Central bank to buy US$1 bil. from sovereign bond sale
By Hong Phuc - The Saigon Times Daily
HANOI – The Ministry of Finance said on Monday that the US$1 billion obtained from a global, sovereign bond sale would be sold to the central bank to raise money for key industrial, energy and shipping projects.
Tran Xuan Ha, deputy finance minister and head of the Vietnamese working group responsible for the recent bond issue, told a press conference in Hanoi that this amount of foreign currency had been transferred to Vietnam’s 
account following the second global issue.
The Government on January 25 sold the 10-year bonds with a yield of 6.95%, with Barclays Plc, Citigroup Inc. and Deutsche Bank AG managing the sale.
According to the ministry, 56% of the bond buyers come from the U.S., 28% from Asia and 16% from Europe. Investment funds and asset management firms bought 73% of the notes, insurance and pension funds 10%, banks 7% and others the rest. The notes are listed on the Singapore Exchange and due on January 29, 2020.
Part of the money raised from the issue will go to the country’s first oil refinery, Dung Quat, and the rest to other projects to be proposed by the Ministry of Finance.
Ha said foreign funds for the Government were now chiefly sourced from official development assistance (ODA) and G-bond sales. “ODA is at its high level at the moment but it’s predicted to fall when Vietnam becomes a middle-income country,” he said. “We need new channels to raise money to fuel growth.”
With the US$1 billion borrowed through the latest global issue, the national debt accounts for over 30% of gross domestic product, he said, while the upper limit for national debt in 2001-2010 is 50% of GDP. “The current national debt is still at a safe level,” he said.
Ha told reporters that the Government would continue selling more bonds denominated in foreign currency but bonds for the local market normally came with terms of one to two years, meaning it is hard to raise longer-term funds.
Moreover, it is difficult to sell large amounts of bonds at home, so global markets will remain where the Government sells sovereign bonds to mobilize long-term capital.
Asked about the high yield of 6.95% for the latest issue, Ha described it as an appropriate rate given the current market conditions and Vietnam’s financial needs.
The yield, he said, was also decided by the country’s credit rating, the transactions of Vietnamese bonds that fall due in 2016 and capital markets at the time of issuance.
“Vietnam is rated Ba3 by Moody’s, and BB by S&P. With these ratings, the spread of the 10-year bonds is 378 to 385 basis points over that of the U.S. 10-year Treasuries,” he said.
The Moody’s rating for Vietnam is three levels below investment grade, with a negative outlook.
According to the ministry, it is on par with the Philippines and one grade weaker than Indonesia but for the Fitch rating, it is two levels lower than Indonesia. The S&P rating for Vietnam is one level higher than the BB- ranking for Indonesia and the Philippines.
The ministry said the Vietnamese sovereign bonds issued in 2005 and due on 2016 were trading with a yield of 6.17% to 6.27%. Moreover, while Vietnam was launching the global bond issue, global market conditions were not favorable.
China and Japan on January 20 began tightening monetary policy, thus affecting liquidity at banks. On that day, U.S. President Barack Obama announced measures to control the banking industry.
Demand for the bonds was more than double the amount on offer, at US$2.4 billion, said the ministry. But Indonesia’s US$2 billion sale in the first half of January attracted orders for more than twice debt on offer and the US$1.5 billion issue by the Philippines lured orders more than six times.