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Partnering with the Hong Kong-based financial magazine for Asia’s decision makers The Asset, the “Fitch on Vietnam” forum gathered investors and leaders to discuss the economic outlook amid the macroeconomic challenges and examine Vietnam’s credit outlook from issuer and market perspectives, reported the Vietnam News Agency.
Representatives from the U.S.-based credit rating agency mentioned the factors needed for this organization to raise its outlook on Vietnam’s “BB” long-term foreign-currency issuer default rating to “positive” from “stable.”
The Government is committed to consolidating its finance sector and curbing public debt, they said.
Fitch predicted that Vietnam’s public debt would continue to drop to some 46% of the GDP by 2020.
The agency also forecast that Vietnam will continue to receive a large amount of foreign direct investment (FDI) in the manufacturing sector, mainly in the electronics segment, thanks to its advantages of low costs and supply chain connectivity.
These positive trends will support stable short-term economic growth, though the global economy is weakening and Vietnam’s high level of trade dependence could affect economic growth this year and next, it said.
This has led Fitch to project that the country’s economic growth will decrease slightly from 7.1% in 2018 to 6.7% this year and next.
This figure is still within the growth target of 6.6%-6.8%, set by the legislative National Assembly, and Vietnam will remain one of the fastest growing economies in the Asia-Pacific region.
The escalating trade war between the United States and China has shifted trade inflows out of China, according to Fitch.
As a result, many companies are moving their manufacturing facilities to Vietnam. However, it will take more time to witness the actual transition of factories from China to Vietnam on a large scale.
Speaking at the event, Vo Huu Hien, deputy director of the Department of Debt Management and External Finance at the Finance Ministry, said that the prospects of Vietnam’s economy in 2019 and 2020 will remain positive, with macroeconomic stability and confidence in investment and the business environment further consolidated.
Hien also pointed out some external challenges that the Vietnamese economy is facing, including its high degree of trade openness.
Given this, the U.S.-China trade dispute will have certain effects on its economy, such as the shift in import and export policies, the avoidance of goods originating from some countries into Vietnam and changes in supply chains and investment flows.
He also expressed hope that Vietnam’s credit rating in the coming period would continue to improve, further lifting its national prestige, reducing the cost of raising capital and easing market access through strengthening the country’s ability to attract investors.
Vietnam issuers consider offshore capital market
As Vietnamese regulators continue to open the door to foreign financial institutions, Vietnamese issuers such as property companies have been increasingly tapping the capital market directly over the past few years, according to a report by The Asset.
With growing understanding of international practices, more issuers, such as Vietnam Electricity Corporation (EVN), are looking to tap the offshore capital market. “The offshore capital market is something we are looking forward to… Cost is a more important factor to us,” said Nguyen Xuan Nam, EVN’s financial director, at the forum.
U.S. dollar bond issuance internationally requires a rating from rating agencies. While Vietnamese issuers are not yet used to the international rating practice, industry experts believe that obtaining a credit rating is beneficial to issuers, especially first-time issuers. “Ratings can give independent opinions and transparency to investors,” noted Vicky Melbourne, head of South and Southeast Asia industrials at Fitch Ratings.
Currently, although the domestic capital market size is 110% of Vietnam’s GDP, bank loans are still the preferred source of financing for most enterprises with a need for short-term working capital.
“Corporations in various industries may face different levels of difficulty in obtaining financing. Property companies are easy. Small- and medium-sized enterprises usually go to commercial banks,” said Doan Linh Huong, deputy head of investment banking at MB Securities.
On the other hand, investors who have no exposure to Vietnamese corporations have shown interest in investing in Vietnamese issuers. “Investors are definitely happy to take Vietnamese issuers for diversification purposes,” said Hemant Lodha, managing director of HSBC.
On the domestic side, the Vietnamese corporate bond market has seen a threefold growth in value outstanding since 2015 as of the end of 2018, according to MB Securities. The Government has also recently issued a regulation encouraging corporate bond issuance.