Fitch upgrades Vietnam's long-term senior secured debt instruments

Fitch upgrades Vietnam's long-term senior secured debt instruments

Fitch Ratings has revised its assessment of Vietnam’s sovereign debt, reflecting updates to its rating methodology and recovery assumptions.

On January 22, Fitch Ratings upgraded Vietnam’s long-term senior secured debt ratings to ‘BBB-’ from ‘BB+’, following the removal of the ratings from Under Criteria Observation.

The action reflects the application of Fitch’s new Sovereign Rating Criteria introduced in September 2025, including the incorporation of recovery assumptions into sovereign debt ratings for the first time.

Fitch also maintained Vietnam’s long-term senior secured debt ratings on the country’s Brady Bonds, keeping them one notch above the Long-Term Foreign Currency Issuer Default Rating (IDR).

The rated instruments comprise Vietnam’s 30-year Brady Bonds, which were issued in 1998. Under the bond structure, principal repayment on the Discount Bond is fully collateralised at maturity through US Treasury zero-coupon bonds, while the Par Bond benefits from 50 per cent principal collateralisation.

In addition, both bonds are supported by rolling interest collateral, providing further protection to investors.

“The rating action reflects Fitch's expectation of average recovery prospects for Vietnam's senior unsecured debt and the additional recovery benefits derived from the secured portion of the debt instruments. This does not constitute a change to Vietnam's IDR,” stated Fitch Ratings Hong Kong in their report published on January 22.

Fitch reaffirmed Vietnam’s IDR at ‘BB+’ with a Stable Outlook last June, underscoring the country’s broadly resilient credit fundamentals amid ongoing global and regional uncertainties.

Environmental, social, and governance (ESG) considerations continue to play a meaningful role in Vietnam’s sovereign credit profile and, by extension, the ratings of the Brady Bonds.

Fitch assigned Vietnam an ESG Relevance Score of 5 for both Political Stability and Rights, as well as for Rule of Law, Institutional and Regulatory Quality, and Control of Corruption.

“These scores reflect the high weight that the World Bank Governance Indicators (WBGI) have in our proprietary Sovereign Rating Model. Vietnam has a medium WBGI ranking at 41st percentile, reflecting a low level of rights for participation in the political process, moderate institutional capacity, rule of law and level of corruption,” said the report.

The rating on the bonds is sensitive to any changes in Vietnam's IDR, which has the following rating sensitivities as per the rating action commentary referenced above.

On the downside, Fitch warned that a negative rating action could be triggered by a sharp deterioration in external finances, particularly a significant drawdown in foreign exchange reserves linked to exchange rate pressures, which would weaken Vietnam’s net external creditor position.

“Regarding public finances, Expectation of significantly higher fiscal deficits, crystallisation of contingent liabilities on the sovereign's balance sheet, or reduced confidence in medium-term growth prospects, which would lead to a significant rise in government debt/GDP,” added Fitch Ratings in the report.

Conversely, Fitch indicated that an upgrade could be supported by sustained high economic growth that narrows Vietnam’s GDP per capita gap with rating peers without creating macroeconomic vulnerabilities. Improvements in the economic policy framework, greater transparency in policymaking and data disclosure, and a meaningful reduction in fiscal risks, particularly those associated with contingent liabilities from the large state-owned enterprise sector and the economy’s elevated leverage could, individually or collectively, lead to positive rating action/upgrade.

Fitch noted that the principal sources of information underpinning its analysis are set out in the applicable rating criteria.

“The ESG profile is in line with that of Vietnam, as outlined in our rating action commentary of June 2025," stated Fitch Ratings.

In a release issued on the same day, the Ministry of Finance (MoF) stated that the decision reflects Fitch Ratings’ expectations regarding recovery prospects on the issuer’s senior unsecured sovereign debt, combined with the additional recovery benefits arising from the secured or guaranteed portions of the relevant debt instruments.

“In Vietnam’s case, this refers to the 30-year Brady Bonds issued in 1998, for which the principal is either partially or fully collateralised by zero-coupon US Treasury bonds,” stated the MoF's report. “Although the upgrade of this debt instrument does not alter Vietnam’s sovereign credit rating, it represents an important foundation for reinforcing the standing and credibility of Vietnamese debt instruments in the international capital markets.”

The MoF also noted that it is currently establishing a regular and structured dialogue mechanism with international credit rating agencies such as Fitch Ratings, Moody’s, and S&P. This engagement goes beyond merely providing data upon request and involves close coordination with relevant ministries and agencies to proactively explain and substantiate Vietnam’s institutional strengths, macroeconomic stability, and long-term growth potential.

“The recent upgrade of the debt instrument to BBB- by Fitch is also the result of close coordination and the timely provision of detailed information on the structure of the Brady Bond liabilities between the Ministry of Finance and Fitch over the past period,” added the MoF. “The MoF will continue to work closely with Fitch and other credit rating agencies, as well as international organisations, to ensure comprehensive and up-to-date assessments of Vietnam’s credit profile.”

VIR