Objections to State Bank convertible bond issue

Head of the State Bank’s strategy department, Le Xuan Nghia, told Vietnam Investment Review that regulations and detailed instructions would be in place for issuing these bonds, by the end of this year at the latest
“Issuing convertible bonds is one of the methods we proposed to the government to raise the chartered capital of state-owned commercial banks,” Nghia said.
“We believe it will be approved soon by the government simply because the state budget can no longer provide adequate capital for the banks.”
On the international financial market, convertible bonds are a favourite methods for commercial banks to raise capital.
These bonds allow holders to convert them into stocks once the banks are equitised.
However, with no state-owned bank equitised so far, Nghia said these bonds had not caught the interest of Vietnam’s banking industry.
The idea only stirred interest this year after the government urged state-owned commercial banks to consider equitisation.
Nevertheless, the central bank estimated that convertible bonds worth $129 million would be launched by state-owned banks this year, all of them with long-term maturity of more than three years and market interest rates.
VIR contacted some state-owned banks for their opinion on the bond issue but all of them declined to comment, saying it was still too early.
However, financial companies were more willing to make their opinions known. Nguyen Tien Minh, deputy director of the state-owned Shipping Industry Financing Company (SIFC), whose proposal to issue corporate convertible bonds was turned down by the State Bank two months ago, complained of unfair treatment.
“There is no good reason why only banks should be allowed to issue convertible bonds and not us, even though we operate as a state-owned financial institution,” Minh said.
The central bank’s Nghia agreed that in principle financing companies like SIFC should also be allowed to issue convertible bonds.

“I see no barrier in this regard,” he said.
“However, it is possible that the government would like to trial the scheme at some commercial banks first before giving it a go nationwide.”
Beside convertible bonds, the State Bank also proposed the government issue special government bonds with a term of 20 years and a fixed interest rate to increase the capital of its commercial banks.
The Ministry of Finance, which is to issue the bonds on behalf of the government, has yet to approve the scheme.