Hunger for Vietnam bonds despite market worries

Vietnam, often touted as Asia's next economic tiger, is tapping banks for ideas on a global bond offering for launch later this year, banking sources say.

The rarity value of sovereign debt from this up-and-coming emerging market means the offering will be snapped up, even though world markets are jittery that global interest rates are on the rise.

Vietnam's last sovereign dollar bond in 2005 attracted hefty demand and the bond has performed well in the secondary market, boosting the prospects of the upcoming offer, analysts say.

"It should do quite well," Joseph Lau, an economist at Credit Suisse, said. "Last time around there was a huge amount of interest, but the success of the deal would also be dependent on the external conditions," he said.

Added to which, Vietnam is flexible about its plans.

"They are pretty open about their options. They are looking for Q3 or Q4 this year," said a banker, whose bank has been consulted by the Southeast Asian state. "The mandate could happen at the end of summer."

Asia's sovereign bond underwriting market is dominated by Citigroup, Credit Suisse, Deutsche Bank, HSBC, JPMorgan and UBS .

Vietnam raised $750 million in its maiden international bond issue in October 2005 through Credit Suisse.

The 2016 bond offer had initially offered $500 million in debt but it was expanded after generating an order book of $4.5 billion.

The January 2016 bond was sold to yield 7.125%, and is currently trading to yield around 6.2%.
Bankers expect the new deal to be between $500 million and $1 billion with a maturity of at least 10 years. Some say it could be a 30-year offering if demand for the paper is strong.
"It has scarcity value. Even in this market it will get sold," said Dilip Shahani, Asia Pacific research head at HSBC.

"I still believe the economy can grow at 7-8%. It needs infrastructure, they have a huge population and that's just the domestic side of the story."

He said the export sector could benefit from investors who look to diversify away from a reliance on neighboring China.

Gradual economic reform, strong growth and its entry into the World Trade Organization has entrenched the country in investors' minds.

Foreign direct investment commitments rose to a record $10 billion in 2006, a significant amount considering Vietnam's gross domestic product of around $60 billion and per capita income at just $720 a year.

The Vietnam government plans to re-lend the proceeds of the bond offering to state-owned enterprises, such as in energy and shipping, who will eventually become borrowers themselves in the international markets.

"The medium-to-long-term strategy seems to be to eventually allow major state enterprises to sell their own bonds," said Credit Suisse's Lau.

Source: Thanh Nien