Rush on bonds before issuance

18:16 | 25/08/2003

Local commercial banks are rushing to buy large volumes of municipal bonds even though the Ho Chi Minh City government has yet to officially launch the issuance. Vietcombank has registered to buy $25.5 million worth of bonds of the $77.6 million issue. The Vietnam Bank for Investment and Development (BIDV) has registered to buy $32.4 million.

Nearly $100 million of bonds have already been registered as bought
The bonds are to be issued on September 1.
Sacombank and Phuong Dong Commercial Bank (Orientbank) said they would also purchase as many bonds as possible, and would accept the debt paper as collateral for loans.
Other financial institutions, including Bao Viet Securities and UK-backed Dragon Capital, have expressed interest in the bonds, which both Vietnamese and foreign investors are eligible to buy.
So far $97.4 million of bonds have been registered as bought, above the number available.
“The result is far beyond our expectations,” said Giao Thi Yen, the general director of the Ho Chi Minh City Fund for Urban Investment and Development (HiFu) which was assigned to handle the issuance.
Analysts said the bonds were attractive to investors because of the high and stable coupon and the short payment term.
The two- and five-year local currency bonds, with face values from VND100,000 to VND50 million, carry an annual coupon of 8.52 per cent and 9 per cent respectively, which will be paid every six months instead of every 12.
“The coupon is very attractive. It is higher than that of government bonds and almost equivalent to bank loan interest rates,” BIDV’s Ho Chi Minh City branch director, Tran Van Vinh, said.
Vinh and other bankers had said they were not worried the municipal bonds would threaten future deposits.
“If the city mobilises only VND2-3 trillion worth of municipal bonds every year, commercial banks like us will feel no negative impact,” Vietcombank’s Ho Chi Minh City branch director, Nguyen Phuoc Thanh, said.
In the upcoming issue, VND1,000 billion worth of bonds will be allocated to credit and financial institutions and the remainder, mainly two-year bonds, will be available to individuals.
The bonds will be obtainable at 170 points nationwide under commercial banks, including the Hanoi Housing Bank, Ho Chi Minh City Housing Development Bank, Sacombank, Viet A Bank and the Postal Savings Company.
“After this issue, the city will launch another one valued at $51.9 million later this year to raise a total of $129 million to finance the city’s investment development projects,” said HiFu’s Yen.
It is estimated that Ho Chi Minh City needs investment capital of $2.2 billion this year for developing key projects.
Between 10 and 15 per cent of this money will come from the city’s budget, 7.5-10 per cent from bank loans and the rest from other sources, including municipal bond issuance.
Decision 146 recently signed by the prime minister has already cleared the way for foreign investors to purchase government bonds without limitation. Foreign life insurers operating in Vietnam such as Prudential, AIA and Manulife are reported to be interested in the bond market.

Nguyen Hong

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