Standard & Poor’s has announced the credit rating for Vietnam at BB-/B with stable outlook. This result is unchanged compared to the rating also announced by this organisation in January 3rd 2015.
According to the Ministry of Finance, this rating reflects that Standard & Poor’s as well as investors have assessed that the economic growth and macroeconomic factors of Vietnam are good and there are opportunities to be improved.
Bond experts said that this credit rating is considered as an opportunity for Vietnam to start releasing international bonds under the total limit of three billion US dollars approved by the National Assembly. This credit rating can facilitate Vietnam to reduce releasing costs in the context when the US has not yet further raised interest rates, and the central banks of many countries still follow loose monetary policy to support the economic growth which is currently weak and unstable.
In this context, bond issuer will have the opportunity to cut bond yield if choosing international bond channel. Meanwhile, in reverse direction, issuer is currently under the pressure to raise bond yields to ensure the success of the bond issuance in domestic currency.
If raising capital by issuing international bonds, there are two options including to issue bonds to foreign investors or to issue bonds to domestic investors, similar to the recent government’s issuance of one billion US dollars international bonds to the Commercial Joint Stock Bank for Foreign Trade of Vietnam (Vietcombank) at bond yield of 4.8 percent per annum.
The developments on the bond market as well as currency market showed that some factors are supporting the plan to issue international bonds to domestic investors. In the recent time, credit institutions have used billions of US dollars mobilised from the public to deposit abroad in order to make profit from the interest rate difference, after US dollar deposit rate was cut to zero percent per annum. Although this is a normal business activity of banks, it also reflects the fact that the objects having idle capital have unwillingly transferred foreign currency abroad with various risks because they could not find appropriate investment channels in the domestic.
Thus, if the current needs for investment of credit institutions and the need to issue international bonds of the Ministry of Finance are matched, it may create the opportunity to bring multiple benefits to the economy as issuer may pay lower bond yield to domestic investors than to international investors but still be able to bring attractive bond yield to commercial banks, compared to the interest rate they deposit US dollars in the international markets. This can curb the heavy drain of foreign currency and lower the pressure on the current exchange rate.
How to use the mobilised capital more efficiently is always a big question that responsible people raise to the government when making decision on whether to issue international bonds or not. Only when the capital is used effectively and bring larger benefits compared to borrowing and investment costs, the issuance of government bonds will not create overlapping debt burden to the future generations of the country.
Source: DTCK
Keyword : Opportunity, to issue, international bonds.
