The Asian Development Bank commissioned this report to evaluate the attractiveness of the Viet Nam bond market from a global credit rating agency’s perspective. It is intended to help a global credit rating agency to consider a market entry, ideally in cooperation with other market participants. It is not intended to be a report card for the bond market.

Viet Nam is the Association of Southeast Asian Nations’ (ASEAN) sixth largest economy and the region’s fastest growing economy. The United States–People’s Republic of China (PRC) trade war over the past 18 months has accelerated the shift of manufacturing activity from the PRC to Viet Nam. Relative to other Asian countries, Viet Nam has been the least impacted by the coronavirus disease. Despite the expected short-term decline in economic growth in 2020, the economy of Viet Nam is expected to return to its growth trajectory in 2021 and stay on this path as the region’s fastest growing economy.

The Viet Nam corporate bond market has grown rapidly since 2017 and issuances of $12.8 billion in 2019 were larger than those for Indonesia and the Philippines. Private placements accounted for 94% of corporate bond issuances in 2018 and 2019 following easing of disclosure requirements and issuance conditions. However, the lack of a credit culture poses significant risks to the bond market and the financial sector, particularly as individual investors currently own almost a fourth of all bond issues.

agency in Viet Nam. Two domestic rating agencies have been licensed by the Ministry of Finance (the first in 2017 and the second in March 2020). They are yet to become operational. The recently passed 2019 Securities Law requires some public bond issues (but not private placements) to be rated by a domestic rating agency effective January 2021. Further, draft regulations that guide the implementation of the new Securities Law require few, if any, bond issues to be rated unlike other ASEAN markets that mandated credit ratings for public—and often private—offerings during their formative years.

Viet Nam’s policy makers are keen to see an orderly growth of a healthy bond market and have expressed a strong commitment for a domestic credit rating agency. The growth in the corporate bond market since 2017 is sustainable and the business case for a global rating agency to enter the Vietnamese market through a technical service agreement is compelling. A technical service agreement would provide a low-risk entry.

The country’s market participants would prefer to see a collaboration of local institutions with a global rating agency. This would lead to an ideal blend of global best practices with a local understanding of culture, businesses, and practices. Further, technical cooperation between a global rating agency and a domestic rating agency will elevate the credibility of the domestic rating agency (through the reputation of the global rating agency for its analytical rigor and governance processes) and lead to greater market acceptance and usage of the domestic rating agency’s ratings.

The more these bonds are rated—either through changes in the credit culture or regulations—the clearer the case will be for an international rating agency to go beyond a technical agreement and invest equity in either one of the established or a new domestic credit rating agency.