Vietnam should sell more dollar debt: foreign fund managers

Vietnam should ease curbs on issue of foreign currency bonds to tap investor demand and cut funding costs, foreign fund managers have said.

Pacific Investment Management Co. and HSBC Holdings Plc. said the government needed to raise money to build power stations and roads as it targeted annual economic growth of 8.5% through the end of the decade.

The country of 85 million people has raised just 750 million US$ from a single issue of foreign currency bonds.

“Unfortunately there are processes you need to go through here to get to the point where you can issue bonds,'' Brian Baker, chief executive officer of Pimco Asia Ltd., told an interviewer on the sidelines of a Euromoney conference in Hanoi. “You've got a very attractive external market now.''

Two months after selling the country's first dollar- denominated security in October 2005, the government put in place regulations requiring companies to seek approval for issuing international bonds.

A pipeline of sales is starting to emerge and Vietnamese companies will sell at least $5 billion worth debt in the next decade, according to Jean-Pierre Bernard, head of Southeast Asia and India at BNP Paribas SA.

Electricity of Vietnam, the nation's monopoly power distributor, has got government approval to raise 500 million US$ from an overseas bond issue next year.

Vietnam Oil & Gas Group, a state-owned monopoly, said in January it might issue a foreign currency bond next year to build the country's second oil refinery. Vietnam Airlines Corp. said in December it was considering an international bond issue.

The existing 6.875% dollar bonds, maturing in January 2016, were sold to raise funds for the state-owned Vietnam Shipbuilding Industry Corp.’s projects including building shipyards in Haiphong city and neighboring Quang Ninh province.

The issue, managed by Credit Suisse Group, was more than six times oversubscribed.

“We did not get as much as we wanted,'' said Baker from the German-owned Pimco, which had $610.5 billion in assets at the end of March. “We would love to look at some other issues, especially from the government.''

The bonds have rallied to yield 1.25% age points more than similar-maturity U.S. treasuries, narrowing from 2.51%age points in June last year, according to Merrill Lynch & Co. The yield is 5.78%, compared with 5.95% for similar-maturity securities sold by Brazil's government, which has the same BB rating as Vietnam from Standard & Poor's.

Pension and life insurance investors as well as hedge funds are looking for investments globally as central banks have stopped increasing interest rates and on speculation the US Federal Reserve will lower borrowing costs as early as June.

“We know there is a lot of money out there, and that many foreign investors are willing to invest in Vietnam now,'' said Nguyen Thanh Do, head of external financing at Vietnam’s Ministry of Finance.

“But our biggest concern is to make sure that the proceeds [of bond issues] will be used in the most efficient way, and more importantly, to ensure our repayment ability.''

Companies needed to prove project feasibility and repayment ability and that funds would be used immediately, Nguyen said.

Money supply in the world's top economies is growing at an annual rate of 7.5%, according to estimates by Charles Dumas, managing director of Lombard Street Research Ltd. in London.

Vietnam's government “could raise billions of dollars in the international markets if it really wanted to,'' said Joshua Matthews, head of Vietnam debt capital markets at HSBC in Hong Kong. “There's just too much foreign money chasing too little debt.''

The Vietnamese dong has gained 0.3% this year to 16,014 per dollar. The Ho Chi Minh City Securities Trading Center's VN Index of stocks has gained 48% in 2007.

Vietnam, Southeast Asia's third most populous nation, may need to spend as much as $80 billion by 2025 on power generation, transmission, and distribution to prevent electricity shortages, Van Huong, director-general of the Ministry of Industry’s Department of Energy and Petroleum, said.

Baker said: “There are clearly needs down the road for growth and infrastructure development.''

Pimco's 97 billion US$ Total Return Fund is the largest mutual bond fund in the world. The company is a unit of Munich-based Allianz SE.

Demand for Vietnam's debt may improve further on expectations of higher credit ratings. S&P raised Vietnam's credit rating last year to two levels below investment grade, and Moody's Investors Service said last week it might increase the rating from Ba3, one level lower than S&P.

“There's a huge amount of money sloshing around in the world,'' Steve Targett, Melbourne-based head of institutional banking at Australia & New Zealand Banking Group Ltd., which opened a branch in Vietnam in 1993, said in an interview. “You'd think that regular issues of bonds would be sensible."

Source: Thanh Nien