Boston, MA -- (SBWIRE) -- 12/26/2012 -- BMI View: We believe that Vietinbank's successful debt issue could pave the way for more issuances by other Vietnamese commercial banks over the coming years. Our assessment suggests that a relatively high degree of leverage, which could amplify the risk of default, explains the 329 basis points premium on the bank's bonds over sovereign bonds. However, we believe that concerns over a future default by CTG are largely unjustified, presenting an attractive opportunity for investors. The Vietnam Commercial Bank for Industry and Trade (CTG), also known as Vietinbank, has successfully issued US$250mn worth of US dollar-denominated debt in the international market, with an annual coupon rate of 8.25% maturing in 2017. Judging from the positive response by foreign investors in taking up the first international debt issue by a Vietnamese financial institution, we believe that this could pave the way for more issuances by other Vietnamese commercial banks over the coming years. Improving Macroeconomic Fundamentals Given that recent economic data coming from Vietnam is beginning to reflect our core view of a turning point in the country's macroeconomic fundamentals, we believe that the Vietnamese debt market will become increasingly attractive to foreign investors. Despite our bullish outlook on the economy, which suggests that CTG's bonds presents a compelling opportunity for investors, we still believe that it is Vietnam Commercial Banking Report Q3 2012 © Business Monitor International Ltd Page 34 worthwhile to assess the underlying risks associated with CTG's latest debt issue. Furthermore, our conviction that the State Bank of Vietnam (SBV) will introduce another 200 basis points (bps) worth of rate cuts by the end of the year, although this has largely been priced into bond yields, should generally be positive for fixed-income assets. From a bondholder's perspective, the risk of a potential default is the sole reason associated with the 329 basis points (bps) premium that CTG's newly issued bonds is currently yielding over its most comparable Vietnamese government US dollar bond (at the time of writing, CTG's bonds were yielding 8.69%, compared to 5.40% on sovereign bonds). Indeed, the mismanagement of state-owned enterprise (SOE) Vietnam Shipbuilding Industry Group, which almost brought the company to the brink of bankruptcy in 2010, has severely undermined investors' confidence. Not surprisingly, rating agency Moody's Investors Service has assigned a B1 long-term rating on CTG's debt, categorising the issue as 'speculative' and 'subject to high credit risk' while Standard and Poor's has assigned a B+ rating, implying 'significant speculative characteristics'.

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