ôStrong demand and a tight spread really reflect that onshore investors are craving exposure to the domestic economy. Hopefully, this seminal private-sector opening will pave the path for more,ö says one source close to the deal.
ôAlso, despite the volatility in rates and currencies onshore and the absence of offshore-led distribution characteristics of previous deals, this transaction shows that the market can still fund its own enterprises through purely onshore demand.ö
The five-year bond issue, managed by HSBC, priced at a yield of 8.6%. This compares to the five-year government bond which was yielding 8% at time of pricing, and Vietnam Development BankÆs five-year issue which yielded 8.6%.
Thirteen investors participated in the transaction, with over 80% of the bonds selling to onshore banks.
Meanwhile, Citi announced its inaugural Vietnamese Certificate of Deposit (CD) with a two-year VND400 million floating rate issue. The deal marked the first dong-denominated CD issued by a foreign bank.
The long-term negotiable certificate of deposit (LTNCD) offers a coupon equivalent to the savings deposit rate of four local state-owned commercial banks (Bank for Foreign Trade of Vietnam, Bank for Investment and Development of Vietnam, Industrial and Commercial Bank of Vietnam and Vietnam Bank for Agricultural and Rural Development of Vietnam) plus an undisclosed spread.
ôThis longer-term offering will help in the development of the local bond market, as financial institutions in Vietnam are still faced with a landscape dominated by the money markets,ö says Charly Madan, Citi country officer for Vietnam.
Currently one of the most undeveloped in Asia, Vietnam's local bond market is nonetheless growing fast. Calculated at just 2.3% of GDP in 2001, it stood at 13.2% of GDP at the end of 2006 with roughly 500 bonds listed and a yield curve stretching to 15 years.
Meanwhile, corporate bond issuance has increased with big firms and banks issuing $500 million worth of debt in 2006. These are positive signs, since a fully fledged corporate bond market gives market forces a greater opportunity to assert themselves, thereby reducing systemic risk and the probability of a crisis.
However, the corporate and enterprise bond sectors are still underdeveloped, accounting for only 7% of the total size of Vietnam's bond market, while trading volume is still relatively low at $20 million-$30 million daily, according to figures from the Ministry of Finance. Key to its growth is an emphasis on a solid government fund-raising programme. Although liquidity for government securities of less than five-year maturities has improved, longer-dated ones still face liquidity risk.
Furthermore, issue sizes stand at an average of just $44 million, as government bond issuance tends to depend on ad-hoc fund-raising exercises, leading to high supply, and hence poor secondary trading and liquidity.
Moreover, Vietnam suffers from not having adopted a full disclosure information system, and despite the Vietnamese accounting standards (VAS) being introduced last year, there are as yet no clear guidelines for their enforcement and monitoring. Another major impediment is the lack of an independent domestic credit rating agency, which hinders companies from mobilising funds both internationally and domestically.
Also among the country's problems is the absence of a single comprehensive law for issuing bonds. Vietnam's market is subject to a wide range of decrees and regulations which often do not fit together.
ôContrary to China, which has a coherent legal framework, the Vietnamese legal system is a patchwork containing French, Russian, Chinese and other elements," states a Deutsche report dated July 2007. "Despite the rapid development of the economy over the last few years, there have been no significant improvements to the legal system.ö This is considered one of the biggest obstacles for potential foreign investors.
Nevertheless, Techcombank and CitiÆs transactions are encouraging signs of the development of a more mature market.
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