The National Assembly (NA), Vietnam’s supreme legislative body, has allowed the government to issue $3 billion at most worth of sovereign bonds abroad in 2015 and 2016 to restructure domestic debts.
The move came in in the context that Vietnam is facing budget constraints and domestic bond sales are sluggish. The Ministry of Finance raised just 127.5 trillion dong ($5.7 billion) from government-bond sales in the nine months through September, meeting 51% of the year’s plan.
To make bond sales attractive, the NA also permitted the government to sell less-than-five-year bonds.
The NA in November 2014 disallowed the government to issue bonds having terms shorter than three years, which has discouraged banks, the biggest bond holders, from buying government debt for fears of liquidity risk.
The government has been permitted to use some 40 trillion dong from selling stakes in profitable companies to finance development projects. It last month directed its investment arm to withdraw from ten firms including dairy producer Vinamilk, teleco FPT Telecom and insurer Bao Minh Corp.
Vietnam’s budget overspending is set at 254 trillion dong ($11.3 billion) next year, or 4.95% of GDP, compared to 5% of GDP this year.
Bui Duc Thu, deputy head of the NA’s Financial and Budgetary Committee, commented that the $3-billion bond issuance is necessary at a time when borrowing at home is getting tough and the debt servicing cost is running high.
“If the plan is delayed, Vietnam would have to offer higher coupons for bonds to be issued in international capital markets if the Fed hikes interest rates in the coming time,” he told local media.
Vietnam last November sold $1 billion worth of 10-year USD-denominated securities under 144A/Reg S transaction at an annual coupon of 4.8% per year, lower than the initial guidance of 5.125%. The government sold $750 million worth of 10-year bonds in 2005 with an annual coupon of 7.125% and $1 billion in 2010 with an annual coupon of 6.75%.