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Who will purchase government bonds?
The newly released April report by the HCM City Securities Company (HSC) says that the government’s plan to issue VND55tril worth of bonds this year may be unfeasible. Buyers do not have more room to put bonds; meanwhile, there are signs foreign investors are trying to unload them.
Bond revenue not attractive enough
Commercial banks and insurance companies are usually the biggest bond purchasers.
However, bonds never account for more than 20% of the balance sheets of commercial banks. Most banks now have little room left on their balance sheets for additional bonds.
HSC has estimated that domestic banks are now holding $10-11bil worth of bonds (in face value).
Meanwhile, in order to attract more investors, the government would need to offer more attractive bond revenues, while this would put pressure on the interest rates of other valuable papers.
At the first-of-the-year bond bid held on February 12, only VND100bill worth of 2-year and 3-year bonds were successfully sold, while VND1.5tril worth of bonds were being offered. The bond interest rate was set at 6.7% per annum.
No other successful bond bid has been reported since then. According to HSC, the market wants nothing to do with bonds below 7%.
Foreigners trying to unload bonds?
Some experts believe that there will be a mass exodus from the bond market in 2008. A lot of foreign investors have tried to sell bonds on both the Hanoi and HCM City bourses.
Statistics show that in 2008, foreign investors sold VND30.74tril worth of bonds more than they purchased, mostly in the latter half of the year when the global finance market fell.
However, according to HSC, when foreign investors sell bonds, this does not necessarily mean that they are transferring money abroad. A lot of money remains in banks to be used for re-investment.
Foreign investors in Vietnam are reportedly holding $650mil worth of bonds, while foreign investors in other countries may hold as much as $1bil worth.
And yet, the panorama of share and bond transactions at present proves to be quite different. Foreign investors are now happy holding shares.
VietNamNet, VnMedia
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