Convertible bond issues boom as bank rates increase

[kieudiemvje]

Enterprises are enthusiastically issuing convertible bonds to raise medium- and long-term capital.
About 17 listed firms have already issued or planning to issue convertible bonds this year, most through private offerings or to strategic or institutional investors.
Convertible bond issues so far this year through June have totalled about VND10 trillion (US$526.3 million) with an average term of two years and a coupon of 8-10 per cent per year, according to Au Viet Securities Company.
Dang Lan Huong, Head of analysis for Au Viet, said that issuing convertible bonds was serving the needs for capital to finance business operations now when the last year’s subsidised interest loan programme has ended, driving up the costs of borrowing at commercial banks.
The issuers were able to borrow at much lower interest rates using bonds in lieu of bank loans, and the convertibility allowed the loans to be repaid in equity rather than cash, said Dinh Quang Hoan of Viet Capital Securities Co’s corporate finance department.
Strategic and institutional investors – the leading buyers of convertible bonds – were, in fact, generally more interested in increasing their stakes in a company than in cashing in the bonds, Hoan said.
“Meanwhile, these instruments can protect bondholders from high risk due to the market downturns,” said Huong, noting that bondholders were guaranteed interest payments and would be able to convert the bonds into shares when market conditions were better.
Convertible bonds also avoided the problems of dilution which arise with offerings of additional shares as a means to raise capital, she said.
Issuers have began ensuring against dilution of existing shares by adjusting converted value to the issue price, or pledging no more increases in charter capital before the bond matures, Hoan said.
“This makes convertible notes even more attractive on the market,” he added.

LIST OF ISSUERS OF CONVERTIBLE NOTES

(In the first half 2010)

Name of issuers

Value of issuance (billion dong)

Face value (thousand dong)

Coupon rate (per annum)

Bond term

HCM City Infrastructure Investment Co (CII)

US$20 – 25 million

100

4%

5yr

Viet Nam Mechanisation Electrification & Construction Co (MCG)

459

1,000

12%

3yr

Saigon Securities Inc (SSI)

2,000

100

4%

1yr

Vinafco Corporation (VFC)

150

1,000

N/A

1yr

Transforwarding and Warehousing Corporation (TMS)

100

100

8%

2yr

Low Current-Telecom Company (LTC)

30

1,000

15%

18 mth

Tasco Company (HUT)

200

100

8%

1yr

Alphanam Company (ALP)

100

1,000

negotiable

3yr

Licogi 16 Company (LCG)

100

100

5%

1yr

Nam Mu Hydropower Company (HJS)

200

1,000

12%

2yr

Vien Lien Company (UNI)

50

1,000

10%

1yr

Housevietnam Company (NVN)

40

1,000

4%

1yr

Vietnam Bank for Industry and Trade (CTG)

3,000

100

floating

2yr

Sai Gon-Ha Noi Commercial Bank (SHB)

1,500

1,000

10.48%

1yr

Refrigeration Electrical Engineering Corporation (REE)

810

1,000

8%

13mth

Thu Duc Housing Development Corporation (TDH)

600

100

7%

3yr

(Source: Au Viet Securities)