Compiled by Thiên Lý

On May 13 the State Bank of Việt Nam (SBV) set the daily reference rate at VNĐ23,047 to the dollar. The strengthening of the đồng by VNĐ10 over the previous day was its first recovery after a week of losing sharply.

With the current trading band of +/- 3 percent, the ceiling rate for May 13 was VNĐ22,356.

At banks the Vietnamese currency rose by VNĐ20 and even VNĐ50 against the dollar.

Vietcombank bought the dollar at VNĐ23,235 and sold it at VNĐ23,355, a VNĐ25 change from the previous day.

Techcombank, ACB and Eximbank set them at VNĐ23,230 and VNĐ23,330.

The sharp and sudden depreciation of the đồng has been attributed mainly to the escalation in the US-China trade war after the US’s decision to raise tariffs on US$200 billion worth of Chinese products to 25 per cent from 10 per cent and to start the process of slapping tariffs on another $300 billion worth of goods.

China has also announced higher tariffs on thousands of US goods in retaliation.

Since  the beginning of May the Chinese yuan has depreciated by 3 per cent against the US dollar. It is one of eight foreign currencies that strongly affect the Vietnamese economy.

Another reason is the gap between the interest rates on the đồng and the dollar on the inter-bank market dropped sharply to just 0.4-0.7 per cent.

Supply of and demand for the greenback has recently been affected after credit institutions sold  US$8.35 billion  to the central bank and the country’s trade deficit reached over US$700 million in April.

Thus control of the forex rate has become more difficult since the country’s economy is now increasingly aligning with external factors.

However, the forex rate volatility only lasted a short time and soon returned to normal.

Experts have explained this is because Việt Nam has many weapons in its armoury to stabilise exchange rates.

One of them is its plentiful foreign exchange reserves, which have been growing impressively in recent times.

In the first four months of this year the SBV bought US$8.35 billion from the market, and now has an estimated $67.35 billion, double the level of three years ago.

This enables the central bank to actively intervene to ensure currency stability.

The supply of foreign currencies itself is also plentiful since both direct and portfolio investments have been growing robustly.

In the first four months FDI was worth US$7.45 billion, with investments in new projects rising by 50.4 per cent year-on-year, according to the Foreign Investment Agency (FIA).

As a result, foreign direct investment in Việt Nam reached a record figure in the past four years with US$14.59 billion, a year-on-year increase of 81 per cent.

The FIA also reports that merger and acquisition deals too increased sharply.

In the first quarter the value of such deals tripled year-on-year to $5.68 billion.

Bond issuance still out of reach for small firms 

It is estimated that around VNĐ9.1 trillion (US$391 million) worth of corporate bonds were issued in the first quarter of this year, a year-on-year increase of 223 per cent.

The Refrigeration Electrical Engineering Corporation (REE) raised VNĐ2.32 trillion (US$100.8 million) with a coupon rate of 7 per cent.

The Hồ Chí Minh City Infrastructure Investment (CII) collected VNĐ1.15 trillion ($50 million) from an issuance of 10-year bonds with a coupon rate of 7.2 per cent.

The success of their issues indicates the importance of corporate bonds as a very important source of funding for Vietnamese companies.

According to SSI Securities Inc (SSI), the value of corporate bonds issued this year has increased because firms need new sources of funds to replace bank credit after the central bank showed caution in fixing credit growth quotas for lenders.

The State Bank of Việt Nam (SBV) recently allocated a maximum of 15 per cent credit growth this year for some banks that have achieved Basel II norms.

Other lenders that do not meet them are only allowed a maximum of 10-13 per cent.

This means less access to bank loans for companies.

In recent years the bond market has witnessed strong growth, especially the corporate bond market, which has helped improve enterprises’ financial capacity.

Participating in the market are companies in many different sectors, including Vingroup (VIC), Vinhomes (VHM), Vinpearl (VPL), Vietjet (VJC), Novaland, and REE.

Recently Hoàng Huy Investment Financial Service Joint Stock Company (TCH) signed an agreement with some Korean investors (Shinhan Bank và Shinhan Core Trend Global) to issue 598,808 convertible bonds totally worth VNĐ600 billion.

A notable feature is that only large companies such as Vingroup,  REE and CII have succeeded in issuing bonds.

The success of these big businesses can be explained by their financial potential and reputation, which gains them creditors’ trust.

These advantages are of particular significance in the context that Việt Nam has yet to have a single professional credit rating agency.   

But for most small companies, which lack these advantages, raising funds through bond issuance is far out of reach.

According to the Việt Nam Bond Market Association, since the beginning of 2018 only a few small and medium-sized enterprises, not including banks and securities companies, have managed or planned to issue bonds.

They include Tiến Bộ Group (TTB), An Phát Bioplastics Joint Stock Company (AAA), Hải Phát Investment Joint Stock Company, and SAM Holdings Joint Stock Company (SAM).

Corporate bond issuers need to meet certain conditions set by the Government.

Analysts say among the most important are that they must meet certain credit rating norms  and have a good growth history.

But over 90 per cent of Vietnamese enterprises are small or medium-sized and do not publicise information and have limited corporate governance capability.

Market observers say many companies still lack transparency in their operations, including audit, suffer from poor quality reporting and do not regularly publicise ratings information.                       

Another reason is the corporate bond market’s low liquidity. Since it is a new market, indexes such as for bond yields are scarce and it is thus unable to appeal to investors.

The tough regulations also act as a barrier preventing small enterprises from issuing bonds.

The Government has issued Decree 163/2018/ND-CP, effective from last February, which is touted as a radical reform of regulations on private issuance of corporate bonds.

Notably, it significantly liberalises the conditions for issuing corporate bonds. The stipulation that a company should have made a profit the year before the issue has been scrapped.

But it introduces a new condition: that an issuer is required not to have overdue debts in three consecutive years before the current issuance.

This condition is difficult to meet, particularly for small enterprises.

In addition, in reality, though interest rates on bonds are often two or three percentage points higher than on bank deposits, the latter are often preferred since they seem to be safer.

Corporate bonds are considered riskier and with good reason since their safety depends on the issuers’ business performance. -- VNS