Vietnam beats rivals as economy braves China storm

Bloomberg

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Vietnam beats rivals as economy braves China storm
Vietnam’s dollar bonds are the best performing in Asia this quarter as global investors bet the economy’s recovery can ride out a maritime spat with China.
The 4.2 percent return on U.S. currency debt in the nation beat 14 other Asian countries tracked by Bank of America Merrill Lynch indexes. The yield on Vingroup JSC’s 11.625 percent notes due 2018 sank 81 basis points this quarter to 8.213 percent, while that on Vietnam Joint Stock Commercial Bank for Industry & Trade’s 8 percent 2017 paper slumped 63 to 5.315 percent. Bank for Investment & Development of Vietnam said falling costs will support its bond sale plans.
Prime Minister Nguyen Tan Dung is targeting annual economic growth of about 6.5 percent in the 2016 to 2020 period, up from 5.4 percent last year, as the government takes steps to spur exports and attract foreign investment. Money managers say tension over a Chinese oil rig in waters off Vietnam's coast will be short lived and scarcity of the notes will drive demand.
“Problems with the country’s relationship with China aren’t a key criteria in investment decision making,” said Sergey Dergachev, a senior portfolio manager who helps oversee about $10 billion in emerging-market debt at Union Investment Privatfonds GmbH in Frankfurt. “In Asia, Pakistan, Sri Lanka and Vietnam offer good yields at the moment, and that’s been exploited by investors this quarter.”
High returns
Vietnam dollar bonds have returned 15.49 percent over the past 12 months, the most of any country in Asia, HSBC Holdings Plc indexes show. Notes in Sri Lanka gained 15.45 percent, Singapore U.S.-currency securities 7.46 percent, Indonesia 14.27 percent, Thailand 8.90 percent and those in the Philippines 11.80 percent.
Bank for Investment & Development, or BIDV, Vietnam’s second-largest by assets, hasn’t borrowed outside of local-currency debt markets before, data compiled by Bloomberg show. It has the equivalent of about $645 million of bonds and loans outstanding, and an average weighted fixed coupon of 10.45 percent.
Although Vietnam’s central bank trimmed its key policy rates in March, reducing the discount rate to 4.5 percent from 5 percent and the refinancing rate to 6.5 percent from 7 percent, borrowing costs near zero in Europe, the U.S. and Japan make financing internationally that much more attractive.
“The downside trend of dollar bond yields is a positive factor, supporting BIDV’s international bond issuing plan,” said Do Ngoc Quynh, the bank’s Hanoi-based treasury head. He said he sees potential for seeking “long-term dollar funds.”
Dong devalued
Vietnam’s central bank devalued the dong for the first time in a year this month to help spur exports and authorities may weaken it another 1 percent by Dec. 31, according to a June 19 research note by Australia & New Zealand Banking Group Ltd.
While inflation, which surpassed 20 percent in 2011, has held below 5 percent for the last four months, it accelerated to 4.98 percent year-on-year in June. That may boost sales at Vietnamese retailers including Intimex Group JSC, Bloomberg Industries analyst Thomas Jastrzab said June 24.
As the country’s economic prospects improve, the cost to insure its debt against non-payment is dropping. Credit-default swaps protecting government bonds fell to 189.5 basis points on June 11, the least since May 2013. Vietnam is rated B2 by Moody’s Investors Service, the fifth-highest non-investment grade. Standard & Poor’s rates it two grades higher at BB- and Fitch Ratings Ltd. one level up at B+.
Emerging inflows
“We’ve seen a strong performance in all Asian frontier markets,” Rajeev de Mello, who manages $10 billion as the head of Asian fixed income in Singapore at Schroder Investment Management Ltd. said “Riskier lower-rated countries do benefit tremendously from more stable global macro conditions.”
Emerging-market bond inflows reached a record in excess of $2 billion in the first week of June as investors look overseas for higher returns, ANZ said, citing EPFR Global data.
Vietnam dollar bond yields average 3.64 percent, JPMorgan Chase & Co. indexes show, compared with 4.53 percent and 4.32 percent in the Philippines and Thailand respectively. Investment-grade U.S. dollar-denominated corporate bonds globally yield 2.97 percent and touched 2.92 percent May 28, the least in a year, Bank of America Merrill Lynch indexes show.
International interest
Vietnam’s sovereignty and security, as well as regional peace, are “threatened” by China’s decision to place an oil rig off Vietnam’s coast earlier this year, National Assembly Chairman Nguyen Sinh Hung told legislators in Hanoi. The friction at sea, which has led to vessel collisions, the sinking of a Vietnamese fishing boat and anti-China protests in Vietnam, is hurting ties between the two countries, Hung said in a June 24 address.
International investors in Vietnam are sticking with expansion plans. Intel Corp., the world’s largest semiconductor maker, wants to double the materials it sources from suppliers in Vietnam this year, the Vietnam Investment Review reported earlier this month, citing Sherry Boger, the general manager of Intel Products Vietnam.
The Santa Clara, California-based company will also start production of its flagship Haswell central processing units next month at its test and assembly plant in Ho Chi Minh City, according to a June 26 e-mailed statement.
Licence to invest
South Korean smartphone maker Samsung Electronics Co. may build an up to $1.7 billion display factory in the country’s north and local officials have asked for preferential tax rates to secure the investment, news website VietnamNet reported June 25, citing unidentified sources.
Binh Duong province, to the north of Ho Chi Minh City, granted investment licences to 41 foreign firms at a ceremony on June 4. The area has attracted $978 million in foreign-direct investment in the first five months, up 15 percent from a year earlier.
While investors don’t seem to be overly worried about the maritime impasse with China, many remember the fallout when Vietnam Shipbuilding Industry Group defaulted on a $600 million loan in 2010. In 2012, eight former executives of the company were sentenced to prison for mismanagement.
“Vietnamese corporates’ desire to come to the debt market and lock in low yields is high, and understandable,” Union Investment’s Dergachev said. “However bear in mind that Vietnamese corporate debt does have a poor track record.”

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