Vietinbank to test market’s risk appetite

Vietinbank, Vietnam’s second largest bank by total assets, last week announced it would issue $500 million worth of five-year international bonds this March following five or six overseas roadshows.

The bank is working with Barclays Capital, HSBC, Allen and Overy, YKVN, Milbank, Mayer Brown JSM Vietnam to wrap up the paperwork. Dan Svensson, portfolio manager at Dragon Capital - a leading financial intermediary in Vietnam, said the markets would welcome a spread of 250 basis points (bps) over Vietnam’s sovereign bonds or a yield of 7 per cent.

“But it may well be possible to squeeze it to 200 bps or a yield of 6.5 per cent for the five-year bond,” Svensson said, adding Vietnam’s sovereign spread was at around 340bps over US treasuries.

Better global risk aversion and Vietnam’s improved macroeconomic landscape as compared with two months ago might help spur international investors’ interest in Vietinbank’s bond issuance.

However, the uncertainty over the eurozone economy is still significant. The Vinashin debacle could still weigh down global investors’ appetite while the Vietnamese banking system is ridden with non-performing loans.

On February 8, Standard & Poor’s rated Vietnam’s banking system in Group 10 which indicates the highest possible risk. But Vietinbank’s position as one of the most strongest Vietnamese banks and the role of IFC, the World Bank Group’s financial arm, as its strategic shareholder, could be the bank’s muscles to flex.

Fitch has assigned the long-term foreign currency rating of Vietinbank to ‘B’, with stable outlook, benefiting “from Fitch’s expectation of state support given their systemic importance to the domestic economy”.

“The propensity and/or ability of the government to provide support in the event of need as reflected in Fitch ‘B’ Support Rating Floor is an element of great importance and will have an influence on the coupon paid by Vietinbank,” said Francois Chavasseau, head of fixed income research at Sacombank Securities.

Chavasseau expected the yield Vietinbank offered would be double or triple the yields offered by other banks in the region like DBS, Bank of China, Sumitomo, Maybank and Shinhan Bank in their 2012 bond issuances. “I predict a coupon rate of between 6 and 9 per cent for this batch,” he said.
The head of research at another brokerage house in Vietnam, who declined to named, claimed if Vietinbank offered a coupon rate lower than 7 per cent, its issuance would struggle to succeed.

The fact that Nova Scotia would not become Vietinbank’s second foreign strategic partner could have some impact on Vietinbank’s bond issuance. Vietinbank last week announced its negotiations with Nova Scotia, one of Canada’s three largest banks, had failed.

Vietinbank’s chairman Pham Huy Hung said his bank was now negotiating with other institutions for the position and was aiming for the price of VND28,000 to VND30,000 per share.

“Both sides had come to agreement that Nova Scotia would pay VND22,000 per share and the payment [for a 15 per cent stake] would be conducted in the first quarter of 2012. But Nova Scotia’s new requirements that it must receive 2011 dividend and part of capital surplus from strategic shareholder IFC’s payment made in 2011 are unacceptable,” Hung told Vietinbank’s annual shareholders meeting last week.

Hung claimed IFC paid VND21,000 per share while the price for Nova Scotia would turn out to be just VND19,000 if the Canadian bank’s requirements were accepted. “Meanwhile, Vietcombank sold its shares to Japan’s Mizuho at VND34,000 per share,” he stressed. IFC completed its payment for a 10 per cent stake in Vietinbank in 2011 and already sent a representative to the bank’s board of directors.  

Information about the Vietinbank-Nova Scotia negotiations first appeared in the media in early 2010. The presence of IFC as the first strategic investor and the potential strategic partnership with Nova Scotia were once considered as catalysts for global investor appetite in Vietinbank’s international bonds.

The failure of the negotiations shows the price that Vietinbank required might have been too expensive for the taste of Nova Scotia in the context of recent declines in equity prices and the fact that the ownership for a single foreign institution in a local bank limited to 15 per cent.
This ratio can be raised to 20 per cent later but such a hike is subject to prime ministerial approval on a case-by-case basis.

Vietinbank (trading code CTG) was priced at VND26,200 per share when trading closed on Friday, March 2, up 30 per cent against late last year. Its Ho Chi Minh Stock Exchange debut price in July 2009 was VND40,100 per share.

Vietinbank stated it would strive to reach a deal with a second strategic foreign shareholder in the third or fourth quarter of this year. Following such a deal, Vietnamese state ownership in the bank will drop to 68.26 per cent, from the current 80.30 per cent.

The lender plans to raise a total of $2 billion from international bonds this year via three or four issuances.