"Most of the money, about $700 million, would supplement the government's budget and the rest would be loaned to state-owned companies," said the official, who declined to be identified because he was not authorized to talk on the record to the media.

The government had already approved the bond sale and has chosen Barclays Capital, Citigroup and Deutsche Bank to advise on the issue.

Vietnam's only foray into the international capital market was in 2005 when it sold $750 million worth of sovereign bonds maturing in 2016.

Those bonds were trading with yields of 6.3-6.4 percent, compared with the original coupon of 6.75 percent, a bond trader said.

Two years ago the government approved another issue worth $1 billion but the sale has been delayed several times.

With the economy under pressure from the global slump, and the government extending parts of an economic stimulus package, many economists forecast the fiscal budget deficit will expand to 10 percent of GDP or larger, more than double last year's.

Questions have persisted for months about how the government would fund the deficit. Domestic dong-denominated government bond auctions have struggled this year, with the finance ministry's yield ceiling too low for the market.

Vietnam is also trying hard to boost its foreign exchange reserves and said last month it would borrow $1 billion from the World Bank this year and next, and also $1 billion annually from Japan from 2010 to 2012.

Source: Reuters