US embassy cable - 04HANOI218

UNCLAS HANOI 000218 
 
SIPDIS 
 
STATE FOR EAP/BCLTV 
STATE PASS USAID FOR ANE: AFERRARA DMCCLUSKEY 
STATE PASS USTR FOR ELENA BRYAN 
STATE PASS OPIC AND EXIM 
TREASURY FOR OASIA 
USDOC FOR 4431/MAC/IFP/OKSA/HPPHO 
 
E.O. 12958: N/A 
TAGS: EFIN, ECON, EINV, VM, FINREF 
SUBJECT:  2003: THE YEAR OF THE VIETNAMESE BOND 
 
REF: 2003 HANOI 2972 
 
1.  SUMMARY: Following the success of Vietnam's first- 
ever corporate bond issue, Vietnam has decided to embrace 
this capital mobilization mechanism.  In September, the 
GVN outlined a plan to issue bonds totaling 63 trillion 
Vietnamese Dong (about 4 billion USD) for infrastructure 
development through 2010.  Then, the GVN issued 
legislation in December paving the way for sovereign 
guarantees on bonds issued to fund "crucial" projects. 
Although the expansion of capital market instruments is 
welcome, the attending credit growth is unsustainable. 
END SUMMARY. 
 
2.  At the beginning of September, PetroVietnam, the 
State-owned oil and gas corporation, successfully issued 
Vietnam's first-ever corporate bonds.  90 percent of 
these five-year bonds were sold on the first day of issue 
at a first year interest rate of 8.7 percent, which 
primarily attracted banks and financial institutions. 
The 300 billion Vietnamese Dong (VND) (less than 20 
million USD) in capital raised through this issue is 
scheduled to be used for a range of projects, including 
an oil refinery and nitrogenous fertilizer-electric-gas 
projects. 
 
3.  Building on this momentum, the Prime Minister issued 
Decision 182 in September on the GVN's plan to issue 63 
trillion VND (about 4 billion USD) in government bonds in 
order fund investment in major transportation and 
irrigation projects until 2010.  The GVN decided to sell 
a total of 11.5 trillion VND (less than 750 million USD) 
of these bonds in 2004.  While the majority of the funds 
raised will be used for infrastructure and irrigation 
projects, around one-fifth will be set aside for 
education.  The bonds, which will be denominated in 
Vietnamese Dong, will have a minimum face value of 
100,000 VND (less than 6.50 USD), a five to ten year 
term, and can be traded on the stock exchange. 
 
4.  Finally, the Government recently issued Decree 141, 
providing a full government guarantee on bonds issued by 
certain enterprises in some cases.  Those companies that 
the Prime Minister appoints to mobilize capital for 
"crucial" projects can issue bonds carrying a government 
guarantee as long as the Ministry of Finance approves the 
method of bond issue, use, repayment, and value. 
Although the GVN has not specifically named businesses 
that may qualify for this program, experts expect that it 
is aimed at large State-Owned Enterprises, such as 
PetroVietnam and Electricity Vietnam. 
 
5.  COMMENT: Given the infancy of the capital market in 
Vietnam, this effort to expand the number of tools 
available to raise funds is a welcome development. 
However, it also compounds recent concerns raised by 
international experts regarding the dramatic rate of 
credit growth to the economy.  Estimated at 29 percent 
for 2003, such expansion is especially worrisome due to 
the weakness of the financial sector (see reftel). 
BURGHARDT