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Rating Action:

Moody's places Vietnam's Ba3 rating under review for downgrade

09 Oct 2019

Singapore, October 09, 2019 -- Moody's Investors Service has today placed the Ba3 local and foreign currency issuer and senior unsecured ratings of the Government of Vietnam under review for downgrade.

The decision to place the ratings under review for downgrade is driven by institutional deficiencies that have come to light. In particular, Moody's has become aware of delayed payments on an obligation by the government. While the information available so far points to no or minimal losses for creditors, the coordination gaps within the administration that the delayed payments may reflect, point to creditworthiness that may no longer be consistent with a Ba3 rating. During the review period, Moody's will assess the practices and systems the government has or is instituting, to ensure reliable, timely, and smooth payment of all obligations.

Moody's expects to complete the review within three months.

Vietnam's long-term foreign currency (FC) bond ceiling at Ba1, its long-term FC deposit ceiling at B1, and its local currency bond and deposit ceilings at Baa3 are unchanged. The short-term FC bond and deposit ceilings remain unchanged at Not Prime.

RATINGS RATIONALE

RATIONALE FOR INITIATING THE REVIEW FOR DOWNGRADE

The key driver behind Moody's decision to place Vietnam's rating under review for downgrade is institutional weaknesses, as revealed by delayed payments on an obligation by the government.

These weaknesses seem to reflect deficient coordination and planning among various arms of the government, with a degree of opacity around the decisions and actions needed to meet some of the government's obligations; and complex bureaucratic processes that can obstruct the smooth and timely payment of government obligations.

While Vietnam's large foreign exchange reserves and modest government financing requirements denote ample capacity to meet debt obligations, the review period will allow Moody's to ascertain if the revealed institutional weaknesses raise the risk of future delayed or missed payments that could denote weaker willingness to pay than Moody's has previously assessed. To this end, during the review period, Moody's will aim to clarify the nature and likely effectiveness of the measures and processes that the government has put or is putting in place to ensure full and timely payment of all obligations.

Independent of the outcome of the rating review, Vietnam's credit profile will remain underpinned by strong growth potential. Absent significant economic or contingent liability shocks, Moody's expects the government's debt burden to remain broadly stable, just under 50% of GDP. Meanwhile, although the financial health of Vietnamese banks has improved over recent years, the banking system remains the chief driver of overall event risks for the sovereign.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS

Environmental risks are material to Vietnam's sovereign rating. Its credit profile is exposed to climate change risks because of the magnitude and frequency of economically disruptive climate events, combined with the limited fiscal space to mitigate the impact of such events when they occur, as identified in Moody's report on environmental risks and their impact on sovereigns. Of particular note, Vietnam is susceptible to rising sea levels, which will over time, leave a significant proportion of its land and population exposed to submersion and act as a drag on economic activity.

Social considerations are inherent to the sovereign's overall economic strength. On the back of the Doi Moi reforms in the late 1980s, Vietnam has seen rapid economic growth, and a sharp fall in the poverty ratio.

Governance poses material risks for Vietnam. This consideration is reflected in Moody's assessment of institutional strength, which reflects weak coordination and planning among various arms of the government, while still taking into account a track record of effective economic policy that has led the economy to maintain strong growth and rise up the value chain. Moody's view of institutional strength also takes into consideration the very gradual pace of state-owned enterprise reforms, and outstanding fragilities in the banking sector.

WHAT COULD LEAD TO A DOWNGRADE

Moody's would downgrade Vietnam's rating if the rating review concludes that administrative gaps are such that a non-negligible risk of future delayed payments remains.

WHAT COULD LEAD TO A CONFIRMATION OF THE RATING AT THE CURRENT LEVEL

Moody's would maintain and confirm Vietnam's Ba3 rating if the rating review were to conclude that there is evidence of clear and effective steps being taken that offer very high confidence that all debt obligations will be honored in a smooth and timely manner.

GDP per capita (PPP basis, US$): 7,040 (2018 Actual) (also known as Per Capita Income)

Real GDP growth (% change): 7.1% (2018 Actual) (also known as GDP Growth)

Inflation Rate (CPI, % change Dec/Dec): 3.5% (2018 Actual)

Gen. Gov. Financial Balance/GDP: -3.5% (2018 Actual) (also known as Fiscal Balance)

Current Account Balance/GDP: 2.4% (2018 Actual) (also known as External Balance)

External debt/GDP: 46% (2018 Actual)

Level of economic development: Moderate level of economic resilience

Default history: No default events (on bonds or loans) have been recorded since 1983.

On 03 October 2019, a rating committee was called to discuss the rating of the Vietnam, Government of. The main points raised during the discussion were: The issuer's economic fundamentals, including its economic strength, have not materially changed. The issuer's institutional strength/framework, have materially decreased. The issuer's fiscal or financial strength, including its debt profile, has not materially changed. The issuer's susceptibility to event risks has not materially changed.

The principal methodology used in these ratings was Sovereign Bond Ratings published in November 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

The weighting of all rating factors is described in the methodology used in this credit rating action, if applicable.

REGULATORY DISCLOSURES

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Anushka Shah
Vice President - Senior Analyst
Sovereign Risk Group
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Marie Diron
MD - Sovereign Risk
Sovereign Risk Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

No Related Data.
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