Vietnam’s dollar bonds are the
best performing in Asia this quarter as global
investors bet the economy’s recovery can ride out a maritime spat with China.
The 4.2
percent return on U.S. currency debt in the nation beat 14 other Asian
countries tracked by Bank of America Merrill Lynch indexes. The yield on
Vingroup JSC’s 11.625 percent notes due 2018 sank 81 basis points this quarter
to 8.213 percent, while that on Vietnam Joint Stock Commercial Bank for
Industry & Trade’s 8 percent 2017 paper slumped 63 to 5.315 percent. Bank
for Investment & Development of Vietnam said falling costs will support its
bond sale plans.
Prime
Minister Nguyen Tan Dung is targeting annual economic growth of about 6.5
percent in the 2016 to 2020 period, up from 5.4 percent last year, as the
government takes steps to spur exports and attract foreign investment. Money
managers say tension over a Chinese oil rig in disputed waters will be short
lived and scarcity of the notes will drive demand.
“Problems
with the country’s relationship with China aren’t a key criteria in investment decision making,”
said Sergey Dergachev, a senior portfolio manager who helps oversee about $10
billion in emerging-market debt at Union Investment Privatfonds GmbH inFrankfurt. “In Asia, Pakistan, Sri Lanka and
Vietnam offer good yields at the moment, and that’s been exploited by investors
this quarter.”
High
Returns
Vietnam
dollar bonds have returned 15.49 percent over the past 12 months, the most of
any country in Asia, HSBC Holdings Plc indexes show. Notes in Sri Lanka gained
15.45 percent, Singapore U.S.-currency
securities 7.46 percent, Indonesia 14.27 percent, Thailand8.90 percent
and those in the Philippines 11.80
percent.
Bank for
Investment & Development, or BIDV, Vietnam’s second-largest by
assets, hasn’t borrowed outside of local-currency debt markets before, data
compiled by Bloomberg show. It has the equivalent of about $645 million of
bonds and loans outstanding, and an average weighted fixed coupon of 10.45
percent.
Although
Vietnam’s central bank trimmed its key policy rates in March, reducing the discount
rate to 4.5 percent from 5 percent and the refinancing rate to 6.5
percent from 7 percent, borrowing costs near zero in Europe, the U.S. and Japan make financing
internationally that much more attractive.
“The
downside trend of dollar bond yields is a positive factor, supporting BIDV’s
international bond issuing plan,” said Do Ngoc Quynh, the bank’s Hanoi-based
treasury head. He said he sees potential for seeking “long-term dollar funds.”
Dong
Devalued
Vietnam’s
central bank devalued the dong for the first time in a year this month to help
spur exports and authorities may weaken it another 1 percent by Dec. 31,
according to a June 19 research note by Australia & New Zealand Banking
Group Ltd.
While
inflation, which surpassed 20 percent in 2011, has held below
5 percent for the last four months, it accelerated to 4.98 percent year-on-year
in June. That may boost sales at Vietnamese retailers including Intimex Group
JSC, Bloomberg Industries analyst Thomas Jastrzab said June 24.
As the
country’s economic prospects improve, the cost to insure its debt against
non-payment is dropping. Credit-default swaps protecting government bonds fell
to 189.5 basis points on June 11, the least since May 2013. Vietnam is rated B2
by Moody’s Investors Service, the fifth-highest non-investment grade. Standard &
Poor’s rates it two grades higher at BB- and Fitch Ratings Ltd.
one level up at B+.
Emerging
Inflows
“We’ve
seen a strong performance in all Asian frontier markets,” Rajeev de Mello, who
manages $10 billion as the head of Asian fixed income in Singapore at Schroder
Investment Management Ltd. said “Riskier lower-rated countries do benefit
tremendously from more stable global macro conditions.”
Emerging-market
bond inflows reached a record in excess of $2 billion in the first week of June
as investors look overseas for higher returns, ANZ said, citing EPFR Global
data.
Vietnam
dollar bond yields average 3.64 percent, JPMorgan Chase & Co. indexes show,
compared with 4.53 percent and 4.32 percent in the Philippines and Thailand
respectively. Investment-grade U.S. dollar-denominated corporate bonds globally
yield 2.97 percent and touched 2.92 percent May 28, the least in a year, Bank
of America Merrill Lynch indexes show.
International
Interest
Vietnam’s
sovereignty and security, as well as regional peace, are “threatened” by China’s decision to place
an oil rig off Vietnam’s coast earlier this year, National Assembly Chairman
Nguyen Sinh Hung told legislators in Hanoi. The friction at sea, which has led
to vessel collisions, the sinking of a Vietnamese fishing boat and anti-China
riots in Vietnam, is hurting ties between the two communist countries, Hung
said in a June 24 address.
International
investors in Vietnam are sticking with expansion plans.Intel Corp., the
world’s largest semiconductor maker, wants to double the materials it sources
from suppliers in Vietnam this year, the Vietnam Investment Review reported
earlier this month, citing Sherry Boger, the general manager of Intel Products
Vietnam.
The Santa Clara,
California-based company will also start production of its flagship Haswell
central processing units next month at its test and assembly plant in Ho Chi Minh City,
according to a June 26 e-mailed statement.
Licence
to Invest
South
Korean smartphone maker Samsung Electronics Co. may build an up to $1.7 billion
display factory in the country’s north and local officials have asked for
preferential tax rates to secure the investment, news website VietnamNet reported
June 25, citing unidentified sources.
Binh
Duong province, to the north of Ho Chi Minh City, granted investment licences
to 41 foreign firms at a ceremony on June 4. The area has attracted $978
million in foreign-direct investment in the first five months, up 15 percent
from a year earlier.
While
investors don’t seem to be overly worried about the maritime impasse with
China, many remember the fallout when Vietnam Shipbuilding Industry Group
defaulted on a $600 million loan in 2010. In 2012, eight former executives of
the company were sentenced to prison for mismanagement.
“Vietnamese
corporates’ desire to come to the debt market and
lock in low yields is high, and understandable,” Union Investment’s Dergachev
said. “However bear in mind that Vietnamese corporate debt does have a poor
track record.”
Tanya
Angerer
Business & Investment Opportunities
Saigon Business Corporation Pte Ltd (SBC) is incorporated
in Singapore since 1994.
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