Vietcombank irks its bond holders

Vietcombank convertible bonds have been trading at around VND104,000 (US$6.50) each, below the average share price of VND107,860 ($6.74) achieved in the banks IPO last week.

In 2005, the bank sold 13.65 million convertible bonds with a face value of VND100,000 ($6.25) each. They sold in a flash, even with foreign investors barred from bidding, snapped up by 134 institutional and individual investors at an aggregate price of VND1.36 trillion (over $85 million).

The seven-year bonds offered a fixed interest rate of 8.5 per cent per year, and even though Vietcombank did not confirm conversion rates at the time, the bonds were so highly sought-after than some investors offered to buy a zero-pre-cent interest.

Soon after the auction, Vietcombank convertible bonds traded on the OTC market at up to VND140,000 ($8.75) each.

With the Vietcombank IPO, details of the bonds conversion into shares have been made available. Each convertible bond with a face value of VND100,000 is redeemable for 92/100ths of a share.

In other words, an investor who holds VND10 billion ($625,000) in bonds can convert them into 92,000 shares.

The deal has left many bond holders grousing, saying that the conversion rate leaves them with little real return on money they had invested for the past two years unless Vietcombank share prices climb to VND120,000($7.5) per share or more.

Vietcombanks chairman Nguyen Hoa Binh responded to the complaints at press conference prior to the IPO, stating that "bond holders are privileged to own the banks shares without going through the auction. We have had no control over the prices at which our bonds were traded on the OTC market. The lower prices they paid and the higher price at which they sold, the more the investors gained and in vice versa. Its not our fault."

The concern of investors ultimately was whether a big-name trademark like Vietcombank would guarantees a return without any risk.

The answer from Vietcombank was a resounding "no".

(Source: VnAgency)