Vietnam to raise $500 mln in first overseas bond sale
HANOI - Vietnam's government plans to sell $500 million of bonds in its first overseas debt sale, betting it can attract investors to an economy that doubled in size in the past decade. The Southeast Asian nation, which may join the World Trade Organization by June, will this month offer dollar-denominated bonds maturing in 10 years, according to e-mails sent to investors by the sale's underwriter, Credit Suisse First Boston.
The sale will test investor interest in an economy the government expects to expand 8 percent this year and which Moody's Investors Service considers a lower credit risk than Indonesia and the Philippines. Vietnam opened its doors to overseas investment and tourism in the past decade after restoring ties with the U.S., a war adversary in the 1960s and 1970s, which is now its largest export market.
``Vietnam is potentially the most exciting emerging market in the world,'' said Angus Tulloch, joint managing partner of First State Investments in Edinburgh, which oversees about $9 billion in the Asia-Pacific region and emerging markets, including shares in Vietnam Enterprise Investments Ltd., a Vietnam-focused fund. ``The country is coming of age.''
Government officials will promote the sale to investors in Hong Kong, Singapore, London, New York and Boston between Oct. 20 and Oct. 26, the e-mails said. Deputy Finance Minister Le Thi Bang Tam declined to comment on the bond sale.
Vietnam's foreign-currency debt rating was raised one level to Ba3, three levels below investment grade, in July by Moody's, which cited an improved economic performance since a 2001 trade agreement with the U.S. took effect.
WTO Entry
Vietnam's accession to the WTO will also boost foreign investment and export growth, the New York-based credit assessor said. The rating is one level higher than that of the Philippines and two grades higher than Indonesia's.
``There is a real attraction to Vietnam now, with its economic growth and with the pending WTO accession,'' said Alain Cany, the Ho Chi Minh City-based chief executive of HSBC Holdings Plc's Vietnam unit.
Vietnam already joined regional groups like the Association of Southeast Asian Nations as it leaves an era of isolation and Communist-bloc alliances in the past.
The Communist Party-ruled nation has been considering a bond sale since clearing its defaulted bank debt seven years ago. Vietnam gave creditor banks Brady bonds in 1998 in return for the cancellation of $553 million of its defaulted loans from international banks.
Brady Bonds
Brady bonds were created in the 1980s as part of a debt restructuring plan for developing countries that defaulted on their bank loans. The plan forgives part of a country's debt while restructuring the rest into bonds.
Desmond Soon said he plans to add Vietnam's bonds to the $200 million of debt he manages at Pacific Asset Management in Singapore provided the securities offer a yield of about 7 percent.
``There's scarcity value and investors like the macro- economic story,'' Soon said.
The Philippines' 8 percent bonds due in January 2016 were bid yielding 8.15 percent as of 11:52 a.m. in Singapore, according to data provided by Deutsche Bank AG. Indonesia's 7.5 percent bonds due in January 2016 were bid yielding 7.75 percent, the data show.
Brazil's 7.875 percent bonds due in March 2015 were bid yielding 8 percent. Brazil has the same ratings as Vietnam.
Investment Banks
Citigroup Inc., Nomura Holdings Inc., Deutsche Bank AG, HSBC Holdings Plc, JPMorgan Chase & Co., Merrill Lynch & Co. and Morgan Stanley will help sell the bonds, the e-mails sent to investors said. Credit Suisse First Boston advised Vietnam on obtaining credit ratings.
Vietnam's foreign-currency debt was rated for the first time by Standard & Poor's and Fitch Ratings in 2002. The debt is rated BB-, three levels lower than investment grade, by S&P and Fitch.
``Investment bankers have been chasing Vietnam for 10 years, but those genuinely concerned about the country's long-term financial stability would not be pushing such deals so persistently,'' said Robert Glofcheski, Hanoi-based chief regional economist for the United Nations Development Program.
``Vietnam's capacity to carry additional foreign debt over the medium-term has no doubt improved over the past 10 years,'' Glofcheski said. ``Judging from available measures, the state sector's capacity to effectively invest additional resources needs much further development.''
Vietnam's government may use proceeds from the bond sale to improve the nation's ports and roads, and may also give some of the money to state-owned companies.
``There's a lot of demand for emerging market paper,'' said Jerome Booth, head of research at Ashmore Investment Management in London, whose firm manages $13 billion in emerging-market debt. ``It's a pretty good time to do this sort of thing.''
By Jason Folkmanis - Bloomberg - October 17, 2005.
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