Vingroup issues Vietnam landmark bond

Vingroup Joint Stock Company raised a $200 million 4.5-year senior high-yield note with a callable option in the third year on Thursday, defying investor concerns circling the lack of transparency plaguing Vietnamese real estate corporate profiles as well as weak domestic economic fundamentals.

The 144a/Reg S notes – which are guaranteed by its subsidiaries including Vincom Retail – ended up pricing tighter than initial guidance of about 12% despite investor challenges, achieving a yield of 11.875%.

“This is one of the toughest deals that I have ever done in my career,” said a source. “It was tough in the respect that we have to allay investor concerns with regards to the property market in Vietnam, the Vietnam market story and the credit itself.”

“This is the first corporate out of Vietnam and the first real estate deal out of Vietnam,” he added. “First time credits always face an uphill task, even for Chinese real estate [high-yield] credits.”

Some of the closest comparables for Vingroup’s bond were the notes of other property companies from the region, including Indonesia-based Lippo Karawaci, China’s Agile property and Kaisa Group, all of which were trading around the 7% to 8% area at the time of pricing, notes a source.

“It was a pretty difficult price discovery process that we had to go through as well,” said the source.

Although a syndicate banker admits that not every investor has been convinced by the creditworthiness of the issuer, there was nonetheless a sufficient amount of investor demand that allowed the note to print.

Despite the rocky start, Vingroup’s bond fared pretty well in secondary markets, rising from a reoffer price of 99.147 to 101 on Friday.

Vingroup’s bond had an order book of more than $470 million from 100 over accounts. Fund and asset managers scooped up a bulk of the papers, accounting for 66%, following by private and retail banks with 25% and financial institutions and others 9%. Asian issuers subscribed to 60% of the notes, followed by US 25% and Europe 15%.

Vingroup has sought to sell as much as $300 million of five-year notes at a yield of 12%-12.5% last September, according to Bloomberg. However, it decided to scrap the issuance citing elevated costs as investors sought to avoid risk ahead of year-end.

Vietnam’s government is under pressure to find ways to reduce the country’s spiraling bad debts. Like many regional counterparts, the Southeast Asian country's government poured large amounts of stimulus money into its economy during the 2008-09 global financial crisis.

The central bank estimates bad debt at 7.8% of outstanding loans at the end of last year. About 35% of property loans were non-performing as of the end of 2012, according to the National Financial Supervisory Commission. The country’s outstanding property loans stood at VND230 trillion ($10.8 billion) as of March 31, according to the central bank.

Credit Suisse was the sole global coordinator. Credit Suisse, Deutsche Bank and ING were the joint bookrunners.