Bond issues to follow interest rate dip

Photo source vccinews

Vinacomin, the country’s largest mining group, plans to raise VND3 trillion ($142.8 million) via corporate bonds, a source close the deal told VIR.

Following a Ministry of Industry and Trade agreement in principle, the group is working with its advisors and awaiting its financial statement to be published to prepare for the issue.

The sale is expected to help the group partly lessen its debt repayments of VND35 trillion ($1.66 billion) which were due on June 30 last year.

Vietnam’s major food producer, the Masan group, is also preparing a large-scale corporate bond issuance worth millions of dollars. However, further details remain vague.

“The market would welcome major corporate bond issues. I think that there will be a rash of bond issues late in the first quarter or early second quarter of this year,” said Pham Xuan Anh, head of Investment Banking Department at BIDV Securities Company (BSC).         

Many firms are looking to take advantage of interest rates which are at a 3-4 year record low. Specifically, the lending rate is now at only 11.5-13 per cent for the long and medium term, a significant fall on the 15-18 per cent or even higher two to three years ago.

Thanks to lower lending rates, enterprises also saw a reduction in their coupon rates. The coupon rate for Vinacomin’s bonds decreased from 14.5 per cent in late 2012 to 11 per cent per annum in the third quarter of 2013 and the margin rate also reduced slightly from 3.5-3.6 per cent to 3.3 per cent per annum.

The source close to the Masan deal also expected that if the group issued corporate bonds at this time, the coupon rate was likely to fall below the 11.5 per cent level registered in its previous issuance of VND2.2 trillion ($104 million) in the third quarter of 2013.

Many market observers predicted lending rates may fall further in the first half of this year, after the news that the inflation rate stayed at only 0.69 per cent in January, much lower than the level of 1.32 per cent during the same period last year.

“Corporate bond supply will be plentiful due to high demand for long and medium term capital among firms. This will especially be the case as interest rates are expected to stay low in the first half of 2014, we think many enterprises will seize the opportunity to borrow capital at low costs,” said Vietcombank Securities in its report.

The Finance - Banking Department under the Ministry of Finance (MoF) forecasts there will be VND30-35 trillion ($1.4-1.67 billion) in corporate bonds to be issued to the market in 2014. However, the actual figure will depend on the needs of businesses and their ability to raise capital through other channels, including shares and bank credit.

Last year, the corporate bond market boomed with VND33.6 trillion ($1.6 billion) of corporate bonds issued, VND33 trillion ($1.5 billion) more than the 2006-2010 period. The ratio of outstanding corporate bonds per GDP in 2013 hit 5.5 per cent, dramatically up on the meagre 2012 and 2011 levels of 1.95 per cent and 3.31 per cent, respectively.