Cash-strapped southern city looking to bonds for bail-out

Urban bonds have been slow to bridge Ho Chi Minh City budget shortfalls.
Low capital disbursement has hindered the nation’s bustling economic hub, which requires $2.21-2.53 billion per year for socio-economic development.
Eximbank general director Nguyen Gia Dinh said tools to draw people’s interest to bonds must be improved. Commercial bank investments in bonds, for example, must be listed by the State Bank as assets with no risk, so that the capital adequacy ratio of banks is not affected, thereby encouraging bond investment, he said.
Dinh said to increase the liquidity of bonds the People’s Committee and the State Bank’s Ho Chi Minh City branch must petition the State Bank to include bonds issued by provinces and cities, which are directly under the authority of the central government, on the list of mortgaged property under the regulations that govern guaranteed loans.
Dinh stressed that in order for bonds, which are negotiable instruments, to be attractive they must have the ability to be treated as government bonds, traded in the open market and be able to be mortgaged to commercial banks for capital resupply. The mobilisation of funds is required to invest in new technology and equipment, to restructure production, and, particularly, to develop infrastructure, he said.
Infrastructure construction projects, however, usually have difficulty in land clearance and the slow pace of construction, which has led to slow capital disbursement. This slowdown has caused mobilisation expenses to increase, thereby lessening the effective use of the capital. These problems have generated a need for issuing bonds with low interest rates, decreasing public interest in buying bonds and dropping the amount of mobilised capital overall, he said.
Banking experts in the southern hub have claimed that lending through medium and long-term bonds is, to banks, a beneficial payment instrument in reserve. The level of the banks’ investments illustrates that bonds now yield high interests, with a high degree of safety and that the bonds may lead to a long-term solution of capital mobilisation for infrastructure and social development.
In 2003 and 2004, the city successfully issued bonds amounting to $126.58 million. In 2005, the city hopes to issue VND2 trillion worth of bonds with two different terms. A two-year bond will meet the needs of short-term investors, the general public, whereas a five-year bond will fit the requirements of financial organisations.

In 2004, the Ho Chi Minh City Urban Development Investment Fund issued 10-year and five-year bonds and discontinued the two-year bonds. The new bonds were welcomed by many financial organisations.

In the first series of five-year bonds, investors bought VND875 billion ($55.37 million) of the total VND1 trillion ($63.29 million), at an 8.25 per cent annual interest. All of the VND125 billion ($7.9 million) of five-year bonds’ second series were sold. Investors also took all of the third series of 10-year bonds, worth VND400 billion ($25.31 million) at an annual interest rate of 9 per cent.