Vietnam Electric rolls out second long dong bond

Only a month after launching its inaugural offshore dong deal, newly renamed and restructured Vietnam Electric announces a proposed VnD1 trillion 10-year offering.
State-owned Vietnam Electric has announced plans to raise funds through a dong-denominated bond sale soon after the company shed its old name of Electricity of Vietnam and was restructured under government writ.

Joint lead arrangers HSBC and local entity An Binh Securities announced the deal on Monday. The structure will be a 10-year VnD1 trillion ($62.2 million) fixed-rate bullet, and is expected to price later this week.

The deal comes shortly after the entity in its previous form, Electricity of Vietnam, priced a VnD1 trillion ($62.2million) 10-year transaction in November. That deal had an interesting structure in that it was priced to pay a 9.60% coupon after the first year, but stepped up to 9.95% for its remaining nine years.

Although, step-ups are typically associated with callable transactions, which this deal wasnÆt, the reason for the innovative structure was to ensure that board members would be more receptive to the transaction during the final approval process. The company has historically sold only five-year maturities wholly into the domestic market all of which were priced at the 9.60% level. Officials requested that the first year pay a similar coupon to ensure an easier approval process.

The new deal also brings a new approach to the Vietnamese debt markets, as the leads will take the new transaction through a bookbuild process to enhance price discovery. Initial guidance has been set in the 9.75% area. Typically, that entails a plus or minus level of about 0.125%.

Ironically enough, bankers are hoping that the new dealÆs rather standard structure will help to establish a legitimate and liquid benchmark for the Vietnamese dong-denominated market, both onshore and offshore.

Obviously, the previous Vietnam Electric deal provides a strong benchmark. However that deal, which is only a month shorter to maturity, pays a slightly wider average coupon of 9.91%. The reasoning for the premium could be attributed to the fact that the deal lacked a natural price discovery and as the first deal for the firm the leads had to leave something on the table to ensure investor interest in a credit without any history in the offshore market.

The previous deal had its allocations geographically split 75% offshore and 25% domestic, and the leads will look to place a similarly high proportion of the notes with offshore investors this time around.

International capital market investors have been seeking diversification of their portfolios through increasing their exposure to new markets like Vietnam.

VietnamÆs electricity output has reached nearly 53.8 billion kWh thus far this year, up 12.7% from last year. Vietnam Electric is the biggest electricity producer and is the nationÆs integral distributor, and is 100% owned by the state.

According to the Vietnamese Industry Ministry, demand is expected to grow 15% to 16% year-on-year until 2010.
¬ Haymarket Media Limited. All rights reserved.
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