The wait is finally over. In the early hours of Tuesday morning Hong Kong time, the Socialist Republic of Vietnam executed a $1 billion 10-year bond offering that became the country's second sovereign bond issue since October 2005.
Initial price guidance for the 144a Reg-S deal was set at a maximum yield of 7%. During final guidance, this was revised to 6.95% to 7%. The bonds were then reoffered with a 6.75% coupon at 98.576 to yield 6.95%, resulting in a very small new issue premium. The yield equated to a spread of 332.7bp over the 10-year benchmark US Treasury.
Barclays, Citi and Deutsche Bank, which arranged the deal, had been quietly confident that they'd attract a sizeable number of bids and, in the end, the order book comprised 200 accounts. The deal was 2.4 times subscribed with a total order amount of $2.4 billion. Taking into account the lull in activity since Vietnam's last issue, one banker said that, "this could be viewed as a one-off deal and we didn't want to underestimate how this may perform. An investor would potentially look at this deal and think that they couldn't get any more exposure to Vietnam". As a result, the bankers anticipated good-quality investors to be attracted to the bond.
At the same time, it was recognised that there was more credit work to be done prior to issuing the notes as the inflation situation in Vietnam and the recent devaluation of its currency could have affected investor confidence during the roadshow. Indeed, the rating agencies put Vietnam on a negative watch prior to the issue. The deal is rated Ba3 by Moody's and BB by Standard and Poor's.
In the end, though, there was a high-quality pool of real money interest from the US, Europe and Asia. Final allocation saw 56% of the deal go to the US, 16% to European investors and 28% to Asia. Asset managers and hedge funds received 73% of the allocation, while banks received 7%, insurance and pension funds 10%, and retail and others 10%.
A source described the overall backdrop to the pricing as "choppy" -- referring to the volatility in the market last week. At the beginning of the week the Indonesia 10-year traded as high as $101. By Friday, it had weakened by about 1 to 1.5 points, while the Philippine 10-year was down by 1 point due to weakening market conditions. Hence the arrangers for the Vietnam deal decided to delay pricing by one day. The move paid off as the market was slightly firmer on Monday and the Vietnam bond traded well in the secondary market, up by 1 point early in Tuesday's trading session.
At the close of Asian trading yesterday, Indonesia's 10-year was trading at 100.25 and the Philippine 10-year sovereign was at 100.625. The Vietnam bond closed its first day of trading at 99.5, up from the 98.576bp where it priced.
Vietnam last issued a sovereign bond back in October 2005 -- its debut in the international bond markets. The $750 million 10-year bond paid a 6.875% coupon and, at the time of pricing, offered a final yield of 7.25%. Under improved economics, the coupon rate of 6.75% and yield of 6.95% on the current issue makes for a better-priced bond. At the end of business Monday, Vietnam's existing bond, which matures in 2016, was quoted at 103.25bp with a yield of 5.21%.
Vietnam initially planned to return to the international market in 2007 and in June of that year it mandated the same three bookrunners that arranged yesterday's deal for a possible transaction. There was speculation that a $1 billion issue would come to market in November 2007, but the deal never happened.
