DAF to Raise VND6,500 Bln via Bonds Issues

The Development Assistance Fund (DAF), based on the State development investment plan for 2005, will issue government bonds worth of VND6,500 billion (USUS$406.25 million) via auctioning and credit guarantee forms, according to  DAF Deputy General Director Nguyen Van Quang.

The maturity will be extended with two new terms of two and three years instead of the previous 5, 10 and 15 years. Bonds with terms of two and three years will be issued with total value of VND1,000 billion (USUS$62.5 million) while five-year term bonds are worth at VND1,500 billion (USUS$93.75 million) and 10- and 15-year term bonds at VND4,000 billion (USUS$250 million). The bidding and credit guarantee channels will be shared out equally at VND3,250 billion (USUS$203.16 million) each. This is different from previous bond issuance years.

According to Mr. Quang, DAF commenced government bond issuance in 2002. After three years, it mobilised VND13,353 billion (USUS$834.56 million), of which VND1,274 billion (USUS$79.63 million) came from the cooperation between DAF and the Ho Chi Minh City Securities Trading Centre, VND12,079 billion (USUS$754.94 million) from the bidding channel and the remainder from the credit guarantee channel. According to experts, government bond issuance via the credit guarantee mode is now becoming more and more monotonous and is uninteresting to investors. Therefore, DAF will impulse the government bond issuance through the bidding channel, aiming to increase competitiveness among government bond purchasers. 

The biddings of bonds with terms of two, three and five years will be organised at the Hanoi Securities Trading Centre (HASTC) while the bonds with maturity of 10 and 15 years will be auctioned at the Ho Chi Minh City Securities Trading Centre (HSTC). Interest rates of the government bonds will be made in advance or in arrears, but not exceeding the ceiling levels provided by the Ministry of Finance.

Under the DAF oriented strategies, DAF will step up the capital mobilisation through the government bond issuance channel. It plans to issue government bonds worth from VND8,000 (USUS$500 million) to VND10,000 (USUS$625 million) per annum  in the 2005-2008 period to meet government-backed investment needs.

The government bonds issued by DAF are scheduled to begin at the Hanoi Securities Trading Centre from April 2005. Until now, the Hanoi Securities Trading Centre has sent written documents to fully inform them about the auctioning here to about 60 potential organisations including securities companies, banks, finance companies, insurance companies and others. Three units have completed registration procedures to become bidders here namely Vietcombank Securities Company, Saigon Securities Company and Bao Viet Securities Company, and many others are processing procedures.

As regards the registration for transaction of the government bonds after the auctioning, HASTC is actively preparing necessary conditions to be able to put the government bonds into transaction from June 2005, according to Mr. Tran Van Dung, HASTC Director. Apart from equipping bidding software programmes, HASTC has also installed the bond transaction software programme to be able to turn the government bonds into transactions here just after being auctioned.

However, finance organisations in Vietnam are still in two minds as to the bond attractiveness and its payment ability.  According to the Bank for Investment and Development of Vietnam (BIDV), the application of the ceiling interest rates to government bonds in the auction makes it unattractive to investors, especially in the event of fluctuating inflation as in the previous years. Therefore, the Ministry of Finance should introduce more flexible interest rate policies, which should also cover the ability of applying the floating interest rate during auction sessions to produce marketwise biddings.

In addition, banks also expressed worries about the DAF-issued government bonds which have not been allowed to enter the open market organised by the State Bank of Vietnam. Although the current legal regulations provide that DAF-issued government bonds as well as all other government bonds are allowed to be transacted on the open market, the State Bank of Vietnam has not accepted them on its market. This reality is lessening the attractiveness of the DAF-issued government bonds. According to several sources, the State Securities Commission is submitting a document related to this issue to the Ministry of Finance to settle it with the State Bank of Vietnam to create a fair transaction mechanism for all kinds of government bonds.

• Lan Anh