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Yield caps, forex woes slow dollar bond sales
Only 76.7 per cent of Viet Nam’s first US dollar-denominated Government bonds sold in three auctions last month at the Ha Noi Securities Trading Centre, but many experts are nevertheless calling the bond issue a success.
"It was a good attempt by the Government, particularly as the Government demonstrated that it was able to issue bonds in this rather unfavourable economic environment," Asian Development Bank Country Director Ayumi Konishi told Viet Nam News.
"It shows that despite their heightened risk-aversion, investors have confidence in the Government’s debt repayment capacity."
Investors subscribed to bid on more than five times worth the US$300 million in bonds, offered in three tranches in March. But only about $230.11 million were ultimately sold, at annual yields ranging from 3.0-3.6 per cent, with a decreasing number of traders taking part in each successive auction.
"The result of the auction has met our expectations to some extent. I really think that it was a success, considering the context," Ngo Tuan, head of the Department of Banks and Financial Institutions in the Ministry of Finance, told Viet Nam News by telephone.
"It is not only because this is the first time Viet Nam has issued Government bonds in US dollars to the domestic market, but also since the economy is undergoing a downturn, the auction yields of 3-3.6 per cent per year are a reasonable cost for the Government to raise capital," said Deputy Head of Market Development of the State Securities Commission Nguyen Son.
"You know, even Vietnamese dong-denominated bonds are rarely sold out lately," Son added.
"The auction may fairly be called a ’so-so’ success, since it helped banks release $230 million in idle capital and provided more dollars to the Government in a timely manner. It’s all good!" commented the head of bond trading analysis of a Ha Noi-based securities company, on condition that her name be withheld.
The debt-servicing cost was much less than obtaining foreign loans at interest rates of 8-10 per cent per year, she said.
However, a senior economist from the HCM City Stock Exchange commented, on condition of anonymity, "Personally, I think the auction was a flop, because Government bonds are a financial tool with minimum or no risk. The Government tried to do something to raise long-term capital rather than short-term capital, but they couldn’t do it."
Market test
Several economists agreed that the auction was a test of the market and investor confidence, as the bonds offered totalled only $300 million.
"The sale reveals two things. The first is that commercial banks, especially State-owned banks, are holding abundant short-term sources of US dollar but few mid- or long-term sources," Lien Viet Bank general director Alexander Nguyen told Viet Nam News.
"Second, the caps set on the yields of mid- and long-term bonds [before the auctions took place] is quite low and far below the expectation of traders."
Still, the Government has managed to raise $100 million at interest rates 0.2-0.4 per cent lower than those banks pay for US dollar deposits - although, for two- and three-year bonds, analysts agreed, poor yields restrained the success of the sale. The two-year bond pays 3.2 per cent per year, and the three-year 3.6 per cent.
US dollar values were complicating the picture, leaving bidders unsure as to whether they could count on US dollar values in a month’s time, let alone in a year.
"With such low yields for long-term bonds, we would rather invest our dollars in some more profitable channel than invest in bonds during a time of unpredictable exchange-rate risks," a Ha Noi based banker said, asking that his name be withheld.
Moreover, the timing of the bond issue was rather unfortunate as the State Bank of Viet Nam’s widening of the foreign exchange trading band caused banks to take a "wait-and-see" posture.
"At least we know that investors are not ready to commit their funds for a long period," Konishi said. "As to possible future auctions of dollar-denominated bonds, I think it can be done right now as banks still have surplus dollars and export enterprises with temporary supplies of US dollars may also prefer to buy these bonds. But, the Government should focus on one-year bonds."
The economist from the HCM City Stock Exchange commented, "Another reason bond sales missed the full target is that investors didn’t see signs that the Government would issue dollar-denominated bonds regularly in the future. A very important factor in attracting investors is the frequency and liquidity of the dollar bonds. If the Government signals that these bonds will be issued regularly with benchmark yields, the next auction will be more successful."
"In the long run, I believe the Government should issue bonds in Vietnamese dong rather than in US dollars, and should try to establish a benchmark yield curve, which is critical for the development of the domestic bond market," countered Konishi.
"We may release an official summary on the dollar bond sale next week," Tuan said.
He added the Ministry of Finance was in the process of collecting feedback and reports from relevant agencies about the auction, including suggestions the Government take measures to dampen expectations of dong depreciation and reduce the foreign exchange risks involved in dong-denominated bonds.
The Ha Noi Securities Trading Centre has said it would list dollar-denominated bonds at the centre two weeks after the final tranche were auctioned.
VietNamNet/Viet Nam News
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