Vietnam will start marketing a sale of $1 billion of 10-year bonds in US dollars from Jan. 18, according a person familiar with the matter.

The sale will test investor confidence in Vietnam as the dong weakens to a record low against the dollar, inflation accelerates and foreign-exchange reserves slide.

The government, as part of a two-decade-old reform process known as ‘doi moi,’ or renovation, needs funds to build roads and power plants as the population expands.

Demand for developing nations’ dollar debt is ebbing after governments sold $10 billion of bonds overseas this year, twice as much as the $4.5 billion in the year-earlier period, according to Bloomberg data. The spread between yields on emerging-market debt and US Treasuries has widened nine basis points to 2.79 percentage points in the past week, after declining 4.16 percentage points in 2009, according to the JPMorgan Emerging Market Bond Index Plus. A basis point is 0.01 percentage point.

Indonesia this week sold $2 billion of 10-year bonds at a higher yield than last week’s sale by the similar-rated Philippines, after scaling back the offering and cancelling plans to sell 30-year debt.

Declining dong

The funds raised from Vietnam’s second foreign security may help ease a shortage of dollars in the country, which prompted the dong to decline 5.4 percent last year against the dollar. Foreign-exchange reserves fell to about $16.5 billion as of August, from $23 billion at the end of 2008, because of moves by Vietnam’s central bank to try to stabilize the currency, the World Bank said in a semi-annual report.

Vietnam is rated Ba3 by Moody’s Investors Service, three levels below investment grade. The government in October 2005 raised $750 million by selling 10-year bonds, then lent the proceeds to Vietnam Shipbuilding Industry Corp., known as Vinashin.

Vietnam said on Jan. 13 that it plans to almost double the amount of its local-currency bond sales this year to meet spending requirements as about half of its existing debt matures. The Ministry of Finance intends to sell VND100 trillion ($5.4 billion) of debt, up from VND56 trillion originally planned. About VND70 trillion of government debt will mature this year.

An increase in supply may drive up dong-denominated bond yields, which are rising on concern that inflation will quicken, according to a report from Bank for Investment & Development of Vietnam, the country’s second-biggest lender. The Vietnamese government sold less than a third of the VND100 trillion of bonds it planned in 2009.

Source: Bloomberg