Bond issuance raises concerns

Securities firms have been issuing bonds to increase their capital in an attempt to prepare for new opportunities in the local stock market. Photo vneconomy

However, only those with strong financial conditions, good profiles and efficient operations can take such action.

Such companies have made bond issuances over the last year as part of long-term development plans – Sai Gon-Ha Noi Securities JSC issued VND250 billion (US$11.46 million) worth in July, and Vietcombank Securities JSC with VND200 billion ($9.17 million) worth in October of last year. Other companies in this sector said they also plan to do so. Military Bank Securities JSC plans to raise VND600 billion ($27.5 million) via bonds and Saigon Securities Incorporation (SSI) set a target of VND1-1.5 trillion ($45.87-68.8 million) for this year.

Improvements in the local securities market, due to the positive settling in of new Government policies, helped give rise to the trend.

The VN-Index gained 7 per cent between June 24 and July 24 after Decree 60 was issued last month. The decree also further opened the local market to overseas investors by increasing foreign ownership levels in Vietnamese companies.

In addition, Decree 36, issued by the State Bank of Viet Nam last November, also limits brokerage firms from taking loans from banks. This has encouraged securities companies to improve their financial health to better compete in the market.

Strengthening of securities firms has also been credited for the rise in bond issuance. With improved financial health, the firms have been able to provide new services and products to investors such as derivatives trading and reduced settlement times.

But many are warning companies to be careful with bond issuance, as it has more requirements than bank loans that can easily change the terms and value of their bonds.

Companies will have to actively seek customers and provide new products to avoid non-performing capital flow. If they don't, they would have pay interests to bond-holders and lose market shares at the same time.

Local experts say that practically all foreign securities firms have the capitalisation to equal net capitalisation of all Vietnamese firms. Experts warn that while there are many securities firms on Viet Nam's market now, many of them will disappear due to poor business operation.