Vietnam Bond Market

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In recent years, the issue of efficiently mobilizing capital has become the concern of all companies. There are some ways of doing this: borrowing from the banks, issuing stocks or issuing bonds. However, when the interest rate of borrowing from banks is very high due to high inflation, together with the stock market is quite instable; calling for capital from bond market is much more preferred by investors. In the context of this report, some major points regarding the bond market in Vietnam are presented. Firstly, a common picture about the Vietnam bond market is drawn. Next come the types of bonds and major participants in this market. Finally, several ways by which bonds are issued are described in details.

I/ Overview of Vietnam bond market
The Vietnam bond market was established in 2000, but it only developed sharply after 2002 when the government allowed issuing many types of bonds and especially after the appearance of the Ho Chi Minh stock exchange. Recently, the outstanding volume of bonds has increased rapidly, as shown in the graph below.

Figure 1. Bonds outstanding volume and bond outstanding/ GDP. (Source: Ministry of Finance of Vietnam)
Up to the year 2006, the proportion of outstanding bond volume over GDP reached the figure of 13%, in comparison with only 3% in 2001. Nevertheless, compared with the Vietnam stock market that accounts for more than 40% of the total GDP, that of bonds is very low. In particular, this rate of Vietnam is far below the level of other countries in Asia. In most Asia countries, the bond accounts for more than half of the total GDP whereas in Vietnam, it takes less than 15% of GDP.

Figure 2. Outstanding bond volume/GDP in some Asia countries. (Source: Ministry of Finance of Vietnam)
All things considered, one of the main features easily to be realized in Vietnam now is that the bond market has not been attractive enough to most investors. Yet, according to many specialists, it is likely that this market will become an extremely attractive capital-mobilizing channel in the near future.

II/ Types of bonds
At the moment, there are three main types of bonds in Vietnam: government bonds, municipal bonds and corporate bonds. Here comes the pie chart showing the proportion of each types contributing to Vietnam bond market.

Figure 3: Proportion of different types of bonds
(Source: Ministry of Finance of Vietnam)
As can be seen, the government bonds, which are issued by both the State Treasury of Vietnam and the Vietnam Development Bank, dominate almost the market with 64% and 18% respectively. The municipal bonds currently issued by three local governments including Hanoi, Ho Chi Minh and Dong Nai, account for only 7% of the total. The rest 11% belongs to the corporate bonds which are issued by the companies. Nevertheless, there are many intensive conditions of the government for issuing corporate bonds. Therefore, until now there are only 10 companies who meet enough conditions to issue corporate bonds, such as EVN, Vinashin, Song Da Corporation, etc. In comparison with other countries in the region, the structure of Vietnam bond market is quite different.

Figure 4: Structure of bond market in some Asia countries
(Source: Ministry of Finance of Vietnam)
While in Korea, Singapore and especially Malaysia, the contribution of government and corporate bonds to the market is quite balance, that of Vietnam shows a significant difference. Government bonds dominate more than three forts of the market, and the rest 11% belongs to corporate bonds. That large disparity warns that we are dealing with a strange situation in bond market and some actions need to be taken to balance the two types of bonds.

III/ Major participants
1. Individual investors

According to the SSC, until September 2008, the number of investors had increased by 47 per cent to 460,000 compared with last December. In fact, when in many other countries, institutional investors...
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