Developing debt capital markets in Vietnam
A change in mindset is needed for the financial industry
27 Aug 2019 | Darryl Yu
Still in its early stages, Vietnam’s bond market has been steadily growing with government support and with issuers looking for a new avenue of financing away from traditional commercial bank loans.
Despite being one of the smaller bond markets in Southeast Asia, Vietnam has hopes of growing its fixed-income market to become a viable option for companies looking for financing. According to data from the Asian Development Bank (ADB), the Vietnamese bond market stood at around US$51 billion at the end of 2018, representing a 9.3% increase from the year before.
Dominated by government issues including treasury bonds and central bank bonds, there is a growing effort to get corporates comfortable with tapping the bond market. Corporate bond issues only represent US$4 billion of the US$51 billion market at the end of 2018, according to ADB data.
The development of the Vietnamese bond market was one of the topics addressed by a panel at The Asset Events’ Fitch on Vietnam Forum held in Hanoi this summer. Panelists stressed the need for diversified sources of financing besides commercial banks.
“Smaller SME companies would typically turn to commercial banks for financing their working capital needs,” shares Doan Linh Huong, deputy head of investment banking at MB Securities. “It might be easier for some companies to gain financing but very difficult for others. It really depends on the industry of the corporate and the current market conditions.”
There was agreement that any substantial increase in bond issuance requires greater awareness. “If you look at the ratings of Vietnam, it has been moving up the credit curve and that is getting a lot of positive momentum because now issuers can be rated higher. This helps them access the debt capital markets,” says Hemant Lodha, managing director at HSBC.
For Kyle Kelhofer, senior country manager for Vietnam, Cambodia and Lao PDR at IFC, an industry-wide mindset change is needed. “Bank loans in Vietnam have been available for 30 years so the bank is a tried and preferred method,” he says.
Embracing that mindset change is something potential bond issuers like Vietnam Electricity (EVN) are looking to do. Just last year, EVN was assigned a BB rating from Fitch Ratings in anticipation of tapping the offshore bond markets.
Nguyen Xuan Nam, financial director at EVN, shared that his company was looking to raise capital to support its funding goals for 2025 and 2030. “We will look at the cost of capital first before issuing followed by the tenor.”
Yet Vietnamese companies face certain hurdles.
“There are things concerning governance and transparency and the judicial system and potential constraints for Vietnamese corporates to do a cross-border issuance,” explains Vicky Melbourne, head of South and Southeast Asia industrials at Fitch Ratings.
The authorities introduced Decree 163/2018 in February 2019 to spur bond transactions. One key aspect requires issuers to disclose information before the issuance, and provide details of the result.
“I believe that Decree 163 will support the development of the market especially when it comes to information disclosure,” explains Duc Hai Nguyen, head of fixed income at Manulife Asset Management. “I am concerned whether there will be enforcement.”
Project finance was also mentioned as an emerging area.
“Vietnam’s GDP is growing strongly, infrastructure spend is a contributor to GDP growth and you have a rising middle class and increased urbanization,” says Sajal Kishore, head of APAC infrastructure at Fitch Ratings.
There is definitely a feeling of excitement over how far the bond market can go in Vietnam.  
Have you read?