Vietnam plans new bond products to boost trade amid record sales

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Vietnam plans to introduce new bond instruments such as futures, related indexes and cross currency repurchase agreements to boost trading in the market, as the government ramps up debt sales to a record this year.

The Hanoi Stock Exchange has consulted with experts on the plans and will submit a proposal to the Ministry of Finance for implementation in 2014, Deputy General Director Nguyen Thi Hoang Lan said in an interview yesterday in Hanoi. The bourse is now "deeply studying" the feasibility of the plans and the submission will be done as early as year-end, she said.

"The diversification of products will provide investors with more options and would be most welcome," Attila Vajda, an analyst at ACB Securities Co., said by phone from Ho Chi Minh City today. "Sophisticated investors would join the market, adding more liquidity and interest from foreign investors."

The Southeast Asian nation will boost debt sales by more than 6 percent to 150 trillion dong ($7.1 billion) this year as falling property prices and slowing bank lending supports demand, Tran Minh Hang, deputy head of the State Treasury, said in March. The government may struggle to raise revenue after it granted tax reductions to local companies in an effort to encourage investment and revive the flagging economy.

The government raised 112 trillion dong from bond sales in the first six months of the year, equivalent to 67 percent of total borrowing for the whole of 2012, according to a statement on State Securities Commission's website on July 3.

"˜Attractive investment'

Credit growth is about 4 percent so far this year, compared with the central bank's 12 percent target for 2013, Lan said. The property market is "frozen and faces many difficulties, with about 112 trillion dong of real-estate projects unsold," according to a January posting on the website of the National Assembly's Economic Committee.

Lan said the Ministry of Finance is also considering introducing more products such as inflation-linked notes and zero-coupon bonds through 2020 to further diversify the market. The government may also issue securities with longer maturities "more frequently" to help satisfy different demands of investors, she said.

"Government bonds still remain an attractive investment channel," Lan said. "There are idle funds in the market due to the stagnant bank lending."

Vietnam's borrowing costs dropped this year. The yield on 10-year sovereign notes fell 117 basis points, or 1.17 percentage points, to 9.03 percent, data compiled by Bloomberg show. That's down from a 2013 peak of 10.2 percent in January.

Tax cuts

Gross domestic product increased 5.25 percent in 2012, the slowest pace since at least 2005, according to revised figures from the General Statistics Office. The government is aiming for growth of 5.5 percent in 2013. That would mark the first time the economy has expanded less than 6 percent for three straight years since 1988, according to data posted on the Washington-based International Monetary Fund's website.

The central bank has cut its refinancing rate eight times since March 2012 to 7 percent to spur economic growth.

Vietnam's National Assembly voted last month to reduce corporate income tax to 22 percent from 25 percent, starting Jan. 1, 2014. The rate for companies with fewer than 200 employees and total revenue of less than 20 billion dong will be lowered to 20 percent from July 1, 2013.

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