Competition will be fierce. ôEverybody wants to be on this deal," says a source. "ItÆs a no-brainer to sell and it gives you exposure to a sexy credit.ö
Vietnam is forecasting an 8.3% growth in GDP for 2007. The country's foreign direct investment surged in 2006 reaching $10.2 billion - well above the 2005 level of $6.2 billion and an earlier peak in 1996 of $9 billion.
Vietnam, it seems, will pay substantially less for this transaction than it did for its first foray on the international market. That 2005 deal was notable for the fees the sovereign paid to sole manager Credit Suisse. The manager charged 65bp, which was considerably above a quoted average of 25bp for sovereign debut offerings at the time. However, the mandate and the fee came after four years of credit advisory work.
Fees pitched by the banks for the countryÆs second offering are reportedly below the 10bp mark, between 2bp and 8bp, in line with todayÆs emerging market fees. At 2bp, fees will run in the order of $200,000 û based on a $1 billion deal - as opposed to the $4.9 million shelled out for its debut bond.
Fee compression has become a recurring feature in the scramble for league-table credit. As Asia has become an important league-table environment for banks, some financial institutions have been known to pitch zero fees in order to win mandates for high-profile sovereign issues. Theoretically, mandates for government deals give banks a stamp of approval for the corporate deals that come out of the country later, thereby enhancing league-table credit.
But the cost of the transaction won't be the only factor influencing Vietnam's final selection for the mandate. ôIn Vietnam, politics come first, then fees, and finally credentials,ö says a source.
This may explain why BNP Paribas is on the shortlist. Despite being mandated on the Chinese sovereign deals issued in 2001, 2003 and 2004, the French bank does not have the same extensive track record in the sovereign or high-yield Asian deals as some of its competitors. Other offerings managed by BNP Paribas have sprung primarily from the investment-grade bank sector, including Woori, Kookmin, ICICI, China Development Bank and Export-Import Bank of China.
But this shouldnÆt present any real problems. As one source says: ôItÆs a rare paper and a strong story. Investors will be tripping over themselves to buy this credit.ö
In other words, the bonds will sell like hot cakes, regardless of who wins the mandate.