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Vietnam’s credit rating upgraded and its effect on domestic companies

Vietnam’s credit rating upgraded and its effect on domestic companies

Wednesday 01, 06 2022
S&P Global Ratings recently upgraded Vietnam’s national credit rating to BB+ with a “Stable” outlook. Analysts assess that Vietnam’s companies will benefit from this credit rating raise.

S&P raised Vietnam’s credit rating

On May 26, 2022, credit rating agency S&P Global Ratings upgraded Vietnam's long-term national credit rating to BB+ with a "Stable" outlook.

Accordingly, S&P raised Vietnam's national credit rating based on the recognition that the economy is on a solid recovery path in the context of the Government lifting restrictions on domestic and cross-border movement, the rate of vaccination has been impressively improved, and a flexible shift in Covid-19 control policy has been made.

S&P raised Vietnam's

S&P decided to upgrade Vietnam's credit rating based on the result of the Vietnamese Government’s administrative processes and procedures improvement and the country's strong economic outlook, strong foreign position, and high FDI attraction despite the disruption caused by COVID-19.

The "Stable" outlook represents S&P's forecast that in the next 12-24 months, Vietnam's economy will continue to recover and overcome difficulties and challenges caused by the pandemic in the past two years, contributing to consolidating Vietnam’s foreign position and control the budget deficit.

S&P assesses that Vietnam's per capita income has increased rapidly in recent years, with a 10-year real growth rate of 4.8%, significantly higher than the average of countries with similar income levels. S&P forecasts Vietnam's GDP growth in 2022 to be at around 6.9%, with a long-term trend of 6.5%-7% from 2023.

S&P assesses

Vietnam was one of two countries in the Asia-Pacific region that have been upgraded from the beginning of the year until now, despite the complicated international situation and the profound impact of the pandemic that led to 30 credit downgrades in the world.

Vietnam’s domestic companies benefitting from credit rating raise

The improved credit rating will open up many new development paths for Vietnam and its domestic business sectors, especially in terms of capital costs as well as indirect investment capital flows into Vietnam.

 “Although there are no statistics on the interest rate differential between BB and BB+, international practice suggests that if one were to rise to a BBB rating, the average spread on loans would be 150 to 300 basis points in interest rates. That means the mobilization cost of enterprises will be significantly reduced,” said Mr. Nguyen Tung Anh, Senior Credit Risk Researcher at FiinRatings.

Mr. Tung Anh took the example of VinGroup's 525 million USD bonds on the international market and analyzed: “According to our calculations, the annual capital cost can be reduced by 8 to 16 million USD if the loan interest rate is determined based on Vietnam's BB+ rating. That, of course, also depends on the rating of the issuer.”

The credit rating improvement also helps raise the rating ceiling for all Vietnamese businesses by S&P. The credit rating ceiling has significantly reduced the division in credit ratings among Vietnamese enterprises issuing debt instruments in the international capital market.

The credit rating

With the ceiling raised to BB+, analysts predict that some of Vietnam's companies will soon be upgraded as well. That is an opportunity for Vietnam's companies to diversify capital mobilization channels, especially in the international market.

However, experts believe that Vietnam's domestic capital market should still be the main priority in the capital strategy of Vietnam's enterprises, especially in the context of an increasing exchange rate, and foreign currency debt obligations may increase and result in exchange rate losses for foreign currency loans or bonds.

According to data from FiinRatings, the capital potential of Vietnam’s domestic market is still very large, with more than 5 million billion VND of deposit balance in the banking system, and many financial, credit, and insurance institutions, etc., still need to diversify investment channels other than Vietnamese government bonds.

Therefore, Vietnam’s companies should pay more attention to building credit capacity with the domestic capital market, including corporate bonds.

 

Source: vneconomy

Compiled by VietnamCredit

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