Carpe diem, Vietnam!
Vietnam suffers from rising inflation, fiscal and current-account deficits and shrinking foreign-exchange reserves. Less than two months ago it devalued its currency.
Nevertheless, it's counting on strong demand when it taps the global bond market for $1 billion later this month.
An audacious effort that'll end badly? Not if you view Vietnam the way some global investors seem willing to: as the worst house on the best block in town. Even if its neighbors -- flush with foreign exchange, and better able to repay foreign debt thanks to strengthening currencies -- offer sounder investments, global bond funds are overloaded with cash and seeking yield. Vietnam will give them that.
EPFR Global says $8.1 billion went into emerging markets bond funds in 2009, a record. In this context, Vietnam's move could be good market timing, particularly as it comes before interest rate increases in less risky parts of the sovereign debt world. For sure, this deal will serve as a test of just how discriminating global markets have become toward risk.
One good sign for Hanoi: on Wednesday, the Philippines closed a $1.5 billion bond offering paying only a tiny premium over its existing yields, despite its own recent budget problems. But Vietnam is not the Philippines, which has a far longer running track record when it comes to borrowing on global bond markets. Hanoi's last global issue -- also its first -- was in 2005.
Then, it attracted $4.5 billion in orders for a $750 million issuance. Vietnam's been looking to tap markets again since 2007, with no luck.
One challenge for Vietnam's bankers will be competition from more economically stable issuers. A recent favorite, Indonesia, is mulling a $3 billion to $4 billion issue that'll compete for those funds. Like the Philippines, Indonesia offers a far prettier picture than Vietnam. On Friday, the cost of insuring $10 million of Indonesia's 5-year bonds against default was $180,000 to $190,000. The same insurance on Vietnam's 5-year debt cost $230,000 to $240,000.
A greater risk for sure, but it'll translate into the higher bond yields that global investors are in hot pursuit of these days. That means Vietnam should benefit this time around. Only time will tell if investors will.