Bonds trading at the new Hanoi Securities Trading Centre (HSTC) made an inauspicious debut last week.
Only VND35 billion ($2.3 million) out of VND200 billion ($13 million) of the Development Assistance Fund (DAF) bonds up for auction were sold, accounting for a mere 17 per cent of the total bonds issued for transaction.
Financial analysts said DAF bonds’ lack of success on their HSTC debut was due to the current high interest rate offered by banks.
The bonds valued at VND35 billion ($2.3) million were sold with an annual interest rate at 8.6 per cent and 9.1 per cent for five-year and 15-year terms, respectively.
Banks’ annual interest rate for 12 month and more than 12-month loans are currently posted from 9.5 to 10 per cent and even higher.
DAF’s deputy general director, Nguyen Van Quang, told Vietnam Investment Review, “the failure of the auction would affect investment plans for large-scale projects in the economy.”
“So far, DAF has just issued VND500 billion ($33 million) out of the planned VND6.5 trillion ($430 million) of bonds bought for this year,” said Quang, who added with the meagre quantity of bonds issued so far, capital investment plans for a variety of projects may be suspended.
HSTC spokesman Nguyen Manh Tuan said the low percentage of DAF’s bonds sold proved investors remained attentive to commercial banks’ loans.
“Although with VND35 billion of DAF’s bonds bought by investors, this could be considered a success in comparison with bond auctions recently organised by the Ho Chi Minh Securities Trading Centre,” said Tuan.
According to the State Securities Committee, the three bonds bidding sessions organised last month were not successful due to the low interest rates offered by the government.
All government bonds, including DAF, must have a fixed ceiling interest rate by the Ministry of Finance (MoF) before being issued for auction.
Quang from DAF said if the mechanism was not changed, it would be difficult for the DAF to succeed issuing bonds via securities trading centres as they would not be able to compete with the more flexible interest rates of commercial banks’ loans.
A source from the MoF said the DAF’s proposal on adjusting the fixed regulation on bond’s interest rate has been taken into consideration.
It is expected the second bonds bidding session will be organised this week on the HSTC with the expected VND300 billion ($19 million) of DAF’s bonds to be issued for auction.
was blamed on the current high interest rate of bank loans