Corporate bonds take hold
Source: 27-MAR-2008 Intellasia | Dau Tu Chung Khoan page 16
Mar 27, 2008 - 7:00:00 AM In parallel with the brisk and instable stock market, the bond market also is attracting much attention of many investors, especially institutional investors. In a recent report on Vietnam's capital market made by the foreign bank ANZ, specialists forecasted that both supply and demand of Vietnamese bonds are increasing sharply in 2008.

Statistics showed that during many sessions in March on Hanoi Securities Transaction Centre (HaSTC), investors traded nearly one million bonds each session. The figure was five million bonds on Ho Chi Minh Stock Exchange (STC). A large number of investors registered to join some recent bond tenders.

The biggest advantage of bonds is stable coupon rate and not much changeable price. Although bond prices almost are unchanged, big investors' profit earned from pricing difference is high as well.

According to estimation of International Monetary Fund (IMF), foreign investors' transaction last year in Vietnam grew by 55%. In comparison with the coupon rate of 4-5% of foreign bonds, Vietnam's bond rate of 8.5% per annum is very attractive for investors especially in the context that the dong is appreciating against the US dollar. When due, changing the dong into US dollar is more beneficial, foreign investors buying Vietnamese bonds will receive double interests.

The government last year issued over 50 trillion dong in G-bonds. This year's figure is expected to reach such a high value. In addition, corporate bond issue grew from nine trillion dong in 2006 up to 36 trillion dong in the following year.

Phung Thi Thu Huong, director of Vietnam International Securities Co's corporate consultancy division said that a lot of businesses that are state economic groups and corporations in 2007 selected to raise capital via bond issues with the value of 500 billion dong and higher each. This year extra some joint stock companies also prefer the capital mobilisation method.

As for enterprises, bond issue will help reduce costs for loan rate and share issue. If raising capital through share offerings or sales, enterprises will pledge a dividend of 12-15% a year, even 20%. If reaching the target, issuers' after-tax profit must gain 20% of chartered capital. And if borrowing bank loans, enterprises will have to pay an interest rate of 11-15% pa for loans with a term of one-year and longer. Meanwhile, the highest coupon rate issuers will have to pay to bondholders was only 10.5% per annum for a term of five years, which is also listed in corporate costs so businesses will reduce pressure on capital cost.

While the stock market is sliding, capital mobilisation via bond issue is called the win-win method. The total value of each bond issue is about 300 billion dong at least so three or four enterprises can combine to issue bonds at the same time.

The signal that banks agreed a new ceiling interest rate of dong and US dollar was clear while lending growth is limited at 30% only. Thus, from the third quarter of this year, a large number of banks with abundant available capital will seek investment opportunities in the bond market as an option.

Vietnam's current scope of bond market remains too small, only accounting for 3-6% GDP against 60-80% GDP of other countries, ANZ assessed. With moves from enterprises adding to market regulators' efforts in building up a special bond market, commodities in the local bond market are expected to more superfluous.