VINACHEM

The Government’s intention to issue US dollar-denominated bonds at this time will help increase the national foreign exchange reserves, add capital resources for development investment and reduce the burden on bank credit and pressure on interest rates, experts say.

However, the issue also faces risks, especially given that greenback interest rates are not low, they note.

At a recent meeting of the Government’s steering committee for restructuring credit institutions and handling bad debts, Deputy Prime Minister Hồ Đức Phớc directed the State Bank of Vietnam to study and advise the Government on solutions to issue dollar-denominated bonds.

According to experts, Việt Nam’s capital demand for infrastructure investment in the coming period is very large. Therefore, issuing construction bonds in foreign currencies is reasonable as it will help the Government have more capital resources to offset the budget deficit without affecting interest rates in the market. In this issue, it will be more feasible to target international investors rather than domestic investors.

In the past, Việt Nam issued three rounds of dollar-denominated bonds, the first in the 2005-2006 period, the second two in 2010, and the third in 2014.

CEO of economic and financial data provider WiGroup Trần Ngọc Báu said the move was the Government’s effort to find a solution both to raise idle dollar sources from the public and limit negative impacts on exchange rates.

Báu believes that successfully raising dollar bonds from the public will help reduce pressure on the banking system as well as the foreign exchange market in case dollars are needed to pay foreign debts.

According to Báu, the dollar bond issue can be applied to both domestic and international investors as both forms can help reduce exchange rate pressure during the period when Việt Nam needs dollars in the short term.

General Director of AFA Capital Nguyễn Minh Tuấn said issuing dollar bonds would not only add capital to the economy and reduce pressure on interest rates, but also help increase the national foreign exchange reserves.

He believes the current time is quite favourable for issuing dollar-denominated bonds. The reason is that the Government’s foreign debt ratio is quite low and under control, so Việt Nam still has significant room to borrow foreign debt.

In addition, Tuấn said, Việt Nam’s national credit rating had improved significantly as the world’s leading prestigious organisations such as Fitch Ratings, S&P and Moody’s had all upgraded Việt Nam’s credit rating. This would help Việt Nam raise international capital at a cheaper cost.

Besides, dollar interest rates on the international market were expected to decrease as the US Federal Reserve (Fed) was likely to reduce interest rates next month, he said.

However, experts also warn of challenges when issuing dollar bonds.

Though Việt Nam’s national credit rating has improved, it is still classified as speculative rather than investment grade, which means Việt Nam still has to pay relatively high interest rates when raising dollar-denominated bonds. It is estimated that referring to the current 10-year US dollar bond interest rate plus Việt Nam’s risk margin, Việt Nam is likely to have to issue dollar bonds at an interest rate of 6 to 7 per cent per year, not taking into account the depreciation of the đồng.

Therefore, though supporting the dollar bond issue to supplement capital for the economy in the context of large investment needs, experts recommend that the Government clearly define the purpose of the capital raising in order to have an effective plan.

Phan Lê Thành Long, chairman of AFA Capital, said if capital raising is for sustainable development and green projects, it could achieve lower interest rates and longer terms.

In addition, experts recommend that the Government strengthen communication to help the world see Việt Nam as a stable growth country with tools to stabilise exchange rates and interest rates as well as public debt and national risks at medium to low levels.

At the same time, it is necessary to focus on improving the national credit rating, because this factor is directly related to the Government’s borrowing interest rates.— BIZHUB/VNS