Vinashin targets international investors for rare dong deal

The state-owned shipping group hopes to benefit from growing investor appetite for Vietnamese issues.
Vinashin, the state-owned Vietnamese shipbuilding group, began soft marketing a VND1 trillion to VND3 trillion ($65 million to $195 million) bond issue last week via Deutsche Bank. The 10-year bullet deal is being launched in tandem with a $200 million syndicated loan led by Credit Suisse.

Earlier this year, Vietnam was viewed as a very hot destination for foreign funds. Both its stock market and bonds were performing well in light of strong GDP growth and the country's accession to the WTO in January.

In recent weeks, however, all emerging market paper has come under selling pressure and bankers say Deutsche Bank has been understandably cautious about releasing price guidance, or setting a likely pricing date.

Rating agency Standard and PoorÆs has also yet to award Vinashin a rating and a Ministry of Finance (MOF) guarantee is not confirmed. Should the MOF provide backing, some bankers believe Vinashin could achieve a spread as tight as 10bp to 20bp over 10-year sovereign bonds. The latter are currently yielding about 7.5%.

Others believe Vietnam Electricity provides a better benchmark. The state-owned groupÆs 10-year bonds (priced last year) are currently yielding 8.75%-9.05% and a theoretical 8.7%-8.8% respectively.

However, some bankers question whether Vinashin is the right candidate to expand VietnamÆs fledgling dong bond market. One banker claims, for example, the company does not comply with recent legislation regulating the issuance of bonds and shares by state-owned enterprises.

This legislation, known as Decree 52, came into effect last May and obligates companies to satisfy certain conditions before being allowed to issue bonds. These include audited financial reports.

Sources also suggest the company has a high gearing ratio above 10 times. This is largely the result of being on-lent the proceeds of the sovereignÆs highly successful $750 million debut international bond issue of 2005.

Bankers argue that if Vinashin does not comply with Decree 52, it will throw the validity of recent Vietnamese regulation into doubt. This would mark a step backwards for the Vietnamese government, which specifically designed the legislation to increase investor confidence and bring Vietnam in line with international issuance standards.

VietnamÆs upgrade by MoodyÆs from a stable to positive outlook last Thursday may, nonetheless, reassure investors. It certainly provided a boost for the sovereign issue, which jumped by half a point to a bid of 107.25%.

The country is currently rated Ba3/BB. S&P upgraded Vietnam by one notch last September and rates the countryÆs domestic currency debt at BB+.

Vinashin is one of VietnamÆs largest-state owned corporations with 52 subsidiaries, 20 shipyards and 15,000 employees. Earlier this month, local newspapers reported that it is planning to build six express ships at a cost of $1.5 billion to $2 billion.

Vinashin also has a relationship with Deutsche Bank through a mutual interest in Hanoi Building Commercial Joint Stock Bank (Habubank). Vinashin owns 10% of Habubank, while Deutsche Bank signed a strategic co-operation agreement with the countryÆs first joint stock bank in February this year. The German bank has said it hopes to acquire up to 20% of Habubank, pending regulatory approval.

Deutsche Bank declined to comment for this article.
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