Vietnam Capital Markets Deal
Investors clamoured for Vietnamese assets in 2007 and no trade underscored this more than Vinashin’s 10-year domestic bond. Not only was this the biggest bond from a Vietnamese corporate, it also had the biggest offshore take-up for a domestic deal from the country. It is IFR Asia’s Vietnam Capital Markets Deal of the Year.
Vietnam Shipbuilding Industry Group (Vinashin) priced a D3trn (US$187m) 10-year bullet bond in March 2007 via sole lead Deutsche Bank. In the process it managed to print Vietnam’s biggest onshore deal and attract the biggest roster of offshore investors to a domestic deal from the country.
Pricing came in at 9%, the tight end of the 9%–9.25% final guidance, which equated to 8.92% after the deduction of withholding tax. Initial guidance had been released two days before the final pricing at 9.25%–9.50%.
An overwhelming three times book coverage was pulled in with around 95% of the deal circled by offshore investors. Bankers involved were astonished at the number of quality accounts that booked the paper, who, moreover, were new to the Vietnamese domestic market.
“This is the biggest take-up so far of Vietnamese domestic paper by foreign investors and signals a willingness to book the country risk that can only encourage other Vietnamese corporates to seek the offshore bid,” said Olivier Destandau, then head of Deutsche domestic syndicate in Singapore. “The issue size is bigger than what we typically see out of the Hong Kong and Singapore domestic markets and Vinashin has managed to come just 140bp back from govvies, when in January it brought a D1trn deal at 200bp over governments.”
Around US$150m-equivalent was packaged into a credit-linked note issued by Deutsche, with the remainder placed using a total return swap and around 10% placed via onshore custodians. Some 60 offshore accounts participated in the deal, with 50 of them never having booked Vietnam credit before.
Final issuance took place on April 13, with Deutsche hedging the foreign exchange risk over the next few weeks. The hedging was a protracted process because the domestic market is only able to handle modest sizes each day.
Vinashin’s bond priced competitively versus the obvious comparable, Vietnam Electricity (EVN), which was at 8.75%–9.05% versus governments at 7.70%–7.90%. A 20bp–25bp yield premium on Vinashin’s deal versus EVN looked on the mark at the time given the bigger size of the deal.
Investors were comforted by a feature the Vinashin issue had that EVN’s lacked: a change of control clause. Investors could put back the paper at par if the government cut its stake in Vinashin (currently 100%) to below 51%. Vietnam is the world’s seventh largest shipbuilder and Vinashin controls 70% of domestic production via 27 shipyards.
EVN priced a D1trn 10-year in November 2006 through Deutsche and VinaCapital. About 75% of that deal went offshore and it was the country’s first public corporate bond to be placed mainly with foreign investors.
“We chose Deutsche because of the excellent job we saw they had done on the EVN deal,” said Nguyen Quoc Anh, head of funding at Vinashin. “The book was three times subscribed in just 24 hours after it opened and there were a large number of foreign investors new to Vietnamese credits. Accessing long-dated liabilities through the bond market is a huge advantage to us and eases our working capital needs.”
He added that Vinashin was looking closely at the possibility of issuing a US$1bn long-tenor public offshore bond early in 2008.
The market’s enthusiasm for Vinashin assets was underlined a month later when a US$200m eight-year loan for the company was upsized to US$600m following heavy oversubscription. Credit Suisse was bookrunner on the loan, which amortises after 42 months for an average life of 5.75 years. Vinashin is paying a margin of 150bp over Libor on the loan.
Indeed the popularity of these assets with investors underscores the attractions of the country’s economic story.
“Vietnam is seen as the next China or India and everybody is clamouring for a slice of the action. You could argue that Vietnam is the hottest emerging market in the world,” said a regional syndicate head, citing the country’s 8.2% GDP growth last year – the highest in South-East Asia – and its clearance to join the World Trade Organisation as helping explain the hunger for Vietnamese assets.
Jonathan Rogers