for Vietnam bond market
Vietnam's bond market has begun to pick up after several unsuccessful primary auctions and analysts say there's a chance for healthy growth this year.
According to ratings agency Fitch, a series of nine failed auctions by the State Treasury since November 2009 signaled weakening public confidence in dong-denominated assets and rising dollar liquidity constraints within the domestic financial system due to strong dollar demand.
"The risk remains that bond yields may rise further on the back of increasing interbank rates as loan demand is propped up by the government's three interest rate subsidy schemes," Fitch said in a report last month.
The government plans to sell bonds worth VND66 trillion (US$3.48 billion) this year, up 22 percent from the estimated proceeds raised in 2009.
In the auctions on February 4 and March 4 to sell two, three and five-year bonds worth a combined VND2 trillion ($105 million), Vietnam's State Treasury failed to issue any debt as interest rate bids were higher than its ceiling.
However, analysts at fund manager Dragon Capital said they do not think the unsuccessful auctions were caused by weakening confidence in the local currency as stated by Fitch.
"According to our estimates, banks are holding around 85 percent of total government bonds in the market," they wrote in the report.
"As a result, the success of government bond issuance depends a large part on liquidity conditions at banks. During the period, their liquidity was quite low and the State Bank of Vietnam was implementing tightened monetary policies, which means banks did not have enough money to buy bonds."
"˜Stronger cash flow'
Dragon Capital analysts said the situation has improved and bond auctions were drawing more interest.
The State Treasury sold a combined VND600 billion ($31 million) of two-year and three-year government bonds in March at rates of 12 percent and 12.1 percent per annum.
The treasury auctioned bonds worth VND500 billion for each maturity, the Hanoi Stock Exchange said.
Previously, the treasury also enjoyed a breather with the successful issue of VND3.2 trillion of short-term bonds in March.
"This proved that cash was flowing into the auction market," the research team of Hanoi-based Woori CBV Securities Corporation said last month.
"In terms of macro indicators, there were some signals for stronger cash flow available for investment in the market. Evidently, bank liquidity crisis is not a big problem anymore."
"In addition, after the successful bond issue by the government, some companies like Hong Ha Petroleum and Vinaconex are planning to issue corporate bonds," the research team said.
Space for growth
The State Bank of Vietnam in February devalued the dong by more than 3 percent on inflation and trade deficit concerns. Consumer prices rose 8.51 percent in the first quarter, above the government's full year target of less than 7 percent, according to the General Statistics Office in Hanoi.
Although the economy is recovering from the global financial crisis, the bond market faces many difficulties due to inflation and currency pressures, said Do Ngoc Quynh, general secretary of the Vietnam Bond Market Association.
"In order to control inflation, money supply has been tightened and interest rates are rising quite sharply."
As a result, bonds may fall and Vietnamese investors can become hesitant in purchasing them, Quynh said.
However, as the government is targeting a 25 percent credit growth and 6.5 percent economic growth for this year, the demand for funds besides banking credit is high, he said.
"Under such a circumstance, the bond market will be a channel to raise funds that both government and enterprises need to pay attention to," Quynh said, noting rising supply in the market will give investors a chance to diversify their portfolio.
The ratio of outstanding bonds to gross domestic product in Vietnam is only around 15 percent while the ratios in other regional countries like Thailand, Indonesia, Philippines and Malaysia are no less than 30 percent. "There is much space for growth in Vietnam's bond market," he said.