Vietnam loans win vote of confidence from lenders
Vietnamese companies have made a splash in the loans market in recent months, with borrowers from the banking and property sectors heading offshore for funding. And they have managed to raise their latest financings at a much lower cost than previously, taking advantage of abundant liquidity and an improving domestic macroeconomic outlook, writes Shruti Chaturvedi.
Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV) has tapped the loans market twice already this year. It launched a $100m dual trancher into general syndication at the end of April, after another outing in February for a $150m five year loan.
Close on its heels, another Vietnamese borrower, Vietnam Investment Group (VIG), also rolled out a new facility. It is seeking a $125m three year bullet for investment in its real estate related projects.
Both companies managed to access overseas bank investors at a lower cost than in their last outings in 2013.
VIG, an associate of real estate developer Vingroup, has shaved 125bp off the margin for its three year, while BIDV is paying a lower margin for five year funds than it was for two years. Its 2013 two year loan paid a margin of 235bp, while the five year from 2015 pays 200bp.
The downtrend in pricing is natural enough, considering the overall lack of deals in the offshore syndicated loan market. But the amount by which pricing has gone down, for an emerging market economy like Vietnam, also reflects the big improvement in sentiment, with the regulators' moves to open up capital markets and promote business starting to pay off.
“It’s not just offshore — even onshore margins are shrinking in Vietnam,” said a Taiwanese banker. “This is definitely a good window for them [Vietnamese] to raise debt. There is a lot of demand but deal supply [out of Asean] is not that good and it’s already May.”
Taiwanese banks have a long history of supporting companies from their home market with operations in Vietnam. Now, with their own regulator breathing down their necks for them to curb Chinese lending, they have stepped up efforts to book assets in southeast Asia. They have a head start in Vietnam, thanks to their long presence and deep relationships, said bankers.
Vietnam’s GDP grew 5.2% in 2012, according to World Bank data, and is reckoned to have been on a stable upward trend ever since. The supranational estimates growth will come in at 6% in 2017.
“Vietnam has had a few credit rating upgrades since 2013,” said Eugenia Fabon Victorino, an economist with Australia and New Zealand Bank. “In 2014 Moody’s upgraded its sovereign rating to B1 from B2. While this is still around three notches away from investment grade, it is a stamp of approval recognising recent improvements in macroeconomic fundamentals.”
An encouraging sign is that domestic demand in the country is gaining traction, she said. “This is not to say Vietnam is out of the woods, but domestic demand is improving and this improvement has been much stronger over the past four to six months."
BIDV’s back-to-back offshore syndications are part of a wider trend of financial institutions seeking cheap dollars offshore, to make the most of the gap between the cost at which they raise funds and the rate at which they lend at home (see separate story).
But there are factors specific to Vietnam that are likely to spur large banking institutions in the country to frequent the offshore market.
“Vietnamese banks have shown a greater appetite for foreign currency syndicated loans for a number of reasons,” said Eugene Tarzimanov, vice president and senior credit officer in the financial institutions group at Moody’s. “The banking system is showing a gradual de-dollarisation of its funding base, while demand for FX loans is strong.
“For example, the central bank is using caps on interest rates for deposits in foreign currencies, making it difficult for the banks to attract US dollars domestically. The US dollar syndicated loan market offers a good opportunity for the banks to borrow in dollars and lend in dollars to domestic companies that require imported components and equipment.”
Demand for imports of machinery and electronics parts has also been increasing and recent trade deficits have prompted the State Bank of Vietnam to devalue the Vietnamese dong twice so far this year, Victorino said. The central bank devalued the dong by 1% on May 7.
However, when it comes to lending to state owned Vietnamese banks, there are a number of risks to be contended with as well. Prime among these is the asset quality of banks there. Moody’s estimates non performing loan rates at around 10%. Banking transparency is weak; cross-ownership and related-party lending are high.
The creditworthiness of state owned banks in the country is not likely to improve substantially in the near future, said Fitch analyst Mihwa Park. But the central bank's efforts to restructure the country's banking system are viewed positively by Fitch, she added.
Another high growth area for an infrastructure hungry country like Vietnam is real estate. Borrowers from this sector, too, have been active in the offshore loans market. Before Vietnam Investment Group, Kumho Asiana Plaza, a commercial complex in the central business district in Saigon raised $125m via a three year amortiser from five lenders at the end of December.
“We are seeing some improvement in industrial production of construction related items, which tells us there has been more movement with respect to real estate and construction sectors,” said Victorino.
Vietnam approved a new law in November 2014, allowing foreigners and foreign companies to own property in the country. This move is also expected to boost the real estate sector in the country.