The Government of the Socialist Republic of Vietnam stepped onto the international debt market stage last night (October 27) with an upsized debut $750 million offering. The transaction has been in the works for a number of years, but the long wait clearly paid off as country executed one of the most successful emerging market bonds in recent years.
The 10-year deal gathered a huge order book, allowing lead manager Credit Suisse First Boston to price well inside of initial price guidance. The notes were initially marketed at a size of $500 million and yield around the 7.25% level.
However, as the deal built up momentum, the lead opted to tighten pricing by 12.5bp to 7.125% and upsize the deal 50% to $750 million. Final pricing came at 98.223% on a coupon of 6.875% to yield 7.125% or 256.4bp over US Treasuries.
The order book was closed at $4.5 billion, an oversubscription ratio of 5.3 times. Some 255 accounts were allocated paper, one of the largest numbers in recent history.
Geographically the book was evenly spread among the three major regions. Asian investors took 38%, while 32% went to Europe and 30% to the US. In terms of account type, asset managers made up the lion's share at 51%, with banks taking 25%, insurers 17% and 7% going to others.
Market specialists describe the deal as a pure portfolio play and believe it was successful because of its rarity value. This is the main reason why it was able to price through Asian comparables such as the Philippines and Indoneisa. Vietnam has a Ba3/BB-/BB- rating (Moody's/S&P/Fitch), while Indonesia is rated B2/ B+ and the Philippines Ba2/BB-.
Few, however, expected the deal to achieve such an impressive pricing differential. For example, Indonesia's 7.5% January 2016 was quoted yesterday at 7.75% - a 65bp differential to Vietnam. The Philippines 8% January 2016 bond was yielding 8.075%, an even wider 95bp differential.
Specialists say Vietnam has a strong credit story, which many investors have found attractive. In its most recent ratings summary Standard & Poor's said, "Vietnam has a relatively modest level of public sector and external debt. Public sector debt, including general government plus non-financial public enterprises, is expected to be about 54% of GDP in 2005. This level is comparatively low for this rating category, and provides some room to absorb the reform costs of non-financial public enterprises and the banking sector."
And it adds, "Vietnam's external debt, projected at 47% of 2005 current account receipts, is one of the lowest in the 'BB' category."