Sacombank to dig itself out of hole

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Sacombank, one of Vietnam’s largest private banks by assets and operational networks, last week said it would issue $200 million worth of unsecured and unconvertible international bonds with a five-year tenor.

The bond issuance, expected on the Singapore Stock Exchange, is scheduled for the second or third quarter of this year and the coupon rate will be fixed based on the market interest rates at the time of issuance.

However, BIDV Securities Company head of equity research Pham Xuan Anh was one of analysts who were pessimistic about Sacombank’s plan.

“Sacombank faces financial unbalances because it used lots of short-term capital for long-term investments, which are now difficult to reclaim. Therefore, the bank is eyeing overseas bond issuance to balance its books,” he said.

Anh noted large chunks of Sacombank’s capital was stuck in the struggling Sacomreal and Sacombank Securities Company ventures. “Sacombank would suffer a higher coupon rate than Vietinbank due to its lower credit rating,” added Anh.

VietinBank on May 10 raised $250 million worth of five-year unsecured international bonds at the coupon rate of 8 per cent, per annum. In February, S&P said Sacombank’s long-term credit rating was B+ and B short-term with a stable long-term outlook.

Meanwhile, Moody’s gave Sacombank’s credit rating a B2 for short and long-term credit in foreign currencies, B1 for short and long-term credit in local currency and Sacombank’s debt rating was B1. Its Bank Finance Strength Rating (BFSR) was E+.

According to Moody’s, the outlook for all ratings was stable, except for a negative outlook for deposits and bonds issued in foreign currencies.

Sacombank’s plan to mobilise capital via the international market was outlined  in the context of the bank’s difficult capital mobilisation in 2011. By the end of 2011, the lender’s total deposits reached VND123.315 trillion ($5.9 billion), equaling to 88 per cent of the year’s plan and down 2 per cent against the end of the previous year.

According to the bank’s board of directors, the State Bank’s monetary tightening policy in 2011 had affected capital mobilisation activities, especially for gold and US dollars, causing slower growth in the bank’s total deposits.

A Sacombank Securities bond analyst said the bank would have to suffer a coupon rate of around 8-10 per cent to be successful with an overseas bond issuance. “I think it is easy to understand that the bank will bear a high cost in the current situation of Vietnam’s high country risk, especially after the near-bankrupt shipbuilder Vinashin failed to pay its due debts to foreign creditors, which lowered foreigners’ belief in Vietnam’s debt assets,” said the analyst.

However, Anh said late in the second quarter or early third quarter of 2012 was the best time for an overseas bond issuance. “That will be the moment when the interest rate is to be lower. Then a bond issuance will become easier because buyers will hold more expectations of interest rates dropping, while sellers also have the advantage of lower interest rates to issue more with cheaper costs,” said Anh.