’s economy is still facing a number of challenges, such as bad debts in the banking sector and low levels of domestic consumption. In addition, it is forecast that Vietnam’s foreign debt will rise to nearly 40 per cent of GDP by the end of this year.
The Ministry of Finance is currently seeking issuance opportunities in the future to continue restructuring the existing debt portfolio.