Trend of international bonds encourages risks

In the last few years, many banks have resorted to issuing international bonds in an effort to mobilize more capital. This could be a means to raise capital, but it also encourages risk situations, which must always be taken into account beforehand.

Risk from bonds

At a recent annual shareholders meeting of Saigon-Hanoi Commercial Joint Stock Bank (SHB), shareholders approved of a plan to issue international bonds of total value of US$ 500 mn with a term of three to five years under the Euro Medium Term Note program, and to list these international bonds on the Singapore Stock Exchange after the issuance was complete.

Trend of international bonds encourages risks
Illustrative photo

According to the expected plan, the first batch SHB will issue will be of US$ 300 mn worth of bonds with a term of three to five years under types of high-end international bonds, non-convertible, unsecured, and without a warrant, and increase in international bonds tier 2 capital acquired after five years and one day, with no guarantee, no warranties, and no transfer ability, with implementation time from 2021 until completion. The next issuance will be designed according to SHB needs from time to time and decided by the Board of Directors.


Actually, the trend of issuing international bonds of the NH industry has risen since 2019, when SeABank consulted shareholders to issue a maximum of US$ 400 mn of bonds to the international market, with maximum expected term of five years. TPBank consulted shareholders on the issuance of US$ 200 mn of tier 2 capital bonds. VPBank aims to issue about US$ 1 bn of bonds to the international market and by two banks, ACB, and HDBank, who also plan to issue international bonds.

Dr. Nguyen Tri Hieu, an expert in banking and finance, said that banks tend to issue international bonds in recent years because the interest rate of international bonds is much lower than that of issuing bonds in Vietnam. This channel helps banks diversify capital mobilization sources, limit the dependence on domestic foreign currency mobilization, and supplement foreign currency sources for business activities.

Mr. Hieu said that, if the issuance is successful, the domestic financial institutions will also increase their prestige and brand name in the global market and bring Vietnam larger integration into the world financial system. When a bank wants to issue an international bond it is required to standardize finance and governance and improve transparency to meet the requirements of information provision and asset quality of international organizations.

Similarly, some experts also said that cheap money is plentiful now because countries have sharply cut policy rates, at the same time a series of large scale stimulus packages have been pumped into economies to cope with the impact of the Covid-19 pandemic. This is also an opportunity for domestic banks and economic organizations to seek cheaper international capital. Another good sign is that Vietnam has recently been raised to positive level by credit rating agencies such as Moody's, Fitch Ratings, which is the foundation for increasing capital mobilization in the international market.

 

Cheap capital

Mobilizing international bonds is not only in pink areas as analyzed above but also in many shades of gray. Cheap capital is plentiful in the international market, prospects have been upgraded, but national credit ratings and Vietnamese banks are still at a level of investment credit. Foreign investors always look at credit ratings to assess the level of risk when making decisions about interest rates or even investment decisions.

Therefore, many experts believe that Vietnam and many banks are being raised by international credit rating organizations. This is their only means of mobilizing more capital, but the cost of debt or interest rates will not change significantly from before. Besides, the cost of issuing international bonds is often very high. When issuers want to issue securities in the international market, they have to organize a roadshow to promote their bonds, while there is no guarantee they can even issue them successfully.

In fact, from the goal to the completion of the issuance of international bonds is not an easy journey. For example, in 2019, several banks set a target to issue international bonds, but only VPBank successfully issued a total value of US$ 300 mn, at interest rate of 6.25% per year for term of three years. SeABank had moved its plan to move the issuance of US$ 400 mn of international bonds to 2020 instead of 2019 but has not yet implemented. In 2020, HDBank was the only domestic bank to successfully issue US$ 160 mn of convertible bonds to the international market to supplement tier 2 capital in the form of a private placement, with a term of five years and one day, at fixed interest rate of 4.5% per year.

Another noteworthy issue is in the case of successful issuance as international bond issuers also face exchange rate risks. When banks or economic organizations of Vietnam issue international bonds, they will issue in US dollars. When paying debts, they have to pay back in foreign currency. If it falls into a case when the issue is low, but when the debt payment deadline increases, banks have to use more dong to buy foreign currency to pay debts to foreign investors.

This risk is expected to exist in the context of an increase in world inflation, affecting the devaluation of the currency. Thus, when receiving interest rates, banks will also have to bear exchange rate risk in international bond issuance activities. This is the problem that each issuer must take into account. In addition, the issuance of international bonds must be approved by the State Bank of Vietnam (SBV), as SBV is ultimately the foreign currency reserve unit for issuers to repay foreign debts.

SGGP

The risks of corporate bonds

The risks of corporate bonds

The volume of corporate bonds without collateral or guaranteed only by shares issued in the first quarter of 2021 accounted for a large proportion, with a large part owned by real estate firms. This poses a significant risk.

Vietnam looks to promote issuance of Gov’t bonds on int’l market

Vietnam looks to promote issuance of Gov’t bonds on int’l market

Experts and economists have proposed to expand the issuance of Government bonds to the international market, 

 
 

Other News

.
Debt burden risks budget stability
Debt burden risks budget stability
BUSINESSicon  29/05/2021 

Vietnam has had outstanding economic development in recent decades, even through the pandemic so far. 

Paint makers’ fresh coat of progress
Paint makers’ fresh coat of progress
BUSINESSicon  29/05/2021 

Having one of the fastest-growing paint and coating industries in the Southeast Asian region, Vietnam is mainly dominated by international paint and coating groups, but it is now witnessing a refresh as local makers attempt to gain some traction.

'Black-credit' lenders pose serious threat to borrowers
'Black-credit' lenders pose serious threat to borrowers
FEATUREicon  28/05/2021 

Experts have repeatedly rung the alarm bell over black credit, which is causing serious consequences to families and society.

PDP8 delay to unlock more cost-effective renewables
PDP8 delay to unlock more cost-effective renewables
BUSINESSicon  28/05/2021 

The past 12 months have been a period of intense activity for Vietnam’s power sector.

Inefficient State-invested projects must be removed from list: PM
Inefficient State-invested projects must be removed from list: PM
BUSINESSicon  27/05/2021 

The Cabinet leader recently issued a directive urging relevant agencies and localities to accelerate public investment disbursement and improve the quality of the mid-term public investment plan between 2021 and 2025.

Great investment opportunities in cold storage
Great investment opportunities in cold storage
BUSINESSicon  27/05/2021 

The rise of online shopping is driving demand for cold storage facilities, a segment that is severely short of supply around the world.

Vietnam to spend $124.5 billion on public investment over next five years
Vietnam to spend $124.5 billion on public investment over next five years
BUSINESSicon  27/05/2021 

Vietnam plans to outlay 2.87 quadrillion VND (124.5 billion USD) on public investment in the 2021-2025 period, up 120 trillion VND compared to the previous estimate.

Moody's affirms credit ratings for four Vietnamese banks
Moody's affirms credit ratings for four Vietnamese banks
BUSINESSicon  27/05/2021 

Credit rating agency Moody's on May 26 affirmed its long-term domestic and foreign currency deposit and issuer ratings of four Vietnamese banks.

Vietnam’s energy giant sets ambitious revenue of $1.2 billion
Vietnam’s energy giant sets ambitious revenue of $1.2 billion
BUSINESSicon  28/05/2021 

The PetroVietnam Power Corporation (PV Power) aims to earn VND28.4 trillion of revenue (US$1.2 billion) and pre-tax profit of nearly VND1.55 trillion this year.

Tax tweak puts strain on apparel makers
Tax tweak puts strain on apparel makers
BUSINESSicon  27/05/2021 

On-spot exports are now not subject to duty exemption, possibly derailing the recovery of textile and footwear companies.

Electricity prices still not falling despite oversupply
Electricity prices still not falling despite oversupply
FEATUREicon  27/05/2021 

The Electricity of Vietnam’s (EVN) latest report showed that the Covid-19 pandemic has led to a decrease in electricity demand. The real electricity output in 2020 was 247 billion kwh and the additional charge growth rate was 3 percent.

Goods face strict customs inspections as smugglers continue to violate laws
Goods face strict customs inspections as smugglers continue to violate laws
FEATUREicon  27/05/2021 

The General Department of Customs (GDC) said that risks in transit services continue to exist as smugglers try to carry prohibited goods into Vietnam.

Economist proposes measures to support enterprises in tough times
Economist proposes measures to support enterprises in tough times
FEATUREicon  28/05/2021 

Pham The Anh, chief economist at the Vietnam Institute for Economic Policy Research (VEPR), believes that social security support must be given to people who have had to shut down their business or have lost jobs because of lockdowns.

San Diu ethnic farmer grows the most expensive litchis in Vietnam
San Diu ethnic farmer grows the most expensive litchis in Vietnam
FEATUREicon  28/05/2021 

Tran Van Hanh, who lives in Chao hamlet, Luc Ngan district, Bac Giang province, one of the two largest litchi growing areas in Vietnam, owns an orchard that grows the most expensive litchis in the country.

Vietnam's post-pandemic economy
Vietnam's post-pandemic economy
FEATUREicon  27/05/2021 

As the Covid-19 pandemic persists, Vietnam's economy will still face many difficulties, but the country has the potential to increase productivity and develop at a higher rate than many other countries.

Oddest bank in Vietnam: No CEO, chairman takes office for two hours
Oddest bank in Vietnam: No CEO, chairman takes office for two hours
BUSINESSicon  27/05/2021 

The nearly decade-long war for power at the Vietnam Export Import Commercial Joint Stock Bank (Eximbank) may be coming to an end. 

VIETNAM BUSINESS NEWS MAY 28
VIETNAM BUSINESS NEWS MAY 28
BUSINESSicon  28/05/2021 

Food companies pressured by soaring raw material prices

Share prices rise, strong cash flow emerges
Share prices rise, strong cash flow emerges
FEATUREicon  26/05/2021 

Vietnam’s stock market made a spectacular breakthrough in the first months of the year with the VN Index staying at the 1,200 point threshold and some blue-chip prices strongly increasing.

Taxing unoccupied villas: one solution for creating fair housing market
Taxing unoccupied villas: one solution for creating fair housing market
FEATUREicon  26/05/2021 

A reasonable taxation policy is expected to help settle several problems, including excessive investment in high-end apartment and villa projects, and speculation buying.

Media tycoon has no way out after suffering losses
Media tycoon has no way out after suffering losses
BUSINESSicon  26/05/2021 

The VN-Index has been in the top of the world's strongest stock indexes since the beginning of the year with an increase of more than 16%. Over the past year, the index has increased by nearly 50% despite the Covid-19 pandemic.

 
 
 
Leave your comment on an article

OR QUICK LOGIN