International bond market the current situation of vietnam s international bond issuance to the international market and the solutions

I.

INTRODUCTION

1. Rationale of study
Vietnamese capital markets are getting more and more contractionary despite
the high developing rate of the economy. Both government and entrepreneurs are
seeking for new method of raising capital. The source of capital from international
markets seems to be more abundant than domestic one. However, the more rewarding
it is, the more challenges it has. One of the way government and entrepreneurs are
trying to exploit this source is by issuing international bonds.
Although being known for quite a period of time in the world financial market,
up till now international bonds still gain very humble attention by both Vietnamese
companies and government. Since 15 years from the first issuance in 2005, there are
still very few Vietnamese corporate players in the market, Vietnamese government
only issued three times with very limited amount compared to other form of capital
raising.
Thus, gaining more insight on why issuing international bonds have not gained
much attentions as well as how Vietnamese companies and entrepreneurs are finding
ways to do it more efficiently can be really helpful to solve the puzzle of raising
capital for Vietnamese market.

2. Objectives of study
The main purpose of the paper is to shed the line on how the “new” capital
raising method – the issuance of international bonds, applied by Vietnamese
government and entrepreneurs. Did the empirical evidences in Vietnam show that it is
prominent? Should government and companies make it an important capital
mobilization tool as other existing ones? If possible, how can governments and
entrepreneurs do better at this new capital raising game? The paper will try to answer
those questions.

3. Methodology of study
The overview of research performed is based on the basis of collecting and
analyzing statistics on the Vietnam’s international bond in particular and the
international bond market in general. We combined references and observation so that


we could finish our task professionally and apply the knowledge and lessons we have
learnt into the real life. While references gave us a reliable source of information
helping to understand the the topic better, we took advantages of observation from
reality to be able to have a practical overview of the international bond market

4. Scope of study
The study scope is within international bond market, especially in Vietnam,
current situations in Vietnam and how to deal with these them.

5. Structure of study
This report will summarize out process to create the final product and express
our point of views eight parts: Abstract, Introduction, Literature Review, Findings and
Analyses, Conclusion and References. While Abstract starts with the initial problems
by raising a broad question, the other will help narrow down, focus on the root of
problem by our approaching methods (observe, analyze data), then finally reach the
conclusion and giving some recommendations for the concern.


II.

LITERATURE REVIEWS

1. Definition, types and characteristics of international bond market

Figure 1 – Market Capitalization of International bonds (Total: USD 17.6 trillion)

1.1. Definition of international bond market
According to the basic classification, the international bond market includes the
Foreign bond market, the European bond market (Eurobond Market). Simply, the
international bond market is where issuers and investors come from many different
countries. When a bond is issued by a non-resident into a country that is valued in its
currency, the bond is called a foreign bond and creates a foreign bond market. When a
bond is issued by a non-resident into a country that is valued in a currency other than
the local currency, it is called a European bond and creates the European bond market.
Global bond is a bond issued simultaneously in many different countries, priced in
many currencies, the local currency of the issuing countries. Therefore, there is a
document that classifies Euro Bond as part of a Global bond.
1.2. Types of international bond market
1.2.1. Eurobond market
The Eurobond market is a market for the purchase and sale of bonds issued by
non-residents (companies, banks, governments and international organizations) outside
the country that issue the currency stated on the bonds.


Eurobonds are sold in countries other than the country in which their currencies
are used to measure the value of bonds. Although the center of the European bond
market is in Europe, it has no national boundaries. For example, a French company
issuing bonds in pounds in Switzerland, Luxembourg and Frankfurt are all called
European bonds. European bonds are sold at the same time in many different
countries, it has become an overarching bond to mobilize capital simultaneously from
world economies.
Normally, European bonds are sold at the same time in many financial centers
through multinational guarantee banking groups and bought by international
investment organizations. These organizations are operating beyond the borders of the

issuing countries. Unlike foreign bonds, the issuance of European bonds allows for a
choice of currency whereby the creditor may request to be repaid in one of the
different currencies and thus reduces the risk on foreign currency exchange contained
in foreign bonds issued in a single currency. However, in reality, interest and principal
are often paid in US dollars (USD).
1.2.2. Foreign bond market
A bond trading market issued by non-residents (governments, foreign
companies) in a country denominated in the currency of that country to attract capital
from domestic investors. For example, BP (UK) issued Yen bonds at the Tokyo Stock
Exchange, or as the Chinese Government had two times of issuing government bonds
on the New York Stock Exchange in 1994 with a total issuance of more than $ 1
billion, or if Denmark decides to issue Sterling bonds on the London Stock Exchange.
All of the above bonds are foreign bonds.
There are fifteen foreign bond markets in the world, such as Yankee Bond
Market of the United States, Samurai of Japan, Bulldog of United Kingdom. These are
bonds on the public bond markets of the above countries. There are also unlisted
markets where bondholders do not need to register with the exchange and can be sold
directly to investors. However, this market is small in scale and smaller in number of
participating investors.


1.3. Characteristics of international bond market
1.3.1. Eurobond market
The main benefit of the Eurobond market is that it is relatively unadjusted, its
income is largely non-taxable and the issuance of securities is more flexible than the
domestic market.
In terms of payment currency, Eurobond issuance in dollars was the largest (in
1996, Eurobonds denominated in USD accounted for 43.78% of total issuance),
followed by GBP, JPY, and ECU
Most Eurobonds are issued by high credit institutions. The most active

Eurobond issuers are governments, international organizations such as the World
Bank, European Investment Bank and multinational companies. Some Eurobond
publishers record money that is not used for the final purpose, but convert to other
necessary currencies through the Swap operation. Eurobond interest rates depend on:
market conditions and the credit rating of the issuer.
1.3.2. Foreign bond market
The characteristic of a foreign bond is that it is paid in the currency of the
country where it is issued. However, there are also countries where bonds can be
broken down into other currencies. In this case, the name of the foreign bond will be
different. For example, in Japan, bonds issued in Yen are called Samurai, issued in
USD called Shogun.
The largest foreign bond markets are the US and Japan bond markets. The US
bond market is very diverse. Yankee market is a public market, providing medium and
long-term capital to foreign investors. The Japanese bond market also includes a
public market called the Samurai market. Publishers in this market have a prerequisite
to be rated from the BBB upwards. The left Samurai votes are mostly sponsored by
Japanese unions and companies. In the unlisted Japanese market, issuers do not need
to declare any documents under securities trading laws. However, the number of bonds
is small and few investors.


2. Process of issuance

Figure 2 - International Bond Tombstone

Bonds are issued by public authorities, credit institutions, companies and
supranational institutions in the primary markets. The most common process for
issuing bonds is through underwriting. When a bond issue is underwritten, one or more
securities firms or banks, forming a syndicate, buy the entire issue of bonds from the
issuer and re-sell them to investors. The security firm takes the risk of being unable to

sell on the issue to end investors. Primary issuance is arranged by bookrunners who
arrange the bond issue, have direct contact with investors and act as advisers to the
bond issuer in terms of timing and price of the bond issue. The bookrunner is listed
first among all underwriters participating in the issuance in the tombstone ads
commonly used to announce bonds to the public. The bookrunners' willingness to


underwrite must be discussed prior to any decision on the terms of the bond issue as
there may be limited demand for the bonds.
In contrast, government bonds are usually issued in an auction. In some cases,
both members of the public and banks may bid for bonds. In other cases, only market
makers may bid for bonds. The overall rate of return on the bond depends on both the
terms of the bond and the price paid. The terms of the bond, such as the coupon, are
fixed in advance and the price is determined by the market.
In the case of an underwritten bond, the underwriters will charge a fee for
underwriting. An alternative process for bond issuance, which is commonly used for
smaller issues and avoids this cost, is the private placement bond. Bonds sold directly
to buyers may not be tradable in the bond market.
Historically an alternative practice of issuance was for the borrowing
government authority to issue bonds over a period of time, usually at a fixed price,
with volumes sold on a particular day dependent on market conditions. This was called
a tap issue or bond tap.
2.1. Approach to operation
First, the company talks to the bank and explains its need for financing. The
bank analyzes the company’s financial situation, determines whether a bond issue is
appropriate and if the company meets the essential requirements for the market.
2.2. Rating analysis and documentation preparation
In order to issue a bond on the market, it is recommended that the company
have a rating from a rating agency. If it does not yet have one, the bank examines the
company’s credit and, based on its sector, tells the company which rating agencies

would be the most appropriate.
Throughout this process, the company is under the auspices of the bank that is
advising and assisting it, starting from the preliminary meetings with the agencies –
which they attend – to the actual preparation of the presentation to be given to the
agencies. The legal documentation is prepared in parallel in order to ensure that it is
ready at the time of the operation. This includes the contracts that establish the
conditions for the issuer and the banks participating in the operation. It is a slow,
tedious process, but support is provided by outside attorneys.


2.3. Presentation to invest
Presenting the operation to investors is a key point in the process for new
issuers. What is known in the industry as a ‘roadshow’ is organized. This involves
meetings with investors in the biggest financial hubs in Europe (Paris, London or
Frankfurt); a presentation is given and any questions are addressed. It is also key to
find out what the market looks like and how much appetite there is for the company’s
risk. If the response is not positive, the operation is postponed. Thus, the purpose of
the roadshow is clear: to involve investors and gauge the price range and maturity.
2.4. The bond is placed in the market
Once it has been decided that the bond will be issued because sufficient interest
exists, the bank and the company look for a window of opportunity and establish a
tentative date, which will greatly depend on the market conditions.
When that day arrives, there is an initial call with the team that will carry out
the transaction and the company itself first thing in the morning. It’s the “go-no go”
call – a key moment in which, based on the market conditions that day, it is confirmed
whether to go ahead with the issuing or postpone it if the circumstances have greatly
varied.
If no significant changes have taken place in the market that could put the
operation at risk, the bank advises the issuer on the price, they agree on the premium
for the operation and coordinate a strategy. Now is the time when the issuance is

announced to the market and the “book” is opened – a digital archive where the
different orders from investors are noted.
After several hours, there is another call to see how the book is doing. At that
time the company can decide whether or not to adjust the price, based on the behavior
of the market and investors. If there is a change in price, it is announced to the market.
There may be investors who decide not to participate.
Finally, there is a third call to complete the operation with the agreement from
those involved, the issuer and banks. At this meeting the banks compare information
and eliminate duplications in orders – in other words, they refine the book.
2.5. Allocation process and bond pricing
When the book has been refined and closed, a decision is made to determine
how much to give to each investor. This is based on the quality of the investor and the


objectives of the issuing. Banks give the issuer a list with this distribution for their
approval, and the investors are informed of exactly how much they were allocated.
Then, the price is established by taking the indexes into account. Finally, the
sales team informs the market of the coupon and the next day, the bond is listed on the
secondary market. Its evolution is then monitored from this point on.

Figure 3 - Timetable of a new international bond issue

3. Objectives of bond issuance in international market
 Contributing to supplementing the medium and long-term financial resources,
contributing to promoting economic growth and stability of countries
 Meeting the solvency of different entities when participating in national financial
activities
 Contributing to the formation and development of the international financial
market system
 Investment in socio-economic development falls within the expenditure task of the

mid-budget budget in accordance with the State Budget Law
 Restructuring debts, debt portfolios of the Government
 Lending to businesses, financial institutions, credit institutions and local
governments according to the provisions of law; Government-guaranteed bonds
are issued to invest in programs and projects: Investment programs and projects
are approved by the National Assembly or the Prime Minister, including the plan
for mechanical loading. Debt structure of these projects: High-tech programs and
projects, projects in the field of mining energy, mineral signs or production of
goods and provision of export services provided by the Prime Minister. The
Government makes decisions in line with the country's socio-economic
development orientation: Programs and projects in the fields and areas encouraged
by the State under the Prime Minister's decision; State-targeted credit programs


implemented by the Vietnam Development Bank, Vietnam Bank for Social
Policies or financial and credit institutions under decisions of the Government or
the Prime Minister

4. The impacts of international bond issuance method
4.1. Internal and external equilibrium for a country's economy
4.1.1. Internal equilibrium
Loans from bonds will be spent by the government on the economy. When
government spending increases, the income of the whole economy increases because
then the productive capacity of the economy increases (if the use of loans is effective).
In other words, the economy has grown to a new level. Meanwhile, in response to the
demand for commodity trading in the economy, the amount of money in circulation
will increase. And with a set interest rate, money markets and commodity markets in
the economy meet at a new equilibrium position. This new equilibrium shows the
growth of the economy when mobilizing capital from the outside through the form of
international bond issuance.

4.1.2. External equilibrium
When the government borrows foreign debt in the form of international
bond issuance, this capital inflow into the economy causes a capital balance surplus.
To balance the balance of payments, the current capital balance and account have an
additional relationship. As we all know, when there is a capital inflow into the
economy, the income of the economy will increase (if the use of capital is effective).
This increase in income is the level of income needed to balance the current account
deficit by capital inflows into the economy, and then the balance of payments will
balance. In other words, international capital inflows into the economy by issuing
international bonds will bring the balance of payments to a new equilibrium position
higher than the old equilibrium. This is the position to say the growth of the economy.
Both new equilibrium positions for internal equilibrium and external
equilibrium are only achieved when capital use is effective. If the use of this loan is
ineffective, then the pressure to repay the debt increases, causing the government to
cut spending on investment. This cut will make the economy more stagnant.


Moreover, the interest payments will make the current account deficit and the
capital payment will make the capital balance deficit. As a result, the balance of
payments will exceed the surplus it was initially reached. In other words, in this case,
if the new equilibrium point is reached, this equilibrium position will be lower than the
old equilibrium position. And so the economy has fallen back from before borrowing
capital by issuing international bonds.
4.2. Supply and demand of foreign currencies
Bonds are different from loans. Bonds put up and traded in the market.
Whoever buys money to buy bonds today, they need money tomorrow to sell. Not a
loan. Lending, how to debt? Here buy bonds, tomorrow if the secret is sold, someone
buys immediately. Because he or she is in need of investment, this interest rate (bond)
is more attractive than the US Treasury bond interest rate. Or suppose you wanted to
diversify your portfolio, buy bonds, etc.

Bonds are not debt but debt instruments, can be traded. The liquidity in listing
is much higher than the loan.
4.3. Safety threshold of foreign loans
For example, our country, the value of bonds issued is too small. Our country
borrowed billions of dollars, bonds only a few hundred million. Moreover, borrowing
for economic purposes in general, in this case, is to issue bonds for specific projects
with income in dollars. So the issuance of bonds by some experts does not affect the
safety threshold of foreign loans.
However, bond mobilization means the government borrowed abroad. Having
borrowed, they have to pay but also pay with high interest rates. A loan can only be
paid when the rate of return it makes is at least equal to the interest rate. The first
problem for this loan is to use it effectively. That is, the use of this capital must not fall
into the footsteps of ODA loans when borrowing only interest rates that represent a
few percentage points of a year, but we must bear the constraints that real interest rates
must be paid many times higher. Or fall in the current state of wasteful investment
with an incalculable rate of loss.


Bond market size (ratio of GDP) compared to other countries in the region.
Singapore
Vietnam
Malaysia
Thailand
Korea
China
0%

20%

40%

60%

80%

100%

120%

Bond market size

Figure 4 - Bond market size compared to other countries in the region

This generation borrows, the next generation will pay. Debts can only be paid
when a strong foundation is left behind. Otherwise the burden of debt for the next
generation is very terrible
Looking at the chart above, it can be seen that the bond market plays a very
important role. This shows that countries all over the world make the most of external
capital to promote the development of the domestic economy.
The main reason why these countries take advantage of external capital to
promote investment in developing their domestic economy?

5. Advantages, disadvantages of international bond issuance method
5.1. Advantages of international bond issuance
5.1.1. Advantages of international bond issuance for the issuers
 Achieving the rights to use the gearing
The biggest advantage that we can see from international bond is that the
issuers are entirely entitled to use gearing and have no binding connections between
them and the investors. This is an outstanding advantage compared to stock issuance.
If the shareholders have the rights to make investment decisions, or sometimes

because of the conflicts from investment decisions, they will stop or reject the projects
regardless of their profits for the companies. However, bondholders shall not have any
right to make these decisions.


 Calling for and capital, promoting brands in international market, achieving
the rights to decide the amount and maturity of bonds
Moreover, the issuers have the rights to decide the amount of capital raised and
maturity of bonds, which seems efficient, especially for mid-term and long-term bonds
and helps firms finance their business demands. In addition, firms can spread their
brands around the world. Firms themselves will grow up and get more attractive from
the view of the investors thanks to conforming to international standards. We can say
that one firm with the interest of international investors shall have no difficulty having
interest of investment community.
 Having lower cost
In long-term, cost of issuing international bonds will be lower. The interest rate
could be lower when the market believes the issuers. Issuing international bonds is not
only the way to call for capital, but it is also the way to emphasize the reputation of the
issuers in international capital market.
The more important thing is that if loans and borrowings’ payment are made
before the due date, which means efficient gearing and brings outstanding profits for
companies, the companies will get more reputation and higher credit rating, an
important rate that investors usually consider as reference when thinking of investing
in a company. Once the company has been appreciated, the interest rates for the next
issuances will be lower.
 No mortgage
Issuing bonds does not require the issuers to have mortgages or guarantee their
assets, which enables the companies to actively use their assets in doing business.
 National debt management tool
When it comes to the countries that have developed financial markets, surplus

state budgets, international bond is a tool to launch national debt management policies.
Issuing bonds to international market, government can adjust governmental loans
portfolio to launch financial and monetary policies.


5.1.2. Advantages of international bond issuance for the investors
From the view of the investors, when buying international bonds, they also
usually need credit rating of the qualified issuers for references. To identify credit
rating, these issuers have to rely on many factors such as financial status, revenue,
current projects, etc. of the companies, which means these issuers have just guaranteed
the safety of the investors when the investors invest in companies.
5.2. Disadvantages of international bond issuance
5.2.1. Disadvantages of international bond issuance for the issuers
When firms want to issue international bonds, consultancy costs are not
inexpensive, information clarification and procedure requirements are quite
complicated. Moreover, firms have to bear forex risks because of foreign currency
borrowings when VND tends to depreciate. If there is no future income in foreign
currency or insurance tools are implemented, firms may suffer losses due to exchange
rate fluctuation.
It is not simple to issue bonds to international markets. The issuers are entitled
to conform strictly to international rules, issuance procedures and bond payment
methods. These procedures are quite complicated, requesting careful preparation of
legal and economic bases, complex business techniques such as market selection,
currency selection, issuance form, guarantor selection, payment and legal advice
agencies. All these specialist skills are required to be carried out carefully by
experienced experts.
International bonds are usually mid-term or long-term bonds. The longer the
bonds’ maturity, the riskier they are. When investing in these bonds, the investors have
to face with the risk of economic crisis, interest rate fluctuation, exchange rate
fluctuation or credit ability of the issuers, which forces the issuers to have more careful

guarantee with stricter terms to make the investors believe them.
In order to issue the international bonds, it is required to have a company that
ranks the credit rating of the issuer. The cost of inviting this company is usually
expensive and this company is usually a foreign company, which takes a long time to
rank the issuer.


There is a risk that government and domestic companies could be more
dependent on foreign borrowings, to avoid more difficult decisions but it is essential to
enhance national financial system. If companies do not use these borrowing amount
efficiently, all the firms that join international capital market risk paying expensive
amount for the borrowings that do not make a lot of returns. Besides, even in favorable
market, government still has to keep borrowing under control to avoid future economic
and financial crises.
Interest rate in international finance market will be decided by international
market and it will reflect real capital cost compared to other countries. With open
economy policies and international economic integration, domestic products are in
need of competing against international products in international market. Interest rate
of bonds will reflect real capital cost of one country and help government, companies
think of investing in project efficiently, ensuring products can compete against other
products in the market. This is a strategic move ensuring the efficiency and
competitiveness of Vietnam economy in economic integration period.
When it comes to borrowing amount, importing – exporting credit and
borrowings through foreign banks, real interest rate can be higher than nominal
interest rate. However, ODA is expected to decrease in the future. Calling for gearing
by issuing international bonds will diversify borrowing sources, creating gearing mid
or long-term channels if they manage carefully. It also limits negative effects on
national finance, this new form of calling for gearing will create motivation to promote
international economic integration.
The issuers have to make a plan to use income from issuing international bonds

efficiently, with the method of calling for gearing through international bond market, a
great amount of bond will be received in a short period.
Consequently, the issuers need to make a specific plan to disburse for
investment, avoid capital stagnation, which increase costs and cause waste in
investment.
The issuers have to make a specific plan for payment when bonds are in
maturity, which means government need to plan to adjust cash inflow and prepare


proper foreign currency source to make payment. If payment is not completed, the
reputation of Vietnam will be negatively affected and next issuances.
5.2.2. Disadvantages of international bond issuance for the investors
International bonds are usually mid or long-term bonds, the longer the maturity,
the risker the bonds. When investing in these bonds, investors risk facing with
economic crisis, interest rate fluctuation, exchange rate fluctuation or creditability of
the issuers.
From the analyses above, we can see that issuing international bonds have
particular pros and cons, if bonds are issued strategically and gearing is used properly,
they will give efficiency to whole economy, stimulate the economy to grow stronger; if
they are used improperly, they will have negative effects on economy, limit the growth
of economy. Consequently, issuing international bonds are considered carefully based
on objective factors such as market condition at the issuance time and subjective
conditions such as bonds’ attractiveness, firms’ preparation in meeting demand of
international investors.


III.

FINDINGS & ANALYSES

1. Current situation of Vietnam’s international bond issuance to the
international market

Figure 5 - LIDC: Changing debt composition and international bond issuance

1.1. International bond issuance of Government
1.1.1. First issuance in 2005
In 2005, it was the first time Vietnam issued sovereign bonds to the
international market. Although that was the first release, it had brought unexpected
results creating a buzz in the international capital market by attracting great attention
of European, Asian and American investors.
7 other banks participating in the guarantee contract include: Citigroup (USA),
Nomura Securities (Japan), J.P. Morgan, Dutch Bank, Merrill Lynch, Morgan Stanley
and HSBC Bank. Bank of New York was the bank chosen as the bond payment agent
for the Ministry of Finance under the payment agent contract signed between the
Ministry of Finance and the Bank of New York on November 3, 2005.
The number of Vietnamese sovereign bonds planned to be issued was US $ 500
million initially, but on the first day, the number of investors ordered was about US $ 1
billion, which is double compared to the number of sovereign bonds Vietnam was
about to release.


So the Government had decided to increase the issuance volume by US $ 250
million, bringing the total issuance to US $ 750 million and bonds with a term of 10
years. The fixed interest rate was 6,875% / year based on the nominal value (real
interest rate is 7.125%). The interest would be paid once every 6 months on January 15
and July 15 in USD, the first interest payment period would be on January 15, 2006.
International investors are confident in the bright future of Vietnam's economy
after witnessing more than 10 years of innovation earlier. Investors are optimistic that
Vietnam is considered to be the second highest and most stable economy in Asia after

China. Besides, the investors' trust in the similar bonds of Indonesia and the
Philippines must be reduced due to the unstable political and economic situation of
these countries during that period. By 2005, the opportunity to issue Government
bonds for the first time in the international capital market was really good. First of all,
overdue commercial and government debts due to historical factors have been
successfully handled through the London and Paris Clubs. National debt is at 32% of
GDP, is considered safe (Philippines is 72%, Indonesia 80%)
If compared with the interest rate of foreign currency loan in the country with
short loan term, the lending volume is very limited, then the mobilization of
international bond issuance is effective. After 1 year of issuance, the Government of
Vietnam's international bonds were evaluated as the most successful bonds issued in
2005 by the International Finance Magazine and Asian investors. Jon Pratt, Asia
Capital Market leader of Credit Suisse First Boston Bank (CSFB), said that this is an
international bond issuance, creating a special turning point and creating an important
foundation for the issuance. After the success of this issuance, it has implications for
international investors to build credit lines for investment in Vietnam in the future.
At the beginning of 2007, the world economy was developing at a high speed
and the Vietnamese economy was also growing rapidly leading to the high demand for
capital to promote economic development. Specifically, the project of Dung Quat Oil
Refinery No.1 had been started since 2005 and was lacked investment capital.
However, by the end of 2007, due to unfavorable international market condition, the


issuance of bonds encountered many difficulties so the Vietnamese government had to
suspend the issuance of sovereign bonds until in 2010.
1.1.2. Issuance in 2010
The main co-underwriting banks were Barclays Bank PLC (UK), Citigroup
Global Markets Inc. (USA) and Deutsche Bank Securities Inc. (USA) for the bond
purchase agreement signed on January 22, 2010 between the Ministry of Finance and
co-guarantee banks. Citibank was the bank selected to be the bond payment agent for

the Ministry of Finance under the payment agent contract signed on January 14, 2010
between the Ministry of Finance and Citibank.
The total value of sovereign bonds issued this time by the Government of
Vietnam was US $ 1 billion, with a term of 10 years and matured on January 29, 2020
with a nominal interest rate of 6.75% per year, dividend yield was 6.95% and was
traded by T + 4 method.
On January 26, 2010, Vietnam marked a return to the international bond market
with the issuance of $ 1 billion of 10-year Government bonds with nominal interest
rates of 6.75% per annum and yields. Issuance is 6.95% / year under the cooperation of
guarantee groups including Barclays Capital, Citi, Deutsche Bank. This bond is listed
at the Singapore Stock Exchange and matures on January 29, 2020. Although
Vietnam's credit rating is higher than Indonesia and the Philippines one level, the yield
of the main bonds
Government of Vietnam (6.95% / year) is higher than the income of Indonesia
and the Philippines issued in January 2010 to 1% / year. Specifically, the Philippines
issued $ 1 billion of bonds on January 7, 2010 and borrowed interest at 5.67%,
Indonesia issued $ 2 billion on January 13, 2010, the interest rate was only 6%. In
2009, Moody’s rated Vietnam credit rating at Ba3 like two years earlier. This rating is
similar to the Philippines and one level lower than Indonesia, but three levels lower
than the standard of bond investment.

In the process of deploying this issue, Vietnam faces with
many

unfavorable

developments

from

the

world

economic


situation. Due to the need to stimulate the economy after the
crisis, a series of countries such as Indonesia, the Philippines,
Greece, Mexico, Poland, Turkey, Slovakia, etc. have launched tens
of billions of dollars of international bonds. Meanwhile, facing the
collapse of a series of banks and large economic groups of the
United States, President Obama has proposed some regulations
restricting financial institutions holding risky investments: The
Federal Reserve Bank of America (FED) will be entitled to inspect
any banking and financial corporations with assets greater than
50 billion USD; At the same time, they have the right to force
banks to reduce or suspend risky transactions. Large financial
corporations have to deposit 50 billion USD in reserve to rescue
themselves when they suffer losses, etc. In addition, international
financial markets are also concerned about China's economic
tightening measures. The reason Vietnam is willing to pay high
interest rates to borrow is because Vietnam is in desperate need
of foreign currencies when the balance of payments is in shortage,
the trade deficit continues to worry. Specifically, in the year of the
world economic crisis, the trade balance deficit was 18 billion
USD, in 2009 was about 13 billion USD, at that time there was no
economic shift to increase exports and reduce imports. , so the
trade deficit is still large.
1.1.3. Issuance in 2014

In 2014, there were many favorable conditions for Vietnam to issue sovereign
bonds. In particular, the interest rate was low and credit rating agencies such as
Moody’s, Standard & Poor's and Fitch’s all said that at that time Vietnam's economy
had improved positively.
The bond offer took place at 1 pm on November 6, 2014 (San Francisco US
time) (November 7, 2014 in Vietnam time). The total issue amount was 1 billion USD


under the mode of 144A / term S, similar to the previous 2 issuance. The total value of
sovereign bonds registered to buy in this offering amounted to more than US $ 10.6
billion, 10 times more than the offering volume. Guaranteeing for bond issuance and
exchange/repurchase of old bonds were Deusche Bank, HSBC and Standard Chartered
Bank. HSBC was chosen as the bond payment agent and distribution bank.
Sovereign bonds of the Government of Vietnam reached a fixed interest rate of
4.8%/year (expected rate is 5.125% / year). That was the lowest interest rate compared
to the previous two issuances (bond interest rates issued are 6.875%/year in 2005 and
6.755%/year in 2010).

2005
2010
2014

Issuance amount Maturity (year)

Yield (%)

(Million USD)
750
1000
1000

6.875
6.750
4.800

10
10
10

Table 1 - Information about three-time international bond issuance

1.1.4. Comments on issuances in 2005, 2010 and 2014
Issuing Government bonds on the international market is one of three ways to
borrow foreign debts to offset the State Budget deficit. The first 2 successful issuance
will create favorable conditions for Vietnam to access international capital markets and
directly participate in this market in the future. Three-fold earnings will be an
additional source of foreign currency when domestic supply of foreign currencies is
relatively tense due to domestic and foreign economic crisis affecting exports,
remittances as well as foreign currency revenue from travel. It can be said that success
has achieved the goals set by the government. It is more foreign loans to cover budget
deficits and balance of payments deficit due to trade deficit.

Currently, Vietnam has to borrow with higher interest rates
than the market. Moreover, the very use of the borrowed money is
a concern of analysts, concerned that the unreasonable use will
weigh more heavily on the struggling Vietnamese finance. If the
use of this loan is ineffective, then the pressure to repay the debt


increases, causing the government to cut spending on investment.

This cut will make the economy more stagnant.
Increasing government debt and high financial risk: The budget deficit in recent
years has always maintained at a high level. The level of deficit in 2009 amounted to
7% of GDP, which does not include expenditures from Government bonds and loans
borrowed from the Government for re-lending. Due to the constant state of budget
deficit, public debt (mainly government debt) has increased sharply in recent years. In
2008, the government debt accounted for 36.5% of GDP, in 2009 it was estimated to
reach 40% of GDP and in 2010 it was estimated at 44% of GDP. Without measures to
reduce the budget deficit, the government debt will gradually reach the safe limit of
50% of GDP. This will significantly affect the national financial security and reduce
Vietnam's creditworthiness in the world financial market. The additional US $ 1 billion
in foreign currency (equivalent to VND 18,000 billion as of 2010) will make the debt
burden more and more risky, the risks encountered will be payment and exchange rate
risks. Payment risk is that when the bonds mature, the State will have to set aside a
corresponding amount of money to pay the principal borrowed, moreover, every year
Vietnam will have to pay the corresponding coupon interest. Exchange rate risk due to
the fact that during the period of 10 years to maturity, the USD and VND movements
are very unpredictable, especially in the current context of the world economic
recovery as well as Vietnam's development.
Nation
America
Canada
Germany
France
Japan
Singapore
Vietnam

Yield
2.37%

2.06%
0.81%
1.17%
0.51%
2.29%
4.8%
Table 2 - Yield of bonds in some countries (2014)

1.2. International bond issuance of corporation
1.2.1. Successful issuance
On November 17, 2009, Vincom Joint Stock Company successfully issued USD
100 million of international convertible bonds and listed this bond on the Singapore


Stock Exchange, becoming the first Vietnamese enterprise to issue and listing bonds in
international capital markets. Vincom convertible bonds with a term of 5 years are
issued in USD, have no collaterals and earn interest at an annual rate of 6%, payment
of every six months at the end of the period was issued to diversify capital
mobilization channels and provide long-term capital for the Company. The purpose of
this batch of bonds is to raise capital for the implementation of the Company's large
real estate projects, including large-scale high-class real estate complexes in Hanoi:
"Royal City" and "Eco City". These bonds can be converted into ordinary shares of
Vincom. The stock option is the added value of this bond, making it a very attractive
item for investors. Moreover, an important factor in the success of the issuance is that
the sponsor for Vincom is Credit Suisse.
On 12/5/2011, Hoang Anh Gia Lai Company, stock code: HAG, was officially
the first private enterprise of Vietnam to successfully issue corporate bonds on the
international market by evaluating credit rating without a governmental guarantee. The
bonds have a term of 5 years with a total value of USD 90 million and will be paid
once in the maturity. The nominal interest rate is 9,875%. Initial issue price is 95.76

USD, with an interest rate of 11%. Credit Suisse is the only sponsoring organization
and Saigon Securities is the advisory organization for this issuance. Earlier, at the end
of March, Hoang Anh Gia Lai had listed more than 24.3 million global depository
certificates (GDRs) on the London Stock Exchange. On December 23, 2010, Hoang
Anh Gia Lai Joint Stock Company held an extraordinary shareholder meeting in 2010,
approving the plan to raise international capital by issuing international bonds and
listing them on the Department of Communications. Singapore Securities Trading
(SGX) with a total value of USD 200 million, 5-year term with interest rate will be
determined after Standard & Poor's and Moody's have obtained the credit rating of the
group, payment of January 6 HAGL international bonds are issued under New York
law (USA), enterprises have the right to repurchase these bonds within three years
from the date of issuance. The net proceeds from the issuance of international bonds
are used to plant and care for 15,000 hectares of rubber in Cambodia, 25,000 hectares
of rubber in Laos and 11,000 hectares of rubber in Vietnam. In addition, HAGL also


uses this capital to build Nam Kong 2 and 3 hydroelectric plants in Laos, Dak Srong
3A, 3B and Ba Thuoc 1 and 2 hydroelectric plants in Vietnam.
In 2016, Vingroup (VIC) had just announced the completion of procedures to
issue international corporate bonds up to USD 300 million. That was the second time
VIC had successfully raised capital in this form and was currently the only real estate
company in Vietnam to successfully access the international capital market. This US $
300 million international corporate had a 5-year term, floating interest rate with a
margin of 5% compared to Libor (the interbank interest rate in the UK, currently at
0.75%). The representative of the Group said that continuing to borrow international
funds would not only help Vingroup diversify loans, balance the proportion of
domestic and international capital sources, but also help the Group stabilize capital
sources and reduce risks due to long-term interest rate fluctuations.

Figure 6 - Yield of Government bond of Vietinbank in international market (2016)

1.2.2. Unsuccessful issuance
Vietnam Electricity (EVN), is currently building 15 power projects, with a total
capacity of 10,581 MW. Total investment for 15 projects is 9 billion USD. In addition,
EVN has 11 projects in the investment preparation stage, with a total capacity of 7,285
MW and is carrying out procedures to invest in 5 other power projects, which are
expected to start in the period of 2011-2015 including 2 Ninh Thuan 1 & 2 nuclear
power plants (more than 4,000 MW) and 3 cumulative hydroelectric projects (Bac Ai,
Ham Thuan Bac, Moc Chau, total capacity of 3,600 MW). With such large projects, it
is difficult to rely solely on domestic capital. To ensure funding for power projects,
EVN plans to issue 5,000 billion VND of domestic bonds and 1 billion USD of
international bonds in 2011. In 2010, EVN also plans to issue international bonds 1
billion USD to finance capital for power projects but this plan has been postponed due
to unfavorable market.
For Vietnam Coal and Mineral Group (TKV) has just submitted to the
Government for permission to re-issue USD 500 million of international bonds. The
most convenient time for issuing international bonds will be in the middle of 2011
when the settlement reports have been completed and the world's financial resources
are abundant. The Bank for Investment and Development of Vietnam (BIDV) is
expected to work with state agencies to issue US $ 500 million of international bonds,
in order to increase tier 2 capital when market conditions permit.
1.2.3. Comments on issuances of corporation
The issuance of international bonds of businesses in Vietnam has been
problematic not only because the enterprises themselves have not created trust yet, but
also because the Vietnamese economy has not really been stable in the eyes of
international investors.
Credit rating of enterprises and national credit rating of Vietnam are not high.
Therefore, although bonds issued to international markets of Vietnamese enterprises
often have high interest rates (7% -8% / year) compared with bonds of some other

countries in the region, the difference is 1%. -2%, but not attractive to international
investors. Vietnamese businesses that want to improve their creditworthiness must