Bond market gets a promising start More firms in Vietnam are turning to bonds for funding, but experts believe that the Vietnamese corporate bond market has a long way to go before it can attract foreign investors.   Rising popularity As the year comes to an end, Vietnamese companies are issuing bonds left and right, signaling a busy season for the domestic bond market. Leading electronics retailer Mobile World Corporation recently raised VND1.135 trillion (US$51.6 million) from five-year bonds, with the annual interest rate fixed at 6.55%. The issuance was guaranteed by Credit Guarantee and Investment Facility, a trust fund of the Asian Development Bank. Another major issuer is state-owned lender VietinBank, which issued 220,000 bonds in late November to raise VND2.2 trillion (US$97 million). Prior to this sale, the bank successfully collected VND2 trillion (US$88.2 million) from its first batch of bonds in late October. All of the bonds have a 10-year maturity term, and the annual rate will be 1.2% higher than the average interest rate at major banks. At the same time, fellow lender VPBank issued two-year bonds worth VND3 trillion (US$132.3 million), with interest rates fixed at 6.7%. Leading brokerage Ho Chi Minh Securities also went forward with a plan to collect VND800 billion (US$35.2 million) from one-year bonds, at 9% interest. Other major securities firms such as Saigon Securities Incorporation and Viet Capital Securities are also asking for shareholders’ approval to release bonds. Both firms cite the need to fund year-end business activities and restructure their debts to enjoy lower interest rates. In the international market, Cuu Long Pharmaceutical JSC raised US$20 million of USD-denominated bonds for the Republic of Korea (RoK)-based Rhinos Asset Management. These bonds, charged at 1% of interest rates, are convertible to stocks after one year. Rhinos Asset Management previously bought similar bonds in major construction firm Ho Chi Minh Infrastructure Investment JSC. In response to the growing corporate bond market in Vietnam, the Ministry of Finance is making adjustments to Decree No. 90/2011/ND-CP regarding corporate bond issuance. The draft bill has garnered in-depth discussions from market participants, who focus on issues such as the profitability of issuers, repayment abilities, and information disclosure requirements. A long road ahead Industry experts welcome the increasing popularity of corporate bonds, stating that it opens a new funding source for companies in Vietnam besides bank loans and stocks. For investors, bonds also provide necessary diversification for their portfolio, together with consistent interest rates and lower risks than stocks. However, the reality is that 75% of corporate bond buyers in Vietnam these days are commercial banks, which makes these bonds no different from bank loans. Bui Quang Tin, professor at the Ho Chi Minh Banking University, noted that some companies sell bonds to banks to restructure their existing loans rather than raise new capital, which defeats the original purpose of bond issuance. “Outside investors, especially individual investors, usually have no access to the firm’s business activities. Vietnam doesn’t have an independent credit rating agency, which makes bond investment here very risky, as investors don’t know which issuer can pay back their bonds,” said Tin. To attract more international investors, the professor suggested setting up a credit rating agency similar to major international ones like Moody’s or S&P, as well as diversifying bond offers to the market. Nguyen Thi Thai Thuan, general director of VinaWealth Fund Management JSC, told VIR in a recent interview that most investment funds in Vietnam hold government bonds and “just a few corporate bonds of major businesses,” as there is still very little secondary trading for corporate bonds. “The stock market is growing very fast, making it attractive to investors for the time being. However, fixed income products like bonds provide safety and lower risks, which is why I hope the legal framework will soon be finished, to pave the way for more corporate bond issuers,” said Thuan. In a guest article for VIR, Dr. Christian Kamm from Kamm Investment Inc. also noted that foreign investors hardly consider buying corporate bonds in Vietnam because the options are too limited. However, they are likely to be more willing to do so if bonds are available on the market, supported by an up-to-date legal framework, strong accounting standards, and a transparent clearing process, Kamm said. He added that the Asian monetary crisis of 1997 was partially a result of large bank borrowings and the absence of a bond market. A vibrant bond market would ease pressure on Vietnam’s commercial banks, which are still recovering from the bad debt nightmare. “A developed bond market provides a market-driven and market-determined interest rate, for which firms can determine a realistic cost of capital for their investment and expansion,” Kamm said. He believed that Vietnam should collaborate with international partners to develop the bond market, starting with a credit rating agency. VIR