Corporate Bond Issuance: Businesses Preparing for Credit Ratings

Bond issuance is an effective capital mobilisation channel, in addition to share issuance, for foreign companies. However, in Vietnam, only the Government and large-scale companies have employed this channel. Mr Charly Madan, CEO of Citigroup, talked about the development potential of this market.

 

At present, the Vietnamese bond market is fledging and this channel is mainly employed by the Government. I am optimistic about the development of the Vietnamese bond market, in spite of the current limits in size of issuance and types of bonds. In the future, the bond market will become a developed debit market to supply capital for businesses. Companies will issue not only common bonds, but also convertible bonds. In the near future, the share and bond markets will both develop strongly.

We see two conditions a business should achieve to issue bonds, and then Citigroup will consider assisting them. The first condition is certain success of the prospective issuer on the market, and the second condition is the actual need for the bond issue to raise funds for new projects or to converse debts.

 

One of the conditions to develop the bond market is the presence and participation of credit ratings companies (both local and foreign). In the future, big companies will be rated, and credit ratings are not only associated with the companies but also with their individual products and services. The credit ratings will help rated companies define their solvency. Then, investors can easily define the suitable interest rates of issuers’ bonds.

 

The first factor is accounting system standards. The second is a full business record. The third involves transparency in business operations and improvement of business administration. In fact, the more transparent it is, the better the company operates. The fourth is preparation for credit ratings.

 

Citigroup, with its experience and reputation, can help companies prepare documents and related information before Vietnamese companies work with credit ratings companies. Citigroup can also help Vietnamese firms to prepare their mentality and improve capacity. We will send technical experts to assist Vietnamese companies to work in an environment similar to credit ratings groups. We will also help Vietnamese companies carry out the process of announcing information (similar to a prospectus for investors) and obey international common practices.

 

Presently, Vietnamese government agencies as well as issuers typically don’t need credit ratings. However, in the future, we believe that best international common practices for issuance will be present in Vietnam, because Vietnamese companies want to sell bonds to mobilise capital not only in the domestic market, but also in the global market.