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Treasury & Capital Markets / Viewpoint
Vietnam’s economic surge heralds debt market boom
Vietnam is expected to become a rich source of debt market products amid an economic surge.
Jonathan Rogers 14 Feb 2017

I am writing this from Ho Chi Minh city, or to give it the appellation most often used by natives and expats, Saigon, and boy is this place ever vibrant. The city describes the success story of Vietnam over recent years, where growth has been among the highest in the world amid the country’s seeming imperviousness to negative economic factors that have afflicted Vietnam’s neighbours.

While Vietnam grew by 6.3% last year, Saigon pummeled ahead with growth closer to 9%. The city is fast becoming a showcase for the country’s business-friendly economic policies. It takes the lion’s share of foreign direct investment into Vietnam and is witness to the country’s transformation from a reliance on traditional industries, such as textiles, towards expansion into electronics and consumer goods targeted at the burgeoning middle class.

Alongside this cheerful scenario there is a positive story for Vietnamese credit, and a sense that the country will become a rich source of debt market products, assuming policy error and uncontrollable input do not derail the prevailing rosy state of affairs.

Yields on domestic bonds have rallied over the last 12 months, with Vietnam’s sovereign offshore bonds having chalked up record price and spread levels on improving government national income statistics and crucial financial balances. That seems to me about right. Vietnam’s debt markets have become the target of international investors in the global quest for yield, and the improving credit story provides reasons to be sanguine.

As an example, Vietnam’s commercial banks are lining up offshore debt sales after an absence from the international markets of over five years. A rush of ratings activity and reverse enquiry cements the new dynamic, while Vietnam’s banks are looking to plug deficient Basel capital adequacy ratios. That’s a potential area of concern, but surging loan books at the country’ banks suggest that the booming Vietnam economy is likely to have a transformational impact on the country’s largest lenders.

In a clear sign that the domestic market is awash with liquidity to support this financial industry transformation, Vietcombank Securities is lining up for the Wednesday issuance in Vietnamese dong of notes that could raise as much as US$0.9 billion-equivalent.

Meanwhile, as Vietnam joins a host of developed and developing economies in the mantra of infrastructure development, HCM Infrastructure Development late last year issued US$40 million of convertible bonds via a private placement with KEB Hana Banktrustee Investment JSC, with funds designed to finance infrastructure projects in Vietnam.

Alongside traditional project finance, project bonds in Vietnam are expected to become a significant asset class. The newly-established Asian Infrastructure Investment Bank is expected to be a major power in putting critical mass into public-private partnerships in the country.

Of course, there are reasons for caution; overheating is one possibility as is mass capital flight which has the potential to hurt the Vietnamese dong as well as force up short-term interest rates. From where I survey it here in sunny Saigon, there is more than enough room for optimism.

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