Vietnamese loans: time is ripe for deals
Vietnamese borrowers have kept loans bankers busy amid a broader slowdown in the syndication market. But the welcome they have received so far from lenders may cool down faster than expected.
Vietnam is in a sweet spot. It is one of the fastest growth countries in Asia, with its economy expected to increase by 6.8% this year after peaking at 7.1% in 2018. Additionally, the country could get a fillip, from frontier market status to emerging market, within the next couple of years if the government plays its cards well and implements a key securities law.
Its strong position has naturally propelled many of the country’s borrowers to raise loans from the international market.
VPBank Finance, VinFast and its parent Vingroup Joint Stock Co have been among the repeat borrowers in 2019. On top of that, the likes of Taiwan’s Formosa Plastic Corp has tapped the dollar market for funds for new manufacturing plants in Vietnam, while local company Samson Holding went the club loan route for a factory in the country.
A big driver for these loans has been the US-China trade tensions, which have pushed companies to move factories out of the mainland and into Vietnam to avoid tariffs and benefit from lower labour costs. In the loan market, banks have jumped at the chance to take on some new business.
But Vietnamese borrowers still seeking funds may want to head to the market soon — or risk losing out on bank support.
For starters, Vietnam's benefits from the strain in US-China relations are likely to be short-lived. Economists and analysts alike reckon that the prolonged trade war is likely to damage the global economy, rather than just the two countries.
The International Monetary Fund reported in October that global growth is forecast at 3% this year, the lowest level since 2008. It added that the rising trade and geopolitical tensions have increased uncertainty about the future of the global trading system and international co-operation.
Additionally, slowing economic growth, including in China, will hurt Vietnam in the longer run. The import and export value between Vietnam and China was the largest in 2018, accounting for 22.2%, while the US was ranked third, accounting for 12.6%, according to the General Department of Vietnam Customs. With the US and Chinese economies affected by the trade war, the trade numbers for Vietnam are likely to drop too.
That’s not all. Vietnam itself may potentially be a target of tariff increase by the US. In May, Vietnam was added to the US Treasury Department’s list of possible currency manipulators. In June, US president Donald Trump said in an interview that the southeast Asian country is “the single worst abuser of everybody”, and could likely be the next nation to be hit by tariffs.
Then there are the dynamics of the loan market itself. Vietnamese loans have been well-received, in part because of the absence of big deals from Indonesia this year. Many Indonesian companies held off their financing activities due to uncertainties over the general election. But now, the new government has been formed and the election process is finally over, giving borrowers and lenders some signs of stability. Indonesian firms are expected to return to the offshore market in droves again, likely stealing some of the attention away from Vietnam.
That does not mean that all banks will shift their focus away from the country immediately. Some loans bankers have said that their pipeline for Vietnam is gradually building up, with both Indonesia and Vietnam likely to be the most active markets early next year. However, companies still need to act quickly before banks reach their country limits.
For potential Vietnamese borrowers, now is the time to hit the loan market for funds. Early movers have a clear advantage and an open window for funding. But wait a few months and that window may very well be shut.