Vietinbank’s bond yield is too high?

In a press release sent on May 12, Vietinbank, one of the biggest banks in Vietnam, stated that it has successfully issued USD250 million worth of 5-year international bonds at the coupon interest rate of 8 percent and bond yield of 8.25 percent.

The bond yield of 8.25 percent has been commented by analysts as “relatively high” if compared with other bond issuances in the region.

Tran The Phong, an analyst of SSI (the Saigon Securities Incorporated) said on Lao dong newspaper that the banks in Mongolia, the market which is considered as having similar conditions with Vietnam’s, in 2011 issued bonds with the bond yield of 5.25 percent only. Meanwhile, Chinese banks with the national credit rating at A level, successfully issued international bonds in 2011 at a much lower bond yield of 3.8 percent.

Some experts have even raised questions about the necessity of Vietinbank’s bond issuance. In the domestic market, Vietnamese banks now can seek dollar capital at the interest rate of six percent and lend at 8 percent. Meanwhile, it has to pay higher to mobilize capital on the international market.

Some others have raised doubts about the capability of Vietinbank to balance its capital sources if it accepts such high interest rates. Meanwhile, the Vietnam dong is still facing the high risk of depreciation (the dong has been depreciating by six percent every year since 2007). Therefore, they have every reason to worry about the bank’s ability to pay debts to international investors.

“The bond yield proves to be ineffective for financial intermediary institution like Vietinbank,” Pham Xuan Anh, Head of the Financial Consultancy Division of BIDV Securities Company, said on Lao dong.

The newspaper has also quoted Dan Svensson, an executive of Dragon Capital, a fund management company, as saying that the bond interest rate was higher than forecast, but he said this just simply reflects the difficult conditions on the market.

Meanwhile, Deputy General Director of Vietinbank Le Duc Tho has affirmed that the interest rate is not too high, if compared with the current market conditions.

“After some macroeconomic changes which have led to the Vietnam’s lowered grade in credit rating, the conditions for the issuance campaign have been influenced,” he explained.

The market’s “taste” changes regularly

It was not by chance that foreign investors raised many questions about Vietnam’s macroeconomic development strategy, about the situation of state owned general corporations and other state owned enterprises, and about VInashin’s debt payment process.

Thoi bao Kinh te Saigon has quoted Pham Hong Hai, Deputy General Director of HSBC Vietnam as saying “that what international financial investors want to know is whether the way Vietnam has dealt with Vinashin’s big debts is the “habit” of Vietnam.” They also want to know about the state’s support in case enterprises cannot pay foreign debts.

Hai also thinks that Vietinbank’s bond issuance went more smoothly than other state owned general corporations which also issued bonds before. Explaining this, he said though Vietinbank is also a state owned bank, international investors believe that in Vietnam, state owned bank is a kind of special enterprises. 

“What they can see is that Vietibank is the second biggest bank in Vietnam in terms of the capitalization value, and they believe that the government of Vietnam would not let banks collapse,” Hai said.

Nevertheless, the financial investors always keep worries about three Vietnamese problems: 1) the expanded influences of the state owned economic sector 2) the public investments and 3) the economic and banking system restructuring process.

Vietnam is still considered as a market with higher risks than Sri Lanka, the Philippines, Thailand or Indonesia.