Banks eye bonds to capitalise on low rates

Monday, Jun 16, 2014 09:29

Bond coupon rates now stand at very low levels. Interest on government bonds have fallen by 110-120 basis points (100 basis points equal 1 per cent) since early this year to 5.6 per cent for those with a two-year maturity, 6.1 per cent for three-year bonds, and 7.1 per cent for five-year bonds. — Photo bizlive


After companies, it is now the turn of banks to issue bonds to take advantage of the low interest-rate regime to raise funds and also, in some cases, increase tier II capital to achieve capital adequacy.

Bond coupon rates now stand at very low levels. Interest on government bonds have fallen by 110-120 basis points (100 basis points equal 1 per cent) since early this year to 5.6 per cent for those with a two-year maturity, 6.1 per cent for three-year bonds, and 7.1 per cent for five-year bonds.

HCMC Development Commercial Joint Stock Bank (HDBank) plans to issue three-year bonds to a group of individual investors, according to its preliminary prospectus.

This is part of the bank's plan to raise a total of VND1.4 trillion (US$66.35million) this year to augment its long and medium-term funds to meet companies'credit needs.

Two major State-owned banks are also completing procedures to issue bonds.

One of them plans to issue five-year bonds worth VND2 trillion (US$94.78 million). The other will issue 10-year bonds that will increase tier II capital and improve its capital adequacy ratio (CAR).

Early this year the Investment and Development Bank of Viet Nam (BIDV) had revealed that it was considering an issue of bonds to increase its tier II capital to achieve CAR stipulated by international norms.

Analysts said one of the above bond issues would carry a coupon of only 7.5 per cent, just 1.4 per cent higher than the rate on government bonds with the same maturity.

In the past the gap used to be much bigger.

Just last October HDBank issued three-year bonds at 10.5 per cent interest, which was 3-3.5 per cent higher than that of comparable government bonds.

Some medium-sized banks plan to issue bonds at 2 per cent higher than government bonds.

Banks' bond issuance is starting earlier this year than last when the first issue only took place in August.

Foreign ownership rumours push shares up

Rumours that foreign ownership in local securities companies is likely to be raised to 100 per cent stoked the securities market for a few days.

The SSC has reportedly drafted comprehensive plans for this and will soon submit it to the Government for approval.

The move is aimed, say the rumours further, at ensuring that Viet Nam strictly complies with its WTO commitments.

Ninety brokerages

There are about 90 brokerages operating, including over 40 that have some foreign ownership. Of them the foreign ownership ratio is 49 per cent in over 10 companies. There is also a 100 per cent foreign-owned securities company, May-bank Kim Eng.

The Government's Decree No 58 in 2012 allows 100 per cent foreign-owned securities companies to operate in Viet Nam.

Many of the foreign-invested brokerages are now waiting on the Government, hoping they can raise their ownership to above 49 per cent.

Thanks to the rumours, shares of securities firms were in much demand and their prices shot up. It also crated a mini rally in the market which had stagnated with little liquidity.

On June 9 retail investors gave both bourses a boost, driving up the VN-Index by 1.44 per cent to 559.04 and the HNX-Index by 1.82 per cent to 75.85.

On the following day the main index closed at 565.61 after rising by 1.18 per cent. The session saw 112.5 million shares worth over VND1.6 trillion ($76.19 million) change hands, an 85 per cent and 95 per cent rise respectively from the previous day.

Listed securities firms such as SSI and HCM rose on both days, closing near the daily upper limits.

However, after a two-day rise, the market lost steam following a clarification from the SSC that the relaxation in foreign ownership norms would not happen soon. An SSC official said the plan had yet to be submitted to the Government.

Consequently, liquidity tumbled as speculative capital flows retreated. On the 11th the southern market saw 79.4 million shares worth VND1.1 trillion ($52.38 million) traded, both down by around 30 per cent from the previous session.

The HNX-Index slid to 74.95, down by 0.88 per cent as 41.8 million shares worth VND460 billion ($21.90 million) were traded, down respectively by 42 per cent and 38 per cent.

Analysts said however that since investor sentiment remained positive the market had a chance of recovering.

Their assessment was accurate as last Friday, the HCM City stock market's VN-Index rose by 3.41 points to 573.77, while value surged nearly 30 per cent to VND1.425 trillion ($67.86 million).

The northern market rose by 0.37 points to 76.29 points as more than 48 million shares changed hands for VND486 billion ($23.14 million).

China ties

HCM City companies are looking for ways to reduce their overwhelming reliance on China as an export market and a supplier of feedstock and other inputs given the East Sea tensions.

The city's exports to that country were worth $840 million in the first five months, a 4.4 per cent decline year-on-year.

Exports of computers and electronics devices to China were worth $275 million, down 30 per cent, while rice shipments were down 4.6 per cent to $110 million.

In the first five months the city's vegetable exports to China surged 116 per cent to $98 million, and that of garments and textiles by 76.3 per cent to $56.2 million.

In light of the changed situation, many local firms are reviewing their business strategies to reduce import and export dependence on the Chinese market.

Vegetable trading companies are eyeing other regional countries like Malaysia, Cambodia and Singapore.

Rice exporters could increase shipments to Malaysia and India, but exports are still forecast to drop by 3 or 4 per cent.

Importers are also beginning to feel the pinch, especially outsourcing firms that are heavily dependent on materials imported from China.

They are now looking at South Korea, Japan, and Taiwan as alterative sources. — VNS

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