Vietnam to issue government bonds

PHOTO

Vietnam's Government plans to issue bonds to raise $US1 billion.

AUDIO from Asia Pacific

Vietnam Government bonds

Created: 19/11/2009

Karon Snowdon

Last Updated: Thu, 19 Nov 2009 21:04:00 +1100

Vietnam is planning to issue Government bonds to raise $US1 billion.

There are few details yet of the offer, but it is thought the money raised will go into roads and other desperately needed infrastructure like roads.

It is only the second time Vietnam has tried to sell bonds - the first issue was four years ago.

Adam McCarty, Chief Economist with Mekong Economics, says from the Government's point of view, it's a good time now to issue bonds, but its success depends on the price.

"Now is good because they're running a budget deficit of of 8, 8.5 per cent of GDP this year and it'll probably be something similar next year, so it will be very handy for them if they had a good issuance and were able to raise capital to help finance it," he said.

If successful, Vietnam's sale will add to the record level of emerging market debt this year, as markets such as Indonesia, China, India and Brazil are proving popular with investors.

Mr McCarty says Vietnam is up against some competition: "Around the globe now there are many governments that would like to raise money to pay for deficits and planned infrastructure and stimulus packages. Vietnam is just one of many."

Vietnam is rated below investment grade so the issue is not without risk.

Risk appetite increased

But Rajiv Malik, head of India and South East Asia Economics with Macquarie Bank says investors who retreated after last year's Lehman Brothers crash are now emerging themselves with money to invest.

He says with US interest rates so low it is possible to borrow cheaply and invest where returns are higher.

"What excess liquidity does, it makes you more risk-loving because the cost of borrowing (US) dollars today is practically nothing," he said.

Vietnam's major competitor for bond investors is China, whose economy has bounced back well from the global financial crisis,

Mr McCarty says Vietnam and China have both performed well during the crisis.

"The surprise thing about Vietnam and China is how little they seem to have, at the end of the day, been reliant on exports and foreign direct investments," he said.

"Particularly in the case of Vietnam, they've been able to generate substantial economic activity and economic growth domestically. I think they can continue doing that of course, as long as they have financing and government revenue to cover it. I suspect they really need this one to succeed, otherwise they're going to have a very difficult time financing the deficits that they're running."