The Commercial Joint Stock Bank for Investment and Development of Vietnam (BIDV) has continuously planned to repurchase a large amount of bonds that it previously issued.
Specifically, on August 8th, BIDV announced that it had bought all of the Tier-2 bonds worth 3.3 trillion dong issued in the first phase in 2014. On September 19th, the bank will continue to repurchase four trillion dong of bonds also issued in 2014.
Except for the case of Military Commercial Joint Stock Bank (MB) which has planned to repurchase the bonds it issued (but this is due to the request of bondholders), in recent years and especially in the wave of banks issuing bonds from the beginning of 2019, BIDV’s plan seems to be in the opposite direction and becomes noticeable.
Like Commercial Joint Stock Bank for Industry and Trade of Vietnam (VietinBank) and Commercial Joint Stock Bank for Agriculture and Rural Development of Vietnam (Agribank), BIDV from the last few years until now has still encountered difficulties in capital balancing, especially when the deadline to meet the Basel II standards in capital adequacy prescribed in Circular 41 of the State Bank of Vietnam (SBV) is approaching (from early 2020). Accordingly, the issuance of long-term bonds has been continuously carried out over the past few years, and continued until the second half of this year.
In such condition, BIDV does not have an excess of capital in its capital balance to repurchase such large amount of bonds as mentioned in the above.
Moreover, the issuance of new long-term bonds is ongoing and will continue, thus the repurchase this time can be considered as “rolling over debts” under the new rotations.
The most important and most necessary reason for BIDV’s move this time lies in costs and terms.
Specifically, the bonds BIDV issued in 2014 have a term of 10 years and one day. At the time of issuance, their term is eligible to be included in the Tier-2 capital to increase Capital Adequacy Ratio (CAR). So far, those bonds have been completed five years.
In addition, the main reason is cost. The issuance interest rate for the 3.3 trillion dong of bonds issued on August 8th 2014 is fixed at 8.8 percent per annum in the first five years. At that time, this interest rate level was not really high, but it is now, compared to the current level.
Notably, according to the terms at issuance, after five years from the date of issuance, the interest rate applicable to the remaining term of the bonds reaches up to 9.3 percent per annum. Thus, after five years, these bonds have entered a period of high interest rate which causes large costs.
However, that risk of costs has been anticipated. In the terms at the issuance, BIDV has the right to buy back all bonds after five years from the date of issuance.
Thus, to avoid paying high interest rate of up to 9.3 percent per annum, BIDV now repurchases the bonds. The interest rate of the bonds issued at the present time is only about 8.28.5 percent per annum.
So far, the issuance of 15 percent shares worth 20.295 trillion dong to KEB Hana Bank (South Korea) announced by BIDV on July 22nd 2019 has not yet been realised in the bank’s actual capital.
