1. MoneySeptember 1-7, 2014
By Tung Xuan
Vietnam is planning to issue
its first international govern-
ment bonds since 2010.
At last week’s government
cabinet meeting, the govern-
ment discussed its plan to
issue such bonds. Chairman of
the Government Office
Nguyen Van Nen said at a
government press conference
a day after the meeting that the
plan was aimed at helping the
government “refinance’its ex-
isting debts.
He said so far Vietnam had
sold $1 billion in convertible
international bonds.
“This is basically a loan
with a high interest rate. At
present we have an opportu-
nity to access another loan at a
lower rate, which the govern-
ment is carefully considering,”
Nen said.
The government is yet to
release any further informa-
tion about the plan in regards
to method of issuance or yield
rates.
If this issuance is carried
out, it will be the third time
ever that the government has
issued bonds to global finan-
cial markets.
The first two issuances
were one on the New York
Stock Exchange in October
2005, valued at $750 million,
and then another on the Singa-
porean exchange, valued at $1
billion. The due dates of these
10-year bonds are January
2016 and January 2020, re-
spectively.
Commenting on the gov-
ernment’s plan, VinaCapital
chief economist Alan Pham
told VIR that “it is highly ap-
propriate and quite rational to
roll over this current portion of
long-term debt with new bor-
rowing.”
“The government should
not let the opportunity pass to
lower the cost of its existing
bond payouts through this
issue opportunity,” he said.
Macro-stability has shown
resilience, as evidenced by in-
flation at 4.3 per cent on-year
in August and the VND under
no pressure of depreciation.
Both Moody’s and S&P
have expressed confidence in
Vietnam’s economic
prospects. In July, Moody’s
raised its Vietnam sovereign
rating from B2 to B1, while
S&P reaffirmed its BB-rating
with a positive outlook.
Dan Svenssion, Dragon
Capital’s portfolio manager,
echoed Pham’s comments.
“Except for prevailing un-
certainty with the banking sec-
tor’s bad debt, the view is
generally that Vietnam’s eco-
nomic situation has improved
significantly over the last two
years and which is reflected in
different variables including
the credit default swap (CDS)
spread and credit ratings,” said
Svenssion.
“Despite different political
tensions around the world the
global appetite for risk is quite
good.Although there is debate
about the level and definition
of Vietnam’s public debt Viet-
nam has relatively few inter-
national bonds outstanding
and most likely there will be
good demand if they decide to
issue,” he said.
Based on the CDS indica-
tor, Svenssion said “a 5-year
or a 10-year USD based bond
could be launched below 3.9
per cent and 4.5 per cent.”
Svenssion noted that the
current CDS spread of around
200bps “is a significant im-
provement compared to some
three years ago when it was
around 400bps and one year
ago when it was 300bps.”
According to head of VP-
Bank Securities’ research de-
partment Barry Weisblatt, one
reason for the Vietnamese
government to issue US dollar
bonds could be to refinance
the $750 million in bonds that
will mature in January 2016.
“Another reason is to build
Vietnam’s reputation within
global bond markets.”
Weisblatt projected that
the bond issue could be
launched with a 10-year matu-
rity and a yield of around 4.75-
5 per cent.
“The Vietnam sovereign
10-year credit default swap is
currently trading at 2.54 per
cent. Adding this as a spread
over the US treasury bond of
2.38 per cent gives you a yield
of 4.92 per cent. Also, Viet-
nam still has bonds outstand-
ing that will mature in six
years. These bonds are cur-
rently trading at 3.93 per cent.
It seems appropriate that 10-
year bonds would trade at a
yield of 0.5 to 1.0 per cent
above this,” Weisblatt said.
The forecasted yield rates
are much lower than those of-
fered in 2005 and 2010, with
coupons of 6.875 and 6.75
per cent and final maturity
yields of 7.25 and 6.95 per
cent respectively at the time
of pricing.n
Vietnam to gain from new bond issue
One reason to issue
US dollar bonds
could be to
refinance the $750
million in bonds that
will mature in
January 2016.
Another reason is to
build Vietnam’s
reputation within
global bond
markets.”
- Barry Weisblat
Head of VPBank Securities’
research department
“
If the issuance is carried out, it will be the third time the government has issued bonds to global financial markets
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