Vietcombank delays international bond issuance plan indefinitely

Aug 6th at 16:22

06-08-2013 16:22:57+07:00

The plan on issuing $1 billion worth of international bonds Vietcombank announced one year ago has been left open. There are too many happenings for the bank to rethink its plan.

On April 2, 2012, Vietcombank, one of the Vietnamese biggest commercial banks submitted to the shareholders’ meeting the plan on issuing $1 billion at maximum worth of 10-year international bonds. The plan was approved, while the board of directors was assigned to implement it.

The plan to call for foreign capital by issuing bonds on the international market was drawn in the context of the bank’s difficulties in balancing foreign currency capital.

At that time, the ratio of the foreign currency loans on mobilized capital of the bank was relatively high at 83.77 percent. Meanwhile, the demand for foreign currency loans was still very high, while it was difficult to seek fixed term dollar deposits. In other words, the domestic capital sources were limited.

Vietcombank decided to seek foreign capital also because it could not offer the dollar deposit interest rates higher than the low ceiling interest rates set up by the central bank, even though the demand for dollar loans stood firmly high.

The bank had its reason to decide to issue international bonds. While it could only seek short term capital in the domestic market, it would be able to mobilize long term capital with the bond issue plan.

However, the plan has not been carried out. And analysts believe that the VietinBank’s story was one of the reasons behind the delay.

On May 12, 2012, VietinBank released a notice that it successfully issued $250 million worth of international bonds at five-year term, 8 percent per annum in interest rate.

The bond issuance was hailed by the local newspapers as a great success of a Vietnamese bank, which “went out to the open sea fishing.” However, opinions then varied about the costs of the mobilized capital.

Some experts then expressed their disappointment about the overly high interest rates, saying that the rates were even higher than that offered by the other economies at the same development levels.

A question raised at that time was whether the bank had to mobilize foreign capital at any cost as a relief to the domestic market, where the demand for foreign currency capital was overly high.

The experts did not believe that the bank would be able to make profit with the capital it found at an overly high cost.

Meanwhile, others believed that 8 percent was a reasonable price for the foreign capital, once the Vietnamese sovereign credit rating was low, the national economy exposed big problems.

Vietcombank, which planed to follow VietinBank, might consider VietinBank’s case carefully. It might realize that the cost for capital mobilization would be relatively high.

Vietcombank decided to wait for its opportunities. And it’s still unclear for how more long the plan would be delayed. The bank once really needed $1 billion, but it might have different solutions.

Too many changes have occurred over the last year. The demand for foreign currency loans has dropped sharply since the end of 2012, by 9.5 percent by the end of June 2013. Meanwhile, the mobilized capital in foreign currencies has increased significantly by 6.4 percent.

vietnamnet