Macroeconomics presentation topics: Bond market in Vietnam

The Vietnam bond market development was boosted when Vietnam entered WTO in 2006. In 2011: Vietnam bond market expanded by 16.5 % the fastest rate in the region and valued at 17 billion with the government bond market far larger than the corporate market at 15 billion vs 2 billion. As of 31 December 2011, the total number of government bonds in Viet Nam was 452, with a total value of VND 285,242 billion which is equivalent to 11.4% of GDP

BOND MARKET IN VIET NAM

Foundation and Development

 The Vietnam bond market development was boosted when Vietnam entered WTO in 2006

 In 2011: Vietnam bond market expanded by 16.5 % - the fastest rate in the region and valued at $17 billion - with the government bond market far larger than the corporate market at $15 billion vs $2 billion.

 As of 31 December 2011, the total number of

government bonds in Viet Nam was 452, with a total value of VND 285,242 billion - which is equivalent to 11.4% of GDP

Foundation and Development

Types of bond

1, Bonds issued by Public Entities

+ Government bonds :

+ Government-Guaranteed Bonds:

+ Municipal bonds

2, Bonds issued by Private Entities

+ Corporate bonds

Government bonds and municipal

bonds market

1, Primary Market

 Regulated by Decree 141/2003/ND -CP, Circular 29/2004/TT - BTC, Decision 46/2006/QD - CP

 Issued by:

- State Treasury

- Vietnam Development Bank

- T- bills are auctioned via State Bank of Vietnam

 Issuance modes: majority via auctioning and underwriting decreasing issuances via retailing and agents

 Terms: Bill: 365 days, Bonds: 2, 3, 5, 7, 10, 15 year with the majority in

5 year term

 Interest rate: ceiling rate applied

 Municipal bonds: have been issued by Ho Chi Minh City, Ha Noi and Dong Nai

Government bonds and municipal bonds market

2, Secondary market

 Not yet developed

 Investors have tendency to “BUY” and “ HOLD ”:

- Banks: Largest investors and dominant in 5 - year- bond

- Insurance Companies: investors in longer -term bonds

 Secondary trading are carried out via STCs: listed on HOSTC/ HOSE and HASTC/ HNX

 Low turnover

 Lack of financial intermediaries playing roles of market maker

Corporate Bond market

1, Primary market

 Regulated by Decree 52/2006/ND -CP for private issuance,

Securities Law and Decree 144/2003/ND - CP for public

offering

 Issued by:

- Limited companies

- Joint stock companies

- State owned companies in transition

 Issuance mode:

- Private placement: through Auction, underwriting, agent

- Public offering: none corporate has issued via this approach due to the more thorough and complicated requirements for public

offering

Corporate Bond market

 Issuers:

- Mainly big SOEs ( i.e: Vinashin, EVN, Lilama, Song Da Corp… )

- Bond issued on the principles of self - responsibility

 Underwriters:

- Banks and other financial institutions: local securities companies

- Also foreign bank: HSBC, Deutsche Bank, ANZ…

2, Secondary market

 Underwriters for corporate bonds are active in selling bonds to wide range of investors, both local and foreign investors

 However, bonds trading on secondary market is still limited

Size of Local Currency Bond Market (Local Sources)

Institutional Infrastructure

 Legal and Regulatory Environment Legal

- No single comprehensive law for bond market, each aspect of the market

is subject to a wide range of Decrees and Regulation

 Taxation

- VAT: exempted

- Income tax: Individual: exempted; Institution: 28%

 Accounting Practices

- Vietnamese Accounting Standards (VAS) have been introduced (26

Accounting Standards in five series)

- Two international standards have not yet been included in VAS: IAS 32 and IAS 39

- Not clear guidelines in respect of enforcement and monitoring

Institutional Infrastructure

 Risk Management

- Enterprises have only recently been required to prepare audited financial statement.

- Financial exposure are not being measure or reflected in accounts since IAS 32 and 39 have not been adopted

- Risk management practices are steadily improving amongst the domestics banks.

 Clearing & Settlement

- Depository, clearing and settlement at Vietnam Securities Depository (VSD)

PROBLEMS OF BOND MARKET IN

VIETNAM (1)

1 Small size (15.8% GDP), government bond

still dominate the market with 14.3% GDP (2011)

2 Ceiling interest rates are not reflecting the

true demand/supply relation of the market

3 Government bond interest rates yet to be

benchmark rates

PROBLEMS OF BOND MARKET IN

VIETNAM (2)

4 Small volume but too many issuances (more

than 400 types issued and listed on STCs) → affect secondary trading & liquidity

5 Low liquidity especially in the secondary

market of corporate bond due to:

+ Newly established market index

+ Lack of professional market makers

6 Narrow investor base

PROBLEMS OF BOND MARKET IN

VIETNAM (3)

7 OTC market for bond issuing & trading not yet

established

8 Bond trading in secondary market is limited because: + Bond issuances are not standard in terms of sizes

& characteristics

+ Corporate bonds are not listed on STCs

+ Not having a credit rating agency→difficult for

companies to mobilize funds internationally and

domestically

Government implications

Established Vietnam Bond Market Association

(14/8/2009)

 Activities:

– Building and Institutional Strengthening of the

Association

– Market Development

– Training Activities

– Developing Market Infrastructure and Vietnam Bond Database

– Legislative Building and Policy Comments

– International Cooperation

– Research

Government implications

 Aims:

– Support propaganda and dissemination

– Act as a forum and

– Make contribution through the policy comments and support

– Lead VBMA’s review and comment of draft laws and regulations on the bond

Government implications

 Establish an independent Domestic Credit

Rating Agency

 Circular 17/2012/TT-BTC provide the stable & clear issuing schedule for issuances

 Let VBMA set up a corporate bond information center

 Apply accounting standard which gradually

complied with international standard

Government implications

 In June, 2012, HNX will apply a new system

to support the bond market:

+ Electronic bidding

+ The yield curve

+ Bond index

Vietnam’s way of development

 Structural improvements:

– Additions to existing framework to enhance

transparency, predictability, accounting and audit requirements

– Market infrastructure reforms in primary and

secondary trading, depository, settlement; liquidity

– Initiative to set up local rating services

 Welcome additional technical assistance