[Vnbiz] Bonds Dark Side of Vietnam

[Craig Stevenson]

*Section: *Taipan

*Vietnam* became well known to bond investors last year when the Socialist
Republic made a stunningly successful market debut, telling a compelling
story of progress, growth and reform.

Several bond jockeys of my acquaintance have spent enjoyable holidays there
lately; indeed, there are probably plenty of capital markets types there at
the moment -- there certainly aren't many in the office.

As is so often the case, though, there is a dark side to paradise. You may
have read about Nguyen Thi Quynh Van, the Vietnamese banker who engaged in
what you and I would call a bad foreign currency trade, but which *Vietnam's
* Communist autocracy calls "losing state resources through economic
mismanagement". The maximum sentence she faces if convicted is death.

The former deputy head of trade finance at state-owned Industrial and
Commercial Bank of *Vietnam* in Hai Phong is alleged to have lost $5.4m in a
series of speculative currency deals with at least three foreign banks based
in *Vietnam* -- in particular ABN Amro.

Incombank is suing ABN and demanding the return of the cash. The Vietnamese
authorities have arrested four ABN employees and banned its
Vietnamese-American general manager from leaving the country. ABN protests
its innocence.

Having been in Asia for far too long, I'm not normally given to moral
outrage. But this business strikes me as both an obscene overreaction and an
act of breathtaking stupidity by the Vietnamese authorities. It shows you
that reform has a long way to go.

It's by no means certain that Nguyen Thi Quynh Van would face the firing
squad if found guilty, but the situation tarnishes *Vietnam's* Otherwise
good image, scares the living daylights out of foreign investors and
companies operating in *Vietnam* and -- above all -- shows that the country
is not yet mature enough to accept that you can lose money as well as make
it in financial markets. It hardly seems worth it for $5.4m.
*Bad news for private equity
*<http://web.ebscohost.com.ezproxy.umuc.edu/ehost/detail?vid=59&hid=116&sid=42dae0b1-bce7-47c5-9fc5-bd49485f5468%40sessionmgr102#toc>

No one likes being the bearer of bad news, and I am no exception, so --
private equity fund managers, look away now.

A few leveraged loans are languishing in syndication at the moment. That
won't make any immediate impact on the sponsors -- the loans are all funded
or underwritten, so why should the funds care?

But Asian banks have long been putting up with too much, and I'm heartened
to see that the leveraged market is finally fighting back against the
aggressive funds.

Faced with demands from the likes of Bain Capital or KKR, banks have little
choice but to roll over and beg for the mandate -- if they don't give in,
the chances are someone else will.

Nobody's yet explained to me why a leveraged loan in Asia should be priced
more tightly than it would be in Europe or the US.

Citigroup and Merrill Lynch could easily have sold KKR's Flextronics buy-out
in the US, couldn't they?

So Asia's loans bankers should take heart from the fact that the US sponsors
of Viasystems have had to put up with a 50bp flex. And isn't it a good thing
for them that Bain's MEI Conlux deal and Warburg's Gum acquisition are still
in syndication, months after the buy-outs were signed?

For a bank risk manager, having to swallow 50% of a one year loan for Hana
Bank is one thing. Getting stuck with half an LBO loan is quite another --
especially if the borrower's earnings are barely enough to cover interest
payments.

It should make lenders think twice before rolling over to win leveraged
mandates, and that's terrible news for private equity.
*What to read on holiday
*<http://web.ebscohost.com.ezproxy.umuc.edu/ehost/detail?vid=59&hid=116&sid=42dae0b1-bce7-47c5-9fc5-bd49485f5468%40sessionmgr102#toc>

Capital markets characters have vastly differing reading tastes. Some I know
are never happier than when leafing through Flaubert on the plane to Seoul,
while I suspect others would struggle to maintain their attention for the
whole of Spot the Dog.

However, with the holiday season in full swing, I would like to humbly
suggest some diverting reading with an Asian slant for the beach in Bali.

First on my list is Red Dust: A Path Through China by artist and dissident,
Ma Jian.

Next is Staying On, by Paul Scott, who also wrote The Raj Quartet. Lastly,
although I fear it may only appeal to men, I heartily recommend Flashman and
the Dragon by George MacDonald Fraser, for sheer brazen entertainment with a
good dose of regional history thrown in. If Flashman were alive today, I am
sure he would be an investment banker or hedgie, up to his elbows in the
Asian capital markets.
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