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Bond issuances in US$, successful or not?
The bond issuances in dollars were successful in the eyes of organisers. However, experts believe that it is necessary to reconsider the issuances as the expected capital was not raised.
The bond auctions took place on March 20, 24 and 27 at the Hanoi Securities Trading Centre (HASTC). This was the first time the government issued bonds in foreign currencies in order to call for capital for key projects and offset budget deficit, with the total capital planned at $300mil.
HASTC believes that the issuances were successful. $230.11mil worth of bonds were sold with the interest rates of 3% (1-year bonds) 3.2% (2-year bonds) and 3.6% (3-year).
Before the issuances were made, experts said that the sum of $300mil in total was small, and that the government was just ‘testing’ the market.
Bond issuance organisers believed that the main subjects of the bond issuances would be commercial banks. At the first auction, where $100mil worth of 1-year bonds was put on the block, 30 institutions joined the auction and demanded $766mil. Finally, $100mil worth of bonds was successfully issued with the interest rate of 3%.
The result showed that the foreign currency position of commercial banks is now good, which coincided with the State Bank of Vietnam’s viewpoint before the bond issuance.
With the bond issuance, the government was able to mobilise capital for much cheaper than if it had just called for foreign capital. Several regional countries have issued international bonds with interest rates a bit lower than 6% per annum.
As for banks, 3% proves to be not very attractive, but is still higher than the profit they can get if depositing money at foreign banks (2% at maximum for 12-month term deposits). The 3% interest rate proves to be also higher than deposits at the State Bank of Vietnam (0.5% per annum).
However, institutions seemed to be more cautious about the second and third auctions.
Only 13 institutions joined the second auction of $100mil worth of capital. Finally, only $80.01mil worth of capital was raised at the interest rate of 3.2% per annum. In the third auction, only seven institutions joined the auction, and only $50.1mil was raised at the interest rate of 3.6% per annum.
The three auctions showed that the demand for bonds was relatively high, which, once more, reflected the abundant capital in foreign currencies of local banks.
However, it is clear that investors are not really interested in two-year and three-year term bonds. And the mobilised capital proved to be unsuccessful, if noting that the planned capital mobilisation was itself modest.
A financial expert said that in theory, the capital mobilisation was not successful as the mobilised capital was lower than the plan. However, he does not think that it is a big problem, as the government, considering the demand for foreign currencies, still can issue more bonds to call for more capital. The more important thing is that the government got results from testing the market, which will prompt reasonable adjustments for the next capital mobilistion moves.
For example, the modest sum of $50.1mil mobilised in the third auction shows that the interest rate of 3.6% per annum is unattractive to investors, though the rate is much higher than 36-month term deposit interest rates now being applied by state-owned banks and Vietcombank (now 3.2-3.5%). It is because investors are having difficulty forecasting fluctuations of interest rates in the coming years.
VietNamNet, TBKTVN
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