Bank bond issue in the spotlight

Vietinbank, Vietnam’s second largest lender by assets, is speeding up its planned $500 million overseas bonds sale which is expected to take place in November this year with a coupon rate of 5-6 per cent.

Meanwhile, a recent evaluation by Moody’s Investors Service had Vietnam’s banking system in the doldrums over the next 12 to 18 months, in line with the country’s sovereign debt problems. Moody’s also cited concerns about falling profits and poor asset quality.

Vu Anh Duc, a bond dealer in Vietinbank’s Investment Department, said Moody’s predictions for the local banking sector would not have a big impact on the lender’s bonds issuance plan.

“Vietinbank’s asset quality is considered good, profit has increased over the last three years. Currently, the bank’s bad debt is also low – at around 1-2 per cent,” he said.

Last week, the bank announced HSBC Holdings Plc and Barclays Bank Plc would act as advisors for its planned overseas bonds sale.

Alan Pham, chief economist at VinaCapital Investment Management, also said Moody’s views would not have a direct effect on Vietinbank. “The Moody’s opinion refers to the whole banking sector. Vietnam’s banks are not homogeneous. There is a group of top-tier banks with large assets and good performance and Vietinbank is in this group.”

“Even though the macro situation in Vietnam is still difficult, it has improved recently. Inflation peaked at 23 per cent in August and will trend down to about 18 per cent at the year’s end. A tight monetary policy is going to be kept in place. In fact, Resolution 11 will not expire in 2011, but will continue into 2012. Thus, inflation for next year is projected to be in 10-11 per cent range,” he said.

Pham added that the forex market had been stable for many months with the official and unofficial US dollar rates being almost identical and below the upper ceiling band.

“This bond issue will improve Vietinbank’s financial strength - its loan-to-deposit ratio could fall from about 150 per cent to 120 per cent,” Pham told VIR.

Meanwhile, Thang Long Securities (TLS) deputy CEO Mac Quang Huy was cautious about the bank’s overseas bond issuance. “To float an overseas bond issue is not easy at this moment, especially given the country’s sovereign debt and Vietnam’s rating being threatened,” Huy said.

But Huy noted that with the two big international financial companies International Financial Corporation (IFC) and Canada-based Bank of Nova Scotia as Vietinbank’s strategic shareholders, the bank had some specific advantages when it came to the issuance. “I believe the bank will be successful in this issuance; however, its coupon rate will not be low,” he said.

Nguyen Viet Hung, an analyst at investment consultancy firm Nexus Group, said with the yield of five-year US Treasury bonds now standing at 0.9-1 per cent, the coupon rate of 5-6 per cent as Vietinbank planned was high enough to compensate for international investors’ risks and ensure the issuance’s feasibility.

“The bond issuance in dollars is also a favourable factor because it will address the negative impacts of Vietnam’s high inflation, so concerns about the Vietnamese dong’s devaluation or inflation will be reduced in this issuance,” said Hung.

Pham said advisors HSBC and Barclays had a depth of expertise in corporate finance, and a large distribution network, and their bond traders were active in the market everyday, thus, they had a lot of contact with international investors, and could help get a “good” rate for the Vietnamese bank.