VietJet plans bond sale to finance Airbus orders

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An employee walks up a ramp toward a VietJet Air aircraft, operated by VietJet Aviation Joint Stock Co., at Noi Bai International Airport in Hanoi. Photo credit: Bloomberg An employee walks up a ramp toward a VietJet Air aircraft, operated by VietJet Aviation Joint Stock Co., at Noi Bai International Airport in Hanoi. Photo credit: Bloomberg

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VietJet Aviation Joint Stock Co., Vietnam’s only privately-owned carrier, plans to raise as much as $300 million from a corporate bond sale to fund expansion while preparing for an initial public offering.
The company will raise $200 million to $300 million as early as the second quarter and has not decided whether to do it overseas or domestically, Managing Director Luu Duc Khanh said in an interview in Ho Chi Minh City Jan. 22. The airline will pick international advisers next month to help with the share offering and the bond sale, he said.
VietJet, which featured dancing flight attendants clad in bikinis on an inaugural route, wants to tap into the growing market of first-time and young air travelers, pitting it against other low-cost carriers such as AirAsia Bhd. and Bangkok Airways Co. The bond sale proceeds will help fund the 100 A320 aircraft on order from Airbus SAS, costing about $9 billion, and development of training and maintenance facilities.
“Our company mission is to give everybody an opportunity to fly,” Khanh said. “People often think a low-cost airline would be low quality. We want to change that. A cheap ticket doesn’t mean poor service.”
The closely held company posted its second profitable year in 2014, “well above” the target laid out by shareholders, Khanh said. The airline forecasts revenue of 13.8 trillion dong this year, compared with 8.1 trillion dong in 2014.
The Hanoi-based carrier set up VietJet Air Cargo Co. in November and will lease two cargo planes this year to meet rising domestic demand, Khanh said. Air cargo transport rose 18 percent to 905,000 tons of goods in Vietnam in 2014, he said.
IPO plan
VietJet wants to raise about $800 million this year from the corporate bonds issuance, the public offering and loans, Khanh said. He said last May that the company aims to raise $500 million in its public debut.
“It’s a good time for us to sell bonds as borrowing costs are now reasonable in the international markets and Vietnam’s credit rating has improved,” Khanh said.
The company now plans to hold its IPO in the fourth quarter, he said. VietJet’s IPO would follow Vietnam Airlines lackluster stake sale last year in which it raised $51 million selling a 3.5 percent stake.
The benchmark stock index rose 0.4 percent as of 10:28 a.m. in Ho Chi Minh City trading. The dong was little changed at 21,348 against the U.S. dollar, according to prices from banks compiled by Bloomberg. 
Market gains
The airline served about 6 million passengers last year, a doubling from 2013, Khanh said. It expects passenger numbers to rise as much as 70 percent this year with new routes to South Korea, Japan, Malaysia and China. It says its domestic market share rose to 35 percent last year.
According to CAPA-Center for Aviation’s data, state-owned Vietnam Airlines Corp., leads at 54 percent of domestic capacity, giving it the largest domestic market share among the main flag carriers in Southeast Asia. Jetstar Pacific Airlines Aviation Joint-Stock Co., partly owned by Vietnam Airlines and Australia’s Jetstar Group, has the rest of the market.
Competing in the international market is VietJet’s biggest challenge, Brendan Sobie, chief analyst for CAPA-Center for Aviation in Singapore, said in an e-mail.
“Their brand is unknown outside Vietnam and competition is intense,” Sobie said. “They will launch a few international routes this year but the majority of their expansion will continue to be in the Vietnamese domestic market. These adjustments as well as the domestic focus are sensible and should improve VietJet’s attractiveness to potential investors as the exposure to risk is significantly reduced.”
VietJet has delayed plans to start flying to Russia in May, since a falling ruble has depressed travel, Khanh said. VietJet will consider flights to Russia in November, he said.
First-time flyers
For now, VietJet is gaining market share by winning over first-time flyers who would otherwise travel to domestic destinations by car or train, said Khanh. At least 30 percent of passengers are first-time flyers, he said. The airline makes sure fares can compete with rail services, he said. A flight between Hanoi and Ho Chi Minh City costs about 1.3 million dong, less than the typical rail ticket of 1.7 million dong, he said.
The company has had to teach new travelers flying etiquette, as in China, where passengers have opened emergency doors to get off airplanes faster and flights have been diverted because of unruly passengers.
On VietJet, passengers are instructed to use airsickness bags to dispose of used chewing gum as part of the security instructions before takeoff. Many new travelers don’t lock lavatory doors and flight attendants are trained to direct traffic flow in and out of bathrooms to avoid mishaps, he said.
The company has appealed to young travelers with unusual in-flight entertainment. It was fined $1,000 by the Vietnamese government for the stunt with bikini-clad flight attendants because it hadn’t received prior approval, Khanh said.
“If our clients tell us they want more bikini shows in the air, we’ll give it to them,” Khanh said. “We want to be the affordable, fun airline.”

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