Hoang Phuong is a financial expert in the field of international capital arrangement. While working at the Electricity of Vietnam (EVN), he had the opportunity to participate in arranging capital for many projects at EVN.

Now, looking back at the future of the capital market, Hoang Phuong believes that accessing international loans is an inevitable path for Vietnamese businesses.

Infrastructure projects always require a lot of capital, while the domestic ability to meet capital demand both in terms of loan size and low borrowing costs is limited. In terms of capital size, domestic banks must comply with the law on credit institutions and are not allowed to lend more than 15% of the bank's equity and must not provide loans that are more than 25% of equity of the borrowers and parties related to the borrower.

For example, If borrowing foreign capital, businesses only pay LIBOR + interest margin (around 4% at present), but for domestic loans, they have to pay savings interest + interest margin (at least 9% or 12% and more).

"Clearly, this is an extremely large gap between the domestic and foreign capital markets," said Hoang Phuong, emphasizing that it is inevitable for Vietnamese businesses to seek opportunities to arrange capital in the international capital market.

Some large private groups - those with good governance apparatus and transparent information - such as Vingroup, Masan, BIM Group have succeeded in arranging a number of international loans. This will happen more commonly with private businesses in the future.

But the bottleneck is still there, mainly related to Vietnam's credit rating, which is still rated at BB. This ranking is still inferior to many countries in the region such as Singapore (AAA), Malaysia (A-), Thailand and the Philippines (BBB+). This is also one of the reasons why Vietnamese enterprises have limited access to international capital and have high borrowing costs.

Nguyen Minh Tu, Director of Credit Rating Service of FiinRatings, said that most financial institutions and foreign investors when investing debt instruments in Vietnamese enterprises consider credit rating of that enterprise.

The reason is that financial institutions all operate according to international risk management standards, or in their home countries. Partnerships, non-financial enterprises or “family offices”, or capital investment institutions such as equity mutual funds, which are not subject to financial supervision, may have more flexibility in using independent credit ratings and may use their own internal credit assessment results.

At that time, the country's credit rating ceiling (currently BB according to S&P and Ba3 according to Moody's) has a direct impact on the credit rating results of a particular business.

The reason is that the credit rating results of any Vietnamese enterprise will be "anchored" according to the credit rating results of their country – Vietnam.

According to this expert, in the world, very few businesses in a country can have a rating higher than that of their country, unless this business has a main source of revenue from the foreign market.

For example, Toyota used to be rated by a number of international credit rating agencies with a rating equal to or higher than the rating of the Japanese Government in 2020 because its revenue from outside Japan accounted for more than 50% of their revenue and profit.

Looking for low interest channels

For Vietnamese enterprises, the current interest rate of Vietnamese government bonds of 10-year term has a yield of 5%/year and the national credit rating is BB (according to S&P) and Ba3 (according to Moody's). Statistics of FiinRatings show that each lower rating level will have a higher interest rate (about 1-2%) depending on the industry in which the business operates in or the specific terms of the bond transaction.

The latest example, the issuance of 200 million USD of international bonds by BIM Land, rated B2 by Moody's Moodys, corresponds to a nominal deposit rate of 7.37% for a 5-year bond in USD; or Novaland mobilized 300 million USD of convertible bonds with interest rate at 5.25% for 5-year bonds in USD.

“The rating results of international organizations such as S&P and Moody's are international rating systems. That is, they compare the credit score, or in other words, the debt repayment capacity of Vietnam in relation to other markets in the world, from developed markets such as the US, UK, Japan, Singapore to the emerging and frontier markets like Vietnam,” the representative of FiinRatings said.

“In short, Vietnam's national credit rating at BB at present is one of the factors hindering Vietnamese enterprises from mobilizing international capital. This makes the capital cost of Vietnamese enterprises relatively higher than those of countries with a better national rating than Vietnam such as Singapore (AAA), Malaysia (A-), Thailand and the Philippines (BBB+)," said Mr. Nguyen Minh Tu.

However, according to this expert, Vietnamese enterprises should pay more attention to building credit capacity with the domestic capital market, especially through the corporate bond market.

The reason is that the capital potential of the domestic market is huge, with more than 5 quadrillion VND of deposit balances in the banking system and the move towards improving the credit profile and implementing the domestic credit rating is probably the most important key to success in fundraising strategy instead of focusing on mobilizing from the international market.

“Mobilizing capital in the international market, in our opinion, should be a channel to diversify capital mobilization channels rather than a main channel. Our data shows that the deposit interest rate (including guarantee fee) of many real estate businesses is up to 5-7% in USD,” the FiinRatings expert said.

Meanwhile, the domestic mobilization level is only around 6-8% (with a rating of A and above) and 9-11% (with a rating of BBB) and the level above 12% mainly applies to companies with a rating of BB or less.

If considering raising capital in the international market as a channel to diversify sources of capital mobilization, Vietnamese businesses must also improve many things.

Mr. Hoang Phuong believes that businesses are good in terms of business, corporate governance, interests among shareholders protected, and rights of workers protected, creating a lot of value for society and the ability to attract capital from investors as well as international loans will be more favorable.

According to experts, in the long term, participating in the international capital market will require a lot of important reforms by the Government, thereby improving the rating of the country.

Luong Bang

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