Director Dominic Scriven of Dragon Capital, which underwrote the $5 million issue, said the bond converted into new ordinary shares comprising 16.3 per cent of Refrigeration Electrical Engineering (REE) stock in May.

The two-year bond had a fixed interest rate of 4.5 per cent. ``In terms of the bond's structure, by and large, foreign investors who bought in are happy, and the firm is also happy,'' Scriven said by telephone from southern Ho Chi Minh City.

Dragon Capital operates an investment fund in Vietnam. Not only was REE's issue the first execution of a convertible bond in Vietnam, it marks the first time foreigners have held stock in a partially privatised state company. So far 29 state firms in Vietnam have been ``equitised,''Hanoi's preferred term for partial privatisation, although a decreesigned recently had opened the way for a full sell-off.

Scriven said he was not concerned about the lack of a stock market in Vietnam, saying the original aim had never been to exit immediately after the bond was converted.

``We had not really expected a stock market to be in place for the conversion. The value of this bond issue was its window into the Vietnamese corporate sector,'' he said.

On Monday, an official from the state securities commission said Vietnam had issued a decree paving the way for a pilot stock market by the end of the year. Economists don't expect a full-fledged stock market until two or three years after that.

In the absence of a stock market, which normally facilitates valuation of a convertible bond and provides an exit mechanism, Dragon Capital valued the issue by devising a price/earnings ratio based on average net profits over the last three years.