Having pioneered Vietnam’s first international CB offering three years ago, one property developer braved rocky markets to return this year. For the intelligent timing, structure and issue size, Vingroup’s US$185m CB and subsequent US$115m retap is IFR Asia’s Vietnam Capital Markets Deal of the Year.
For a while, it looked as though the Vietnamese Government’s refusal to cover the liabilities of state-owned shipbuilder Vinashin in 2010 would block all companies in the country from accessing the international capital markets.
Add to that the poor performance of Vietnam’s stock markets and dong borrowing costs that hit around 20% at the end of 2011, and it looked grim, indeed, for corporate issuance from the country this year.
However, property developer Vingroup, one of Vietnam’s largest listed companies, showed that a strong growth story could overcome macroeconomic concerns.
Having issued the first CB from Vietnam in 2009, under its previous name of Vincom, the company was already known to international investors – and it helped that they had made good money from the first trade.
Vingroup vice chairperson and CEO Thuy Hagan acknowledged: “Selling Vietnam is not easy.” Hagan is a former investment banker, having worked for Lehman Brothers, and has used her capital markets savvy to lead Vingroup into uncharted territory for Vietnamese issuers.
The company provided a different proposition for investors this time around, compared with its debut US$100m CB issue. Vincom merged with Vinpearl in 2011 and was rebranded as Vingroup earlier this year.
The merger combined Vincom’s residential and commercial property developments, as well as its management business, with Vinpearl’s hospitality properties. In addition, its Vinmec and Vincharm arms manage and operate healthcare facilities and beauty salons, respectively.
At the time of the debut CB issuance, much of Vincom’s portfolio had been a work in progress, but many of its properties had been completed and occupied when it revisited the market.
“At that time, we had only one building – everything else was on paper,” said Hagan. “Investors saw that we had delivered on everything we promised.”
When it launched its new trade in March, market conditions were far from ideal, but the company managed to print a US$185m five-year CB with a 10% conversion premium and 5% coupon to yield 7%.
In order to provide investor comfort for the otherwise unhedgeable stock, Credit Suisse, the sole bookrunner for the CB, arranged an equity swap with Vingroup’s largest shareholder. The company had to obtain special permission from the State Bank of Vietnam to put in place a US$18.5m equity swap, the first of its kind in the country. Annual resets to the conversion price were also provided.
Even though the stock was trading at around 47x 2011 P/E at the time of the CB issue, and the transaction size was equal to around 250 days’ trading volume, it managed to increase the deal above its base size of US$150m.
Most issuers would have been happy to print a very simple trade, at a time when few equity-linked deals were going ahead. Vingroup, though, had board approval to issue US$300m in CBs and, when market conditions improved a couple of months later, it moved quickly for a retap to raise a further US$115m in June.
As in the original print, a concurrent equity swap was provided alongside the CB, but at a larger size of US$60m as many investors were already full of Vingroup exposure and needed to be given an incentive to buy more.
The combined deal size of US$300m made Vingroup’s bond one of the largest equity-linked issues in Asia ex-Japan this year. The company also managed to retain its loyal investor base, with 30–40 out of around 60 investors in the new CB having bought the old one, since converted in full.
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