|
Better bonds
The Hanoi Stock Exchange (HNX) has begun restructuring its bond market, with the first move being to swap bonds to reduce the amount of registered bond codes, which should increase market liquidity
The Hanoi Stock Exchange (HNX) has begun restructuring its bond market, with the first move being to swap bonds to reduce the amount of registered bond codes, which should increase market liquidity.
In light of Circular No 150 guiding the swap of government bonds (which took effect on December 24, 2011), some 30 out of nearly 500 registered bond codes can be swapped in the first phase. The swaps will facilitate investors who target to restructure their bond list to simultaneously buy and sell two different bond codes of one entity issuing bonds at the same time.
According to Mr Sumit Dutta, CEO of HSBC Vietnam, HNX’s action to restructure the bond market is a good move and should be carried out as soon as possible. The reason, he explained, is that foreign investors tend to hesitate to invest in Vietnamese government bonds due to the small quantity of each bond code, which does not meet their investment criteria (some foreign investment funds are internally prescribed to buy 1 per cent of the total volume of one bond code at most). If the listed volume of the bond code is VND1,000 billion ($47 million), such funds would only buy VND10 billion ($470,000). Clearly it is not worth investing in these circumstances.
Beside the reduction in bond volume via bond market restructuring, it is necessary to develop a standard yield curve for the government bond market. Mr Dutta believes that major banks in the market would play a very important role in creating liquidity in the secondary market and developing a standard yield curve. “If we have a standard yield curve, bond swapping will be easier as the Ministry of Finance (MoF), the State Treasury and HNX know the real market price for bonds swapped,” he said.
Despite the fact that Vietnam has nearly 500 bond codes registered, variety is low. In order to raise attraction and create liquidity for the market, analysts suggest authorities and enterprises diversify their products to lure investors.
Given the current context, with inflation still high and enterprises facing various difficulties in approaching bank capital due to high interest rates, MoF and enterprises should introduce various bond products to help enterprises mobilise capital in a sustainable manner.
Among ASEAN countries, Thailand is a very successful case in issuing government, inflation-linked bonds worth 40 billion Baht ($1.32 billion) with a ten-year term. This is a typical point of reference for Vietnamese authorities and enterprises before introducing suitable products to the market.
In the experience of countries with a strongly developed bond market, there is a high demand for investing in bonds issued by insurance enterprises or pension funds that have more than a ten-year term. This is why Mr Dutta believes MoF should consider extending the term of government bonds to meet this demand.
Furthermore, term extensions would ease short-term debt redemption and promote long-term capital raising from the market. As a contribution, these types of bonds will also create a standard yield curve with sufficient terms of different kinds.
Authorities should also consider establishing Vietnamese credit rating agencies (CRAs). This would boost market transparency and make investors feel secure about their investment decisions. “The establishment of a CRA, however, is not the most important solution for the bond market,” Mr Dutta said. “Market liquidity, quality of products and macro-economic sustainability are also critical factors for market development.”
At the recent annual meeting of the Vietnam Bond Market Association (VBMA), eight major members of Vietnam’s bond market signed the Market Maker Agreement (MMA) to lay a foundation for strengthening transparency and liquidity in the bond market and provide a reliable yield curve for investors. The pilot stage will run for three months and started on the first day of 2012. After this phase, VBMA members will confirm the possibility to offer fixed prices.
According to Mr Do Ngoc Quynh, General Secretary of VBMA, together with its efforts to restructure the bond market, the commitment of VBMA members to implement a series of actions in 2012 will support improvements in market liquidity.
vneconomy
|
