Vietnam Shifts to Bonds as Sour-Debt Burden Strains Bank LendingNguyen Kieu Giang
Vietnam’s corporate bond sales are rising as banks saddled with sour loans curb their lending, prompting borrowers to issue notes amid sliding costs.
Companies are forecast to boost issuance after first-half sales rose 7 percent to 14.5 trillion dong ($684 million) from a year earlier, according to data provided by Bank for Investment and Development of Vietnam. Yields on dollar-denominated securities issued in the nation slumped 152 basis points this year to 6.56 percent, the second biggest decline in a Bank of America Merrill Lynch index of Asian corporate issuers.
“Capital demand has increased, especially for companies which need capital for large investment projects and for expansion and don’t want to, or couldn’t, borrow from banks,” Mac Quang Huy, the Hanoi-based chief executive officer at Maritime Bank Securities, said in an interview. “We’ve been very busy managing a mass of corporate bond sales.”
Vietnamese companies are issuing notes to fund expansion plans as non-performing loans weigh on banks’ willingness to lend and the government holds its refinancing rate at a six-year low. Credit growth was just 3.68 percent this year through the end of July, far below the State Bank of Vietnam’s target of between 12 percent and 14 percent for all of 2014, with bad debt sales stalled by banks’ reluctance to accept losses.
Maritime Bank Securities has helped arrange about 5 trillion dong of corporate bonds this year, according to Huy, who predicts that will double by the end of December. It compared with “a few billion” of notes last year, he said.
Moody’s Investors Service said in February that about 15 percent of Vietnamese banks’ assets were bad debts. The central bank’s estimate differed, saying that non-performing loans had dropped to 3.6 percent of lending at the end of 2013. Including restructured loans, that total could rise to about 9 percent, the bank said in a Feb. 22 statement.
Moody’s upgraded Vietnam’s credit rating last month to B1, or four levels below investment grade, the nation’s first upward revision since 2010.
“Vietnam’s recovery is stable, though slow,” Eugenia Fabon Victorino, a Singapore-based economist at Australia & New Zealand Banking Group Ltd., said in a note this week. “Resolution of the high nonperforming loans in the banking system is a key to unlocking Vietnam’s full economic potential.”
Growth prospects have helped encourage real estate to agriculture companies to issue bonds this year. The economy is expanding, with growth quickening to 5.25 percent in the second quarter, from 5.09 percent three months earlier, as the outlook for exports improved. The central bank cut the benchmark refinancing rate to 6.5 percent in March.
Vietnam’s HAGL JSC, a farming company expanding its overseas plantations, raised 1 trillion dong via five-year notes in April while affordable housing developer Nam Long Investment Corp. last month sold 350 billion dong of three-year bonds to help finance projects. Ho Chi Minh City Infrastructure Investment JSC raised about 1.08 trillion dong in June.
Viet Nam Export-Import Commercial JSC bank and Minh Phu Seafood Corp. are among other companies planning to sell debentures this year, according to local media reports. That’s as 51 percent of the nation’s firms plan to maintain their scale of operations in 2014 and 42 percent expect to expand, according to a Vietnam Chamber of Commerce and Industry survey.
“Corporates who are seeking funding sources may find the current level of corporate bond yields reasonable,” said Do Ngoc Quynh, head of treasury at BIDV. “They’re also well-prepared with completing internal procedures which meet current regulations. Thus, I can see potential in the corporate bond market in the coming months.”