Quick cash alternative in international bonds

Vingroup’s bonds will be listed on the Singaporean stock exchange, Photo: Shutterstock

Last week, Vingroup signalled its ambition to raise $500 million through international redeemable convertible bonds.

The par value of each bond is expected to be as much as $200,000. Moreover, payment methods can be flexibly adjusted according to market conditions.

Fundraising via convertible debts helps to alleviate the tight supply of credit, offering indebted companies more room to sell shares without diluting ownership immediately. At the same time, it can provide issuers with access to cheaper capital rather than through traditional bonds.

Turning to global bond issuance

In the case of Vingroup, the international convertible bonds issued by the Vietnamese behemoth will have a 5-year tenor, with interest payments every six months and principal payment at the end of the term or before maturity, depending on the market and specific issuing conditions.

Its bond interest rates can be fixed, floating, or even a combination of these two, depending on the approval of the Board of Directors.

In particular, Vingroup’s bonds will be convertible into shares of Vinhomes – the conglomerate’s real estate arm. Additionally, before conversion, they will be listed on the Singapore Stock Exchange (SGX) and will not be offered for sale, listing, or trading in Vietnam.

However, Vingroup has the right to redeem the bonds at the end of the third year if Vinhomes shares are above a certain threshold.

Last year, the group announced plans to issue baht-denominated bonds in Thailand, while the State Bank of Vietnam has taken a firmer hand on bond issuances and bank loans going into the property sector – a core business for Vingroup and Vinhomes.

Economist Nguyen Tri Hieu explained to VIR, “Vietnam has emerged as the bright star in the equity market, with the latest Fitch Ratings revising the country’s outlook from ‘stable’ to ‘positive’, reflecting Vietnam’s growth resilience. As a result, the reputation of large-cap Vietnamese corporations has also appreciated, awakening foreign appetite. International convertible bond issuances have soared recently, as they offer cheaper capital to cash-strapped domestic businesses thanks to lower interest rates in other countries.”

Elsewhere, Novaland – another giant property developer in Vietnam – has in mid-March announced converting international bonds it issued previously. Foreign bondholders registering for conversion include Credit Suisse Securities (Hong Kong) Ltd., Mirae Asset Deawoo Co., Ltd., and Oclaner Fund SICAV. Novaland will issue 4.175 billion shares to convert 55 international convertible bonds, equivalent to VND250.5 billion ($10.9 million).

Novaland is not a new face in the international bond market. In 2018, it raised approximately $160 million by offering convertible bonds listed on the SGX.

Apart from domestic bondholders such as MB and VPBank, Novaland bonds have tapped into overseas appetite, with Credit Suisse AG Singapore and Bank of New York Mellon, among others, holding a large portion of the group’s debts.

The case of Novaland shows some remarkable similarities with Vingroup and Vinhomes – as both are property developers who expect to fire on all cylinders after accessing foreign cash.

Last year, Masan Group also issued redeemable bonds worth VND8 trillion ($347.8 million) to increase its working capital and repay debts owed following the high-profile acquisition of VinCommerce – the operator of retail chain VinMart and VinMart+.

“Foreign investors could swap these convertible bonds for a predetermined number of common stock or equity shares, so they prefer reputable companies with transparent operations. The undeniable appeal of convertible bonds is that they offer some of the safety associated with bonds with the upside potential of stocks. This is one safe way for foreign investors to set foot in Vietnam’s equity market,” Hieu explained.

He added that the Vietnamese government also encouraged local companies to raise foreign funds in Decree No. 153/2020/ND-CP dated December 31, 2020 on provisions on private offering and trading of corporate bonds in the domestic market and offering corporate bonds to the international market.

Banks following suit

Besides major conglomerates, some domestic financial institutions have also joined the rush of Vietnamese groups tapping into the international debt market.

Last December, HDBank issued convertible bonds and entered into a strategic partnership with foreign investors to supplement its tier 2 capital by $160 million. In last August, the bank also inked an agreement on issuing $30 million worth of convertible bonds and entering into a strategic cooperation with Deutsche Investitions- und Entwicklungsgesellschaft (DEG), a development financial institution under German state-owned bank KfW Group. The two sides will develop products, services, and finance packages for German businesses in Vietnam as well as Vietnamese exporters to Germany and Europe.

Jochen Steinbuch, regional manager of DEG in Asia Pacific, lauded Vietnam’s prospects for foreign investors with its COVID-19 success and population dynamics. He noted, “HDBank is one of the leading joint-stock banks in Vietnam, always maintaining a good and sustainable growth rate. We have strong confidence in the sustainable development of the bank in the future.”

In 2019, VPBank also managed to raise $300 million from the issuance of 3-year international bonds with advisory support from prestigious foreign institutions including BNP Paribas, JP Morgan, and Standard Chartered. VPBank’s notes were non-convertible, unsecured, and also listed on the SGX.

In another case, SHB previously also tapped into the international debt market, with bonds valued $500 million being listed on the SGX in 2020.

“SHB aims to raise capital and alleviate dependence on domestic sources of foreign currency. The bank plans to use the proceeds to continue to expand its operations, under which SHB will use foreign currency funds for short-term foreign currency loans, as well as payment of principal and interest,” the bank’s representative said.

The local banking system has seen significant improvements over the past few years, enticing huge appetite from foreign financers.

Specifically, global rating agency Moody’s decision to upgrade Vietnam’s outlook from “negative” to “positive” was “unprecedented since the COVID-19 outbreak”. Furthermore, Moody’s also revised the outlook for long-term local and foreign currency deposit and issuer ratings of five banks to “positive” from “negative”, four banks to “positive” from “stable” and six banks to “stable” from “negative”.

Positive outlook and creditworthiness judged by agencies such as Moody’s, Fitch Ratings, and S&P significantly boost the confidence of overseas financiers and helps in their evaluation of the safety and soundness of Vietnamese banks.

Economist Hieu stated that some lenders opt for international bonds as a credible option to enhance their capital adequacy ratio (CAR) as well as improve their short-term capital used for medium and long-term loans. An apt example of this would be HDBank’s mobilisation of $160 million in last December.

“Thanks to independent international rating agencies and their rosy outlook on the Vietnamese banking system, local lenders could easier access foreign funds. It is also a safe avenue for foreign financers,” he added. “However, banks are taking a more cautious approach to convertible bonds, since they are restrained by a foreign ownership limit. Hence, some lenders choose to issue non-convertible bonds to foreign investors.”