Prior to 2006, only a few enterprises issued bonds when they needed liquid capital. However, the situation has become quite different since, with more and more enterprises considering this a good way of raising funds.

According to Dao Viet Anh, Head of the Capital Market Division under the Bank and Financial Institution Department under the Ministry of Finance, only five enterprises issued bonds prior to 2006. REE, for example, raised $5mil worth of capital by issuing bonds in 1996, EIS VND10bil ($625,000) in 1998. PetroVietnam raised a big sum of capital, VND3,400bil ($212.5mil), in 2003, and was followed by the Vietnam Cement Corporation (VND200bil or $12.5mil) and Electricity of Vietnam (VND300bil or $18.75mil).

At that time, enterprises relied almost exclusively on bank loans and state budget-sourced capital for capital sources.

Meanwhile, the total value of bonds issued in 2006 reached VND7tril ($437.5mil), of which, EVN’s bonds accounted for VND5tril ($312.5mil), and Vinashin’s VND800bil ($50mil).

The figure of VND7tril worth of bonds was obtained just in the first seven months of this year. The Vietnam Shipbuilding Industry Corporation (Vinashin) issued VND3tril ($187.5mil) worth of bonds, Lilama VND1,500bil ($93.75mil), Vinaconex VND1tril, Vietnam Steel Corporation VND400bil ($25mil), and Vilexim VND5bil ($312,500).

However, Truong Hung Long, Deputy Director of the Bank and Financial Institution Department, said that Vietnam’s corporate bond market remained very small with the total value of VND16tril, or 1.5% of GDP, not big enough to meet the demand of enterprises for capital for development.

When asked about the difficulties enterprises had to face when issuing bonds on the international market, Mr Long acknowledged that it was a big challenge for enterprises. It is partially because the domestic market has not developed yet: corporate bonds account for only 10% of the total market value.

Mr Long said that enterprises still needed to prepare themselves before issuing bonds on international markets. In fact, big Vietnamese enterprises are just taking the first steps in issuing bonds on the domestic market, and an early appearance on the international market without thorough preparation could cost enterprises.

Regarding methods of bond issuance, Mr Long said that retailing remained the best method applied so far. He said that the method was suitable in the current circumstances of a small market, in which the issuers can make direct negotiations with investors.

But one of the biggest problems enterprises have to face now is the defining of bond interest rates, he said. There is no institution in Vietnam which provides services relating to bond issuance and gives advice on interest rates.

In fact, issuers only refer to the interest rates of government bonds to define the interest rates for their bonds. In principle, the corporate bond’s interest rate is based on the government bonds’ interest rates plus the ratio of risks.

Mr Long said that the Ministry of Finance was drafting a new decree on issuing bonds in a bid to perfect the legal framework on this issue.

Source: VietNamNet, TBKTVN.