Vietinbank, one of Vietnam’s biggest state-owned banks, will next week embark on a global roadshow to promote a dollar bond issue – a test of international investor appetite at a time of ongoing economic turbulence.

Can Vietinbank succeed where other state-owned companies have failed in trying to issue international bonds?

After years of rapid credit growth and weak financial controls, Vietnam’s banks are in a sorry state and the Communist government recently unveiled a plan to restructure the sector.

State media have reported that Vietinbank, which is 10 percent owned by the International Finance Corporation, the World Bank’s private sector arm, is looking to raise up to $500m through an international bond issue, advised by Barclays and HSBC.

The bank will begin an international roadshow on Monday, taking in Singapore, Hong Kong, London and the US, according to the International Financing Review Asia.

Since Vinashin, a large and badly-run state-owned shipbuilder, defaulted on some of its more than $4bn of debt in December 2010, other state-owned companies have been unsuccessful in raising international debt.

Although there have been some signs of economic stabilisation in the last year, Vietnam’s economy remains in trouble. Is there any reason to believe that Vietinbank will be any more successful than Vinacomin, the coal mining monopoly, and Electricity of Vietnam, the state utility, in issuing dollar-denominated debt?

The credit ratings agencies seem to think there could be.

Moody’s Investors Service on Friday gave Vietinbank a B1 long-term rating, meaning that the proposed bond issue is “speculative” and “subject to high credit risk”. Standard and Poor’s rated the bond issue at B+, implying that it has “significant speculative characteristics”.

Both ratings agencies said that Vietinbank’s asset quality was poor but that the bank, Vietnam’s second biggest by assets, benefited from scale and implied state backing.

“We expect the bank to benefit from extraordinary government support given its ‘high’ systemic importance,” S&P said in a statement.

The last time international investors assumed that a major Vietnamese state-owned company had implicit state backing, it ended in tears when Vinashin defaulted on a $600m syndicated loan in December 2010. Elliott Advisers, an aggressive hedge fund and one of the creditors of this loan, which was arranged by Credit Suisse in 2007, is now pursuing Vinashin in a London court.

If Vietinbank manages to issue debt successfully in the coming weeks, it may say as much about the fickle nature of international investors as the state of the Vietnamese economy.

Related reading:
Vietnam: a question of balance
, FT
Vietnam outlines banking system overhaul
, FT
Vinashin: a tough lesson
, beyondbrics

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