Macroeconomics presentation topics: Bond market in Vietnam

BOND MARKET IN VIET NAM
Foundation and Development

The Vietnam bond market development was boosted when
Vietnam entered WTO in 2006.

In 2011: Vietnam bond market expanded by 16.5 % - the
fastest rate in the region and valued at $17 billion - with
the government bond market far larger than the corporate
market at $15 billion vs $2 billion.

As of 31 December 2011, the total number of government
bonds in Viet Nam was 452, with a total value of VND
285,242 billion - which is equivalent to 11.4% of GDP
Foundation and Development
Types of bond
1, Bonds issued by Public Entities
+ Government bonds :
+ Government-Guaranteed Bonds:
+ Municipal bonds
2, Bonds issued by Private Entities
+ Corporate bonds


Government bonds and municipal
bonds market
1, Primary Market

Regulated by Decree 141/2003/ND -CP, Circular 29/2004/TT - BTC,
Decision 46/2006/QD - CP


Issued by:
- State Treasury
- Vietnam Development Bank
- T- bills are auctioned via State Bank of Vietnam

Issuance modes: majority via auctioning and underwriting decreasing
issuances via retailing and agents

Terms: Bill: 365 days, Bonds: 2, 3, 5, 7, 10, 15 year with the majority in 5
year term

Interest rate: ceiling rate applied

Municipal bonds: have been issued by Ho Chi Minh City, Ha Noi and
Dong Nai
Government bonds and municipal
bonds market
2, Secondary market

Not yet developed

Investors have tendency to “BUY” and “ HOLD ”:
- Banks: Largest investors and dominant in 5 - year- bond
- Insurance Companies: investors in longer -term bonds

Secondary trading are carried out via STCs: listed on HOSTC/
HOSE and HASTC/ HNX

Low turnover


Lack of financial intermediaries playing roles of market maker
Corporate Bond market
1, Primary market

Regulated by Decree 52/2006/ND -CP for private issuance, Securities
Law and Decree 144/2003/ND - CP for public offering

Issued by:
- Limited companies
- Joint stock companies
- State owned companies in transition

Issuance mode:
- Private placement: through Auction, underwriting, agent
- Public offering: none corporate has issued via this approach due to the
more thorough and complicated requirements for public offering
Corporate Bond market

Issuers:
- Mainly big SOEs ( i.e: Vinashin, EVN, Lilama, Song Da Corp… )
- Bond issued on the principles of self - responsibility

Underwriters:
- Banks and other financial institutions: local securities companies
- Also foreign bank: HSBC, Deutsche Bank, ANZ…
2, Secondary market

Underwriters for corporate bonds are active in selling bonds to wide
range of investors, both local and foreign investors.


However, bonds trading on secondary market is still limited.
Size of Local Currency Bond Market
(Local Sources)
Institutional Infrastructure

Legal and Regulatory Environment Legal
-
No single comprehensive law for bond market, each aspect of the market is
subject to a wide range of Decrees and Regulation

Taxation
- VAT: exempted
- Income tax: Individual: exempted; Institution: 28%

Accounting Practices
- Vietnamese Accounting Standards (VAS) have been introduced (26 Accounting
Standards in five series)
- Two international standards have not yet been included in VAS: IAS 32 and
IAS 39
- Not clear guidelines in respect of enforcement and monitoring
Institutional Infrastructure

Risk Management
- Enterprises have only recently been required to prepare audited
financial statement.
- Financial exposure are not being measure or reflected in accounts
since IAS 32 and 39 have not been adopted
- Risk management practices are steadily improving amongst the
domestics banks.


Clearing & Settlement
- Depository, clearing and settlement at Vietnam Securities
Depository (VSD)
PROBLEMS OF BOND MARKET IN
VIETNAM (1)
1. Small size (15.8% GDP), government bond still
dominate the market with 14.3% GDP (2011)
2. Ceiling interest rates are not reflecting the true
demand/supply relation of the market
3. Government bond interest rates yet to be
benchmark rates
PROBLEMS OF BOND MARKET IN
VIETNAM (2)
4. Small volume but too many issuances (more than 400
types issued and listed on STCs) → affect secondary
trading & liquidity
5. Low liquidity especially in the secondary market of
corporate bond due to:
+ Newly established market index
+ Lack of professional market makers
6. Narrow investor base
PROBLEMS OF BOND MARKET IN
VIETNAM (3)
7. OTC market for bond issuing & trading not yet
established
8. Bond trading in secondary market is limited because:
+ Bond issuances are not standard in terms of sizes &
characteristics
+ Corporate bonds are not listed on STCs
+ Not having a credit rating agency→difficult for

companies to mobilize funds internationally and
domestically
Government implications
Established Vietnam Bond Market Association (14/8/2009)

Activities:
–
Building and Institutional Strengthening of the
Association
–
Market Development
–
Training Activities
–
Developing Market Infrastructure and Vietnam Bond
Database
–
Legislative Building and Policy Comments
–
International Cooperation
–
Research
Government implications

Aims:
–
Support propaganda and dissemination
–
Act as a forum and
–

Make contribution through the policy comments
and support
–
Lead VBMA’s review and comment of draft laws
and regulations on the bond
Government implications

Establish an independent Domestic Credit Rating
Agency

Circular 17/2012/TT-BTC provide the stable & clear
issuing schedule for issuances

Let VBMA set up a corporate bond information
center

Apply accounting standard which gradually
complied with international standard
Government implications

In June, 2012, HNX will apply a new system to
support the bond market:
+ Electronic bidding
+ The yield curve
+ Bond index
Vietnam’s way of development

Structural improvements:
–
Additions to existing framework to enhance

transparency, predictability, accounting and audit
requirements
–
Market infrastructure reforms in primary and
secondary trading, depository, settlement; liquidity
–
Initiative to set up local rating services

Welcome additional technical assistance