Vietnam Learns Becoming a Tiger Economy Comes With a Cost – 7 Aug 2017

  • Vietnam has more than doubled its gross domestic product over the past eight years, becoming a high performer in the world’s fastest-growing region. One consequence is it’s now well-enough off to be disqualified from getting development funding from international institutions on a “concessional” basis at well below market rates.
  • Vietnam graduated from most concessional financing from the World Bank at the end of Jun 17, and it’s currently rated a “blend” borrower from the Asian Development Bank – one step up from solely getting the cheapest financing.
  • For now, Vietnam plans to rely expanding local-currency debt, Truong Hung Long, head of debt management and the external finance department at the Ministry of Finance, said. The domestic market can meet the need for funds “at the moment,” he said. In time, however, foreign investors anticipate further debt issuance offshore.
  • About 70% of Vietnam’s USD13.2bn worth of outstanding bonds are onshore, with the rest issued in dollar-denominated notes, according to data compiled by Bloomberg. Its most recent offshore issue was in Nov 2014, when it sold USD1bn of 4.8% 10-year securities.
  • The country’s debt is rated at junk by the three major agencies, putting it in the high-yield category compared with other Southeast Asian nations, such as Indonesia and the Philippines, which qualified for investment grade in recent years.
  • Alongside greater tapping of the capital markets, Vietnam probably will also look at asset sales and tax reforms, according to Andy Ho, chief investment officer and managing director at VinaCapital Group, the nation’s largest fund manager.

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