Sources have confirmed that the Vietnamese Ministry of Finance (MOF) will not explicitly guarantee the bond. Bookrunner Deutsche Bank will therefore be marketing the deal on the basis of an implied sovereign rating, thanks to a change-of-control clause allowing investors to redeem the bond in the event of government ownership falling below 51%.
Vinashin, an SOE controlling over 70% of VietnamÆs shipbuilding industry, has helped Vietnam earn its place as the eighth largest shipbuilder in the world. The entire proceeds of the sovereignÆs 2005 $750 million international debut bond are currently on-lent to Vinashin, suggesting the companyÆs strategic importance to VietnamÆs long-term objectives.
Further, the MOF has by-passed Decree 52 and authorised Vinashin to issue its own bond despite the fact that it has non-audited accounts. This 2006 regulation stipulates that all companies wishing to trade on the bond market must be audited. Vinashin will only comply in September.
This leads many to question VinashinÆs financial strength. The on-lent sovereign proceeds entail a high gearing ratio above 10 times. Standard and PoorÆs report is not yet available, and the issue will launch prior to its release and a rating. However, investors - acknowledging strong government support - are reckoned to be unwilling to wait, since they expect yields to fall very soon.
Initial price guidance is set at 9.25%-9.50%. For comparison, the 10-year HSBC-led Vietnam Electricity (EVN) dong bond issue is trading at a theoretical bid offer spread of 8.7%-8.8%, which equates to 120bp over 10-year government bonds.
Some bankers say Vinashin has a riskier standalone credit profile than EVN and this explains the yield premium being paid over EVN. But many market observers believe the bond will succeed thanks to a strong appetite for Vietnamese credit and the rarity of dong-denominated assets. With growth at around 8%, the demand for bonds is huge. A cash-rich market has also led to a general demand for high-yield bonds.
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