Clearer regulations a wise move for corporate bonds

August 31, 2022 | 12:36
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Over the last 12 months real estate stocks, which have about 22 per cent of the total VN-Index weighting, outperformed bank stocks, which have about a 30 per cent weighting.

Historically, corporate bonds have played a key role in developing Vietnam’s real estate sector. We are confident that we’ll see a return of corporate bonds in the latter part of 2022, or certainly in 2023.

Clearer regulations a wise move for corporate bonds
Steven Brown - Vietnam Head of Institutional Sales, Mirae Asset Securities

The government is working hard on ensuring transparency, market efficiency, and integrity in this sector. It has just released a draft of revised Decree No.153/2020/ND-CP regarding bond issuance, and while it’s making life more difficult for bond issuers, it also signals we are moving past the grey area in legislation.

The draft focuses on enhancing the quality of bonds to be issued by setting out clear conditions for bond issuance including the credit rating. The trading of bonds shall also be supervised by the government through a trading system in the Hanoi Stock Exchange and bonds in the Vietnam Securities Depository. Thus, I suspect corporate bonds will see a strong comeback once the new decree is passed.

Vietnam’s corporate bond market is still in a developing phase, accounting for only a small percentage of total liabilities in the real estate debt space. In fact, the current size of the corporate bond market is about 18.9 per cent of GDP, as of the end of 2021.

The government has a plan to increase the size of the corporate bond market, up to 20 per cent of GDP by 2025, which is very considered and conservative compared to other countries.

This is a wise move, as the nation’s investor community now has over 5 million retail investors with securities trading accounts, but many are new and still learning more about the different types of investment opportunities such as exchange-traded funds, unlisted funds, and corporate bonds.

In a few years from now, I would not be surprised if leading companies have exchange-traded convertibles bonds traded on the Ho Chi Minh Stock Exchange. This will be a great development, expanding retail and institutional investment options.

There are several issues to advance and support the developmental success of Vietnam’s debt capital market, but most notably are collateral and repayment plans. In the past, many issuances have not had collateral, and if they did, many just used their own stocks as collateral.

As for repayment plans, many did not have any – as in, they didn’t specify how the money would be used, and where the money might be coming from to repay the debt, an extant system based on trust – in keeping with a well-known old saying: “my word is my bond.”

Since most real estate bonds have traditionally offered attractive yields, there’s historically been a keen investor appetite, so once everything resets, bond issuances should be well received by all investor types (wholesale and retail).

In the large-cap real estate space, Novaland, with most of its products to be handed over in 2023, may likely require a large increase in credit room from banks. Vinhomes should not have a problem for the next 4-5 years, as that’s when the current bonds for Vinfast reach maturity. And DXGs main project is presently on hold while its plan to issue bonds likely on the Singapore Stock Exchange plays out.

A mid-cap firm of high regard and with interest in bond issuances is Nam Long Group – in the first quarter of 2022, the International Finance Corporation participated in a $40 million financing for this developer. KDH and PDR are also both in pretty good shape and may likely have a high interest in bond issuances in the coming time.

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By Steven Brown

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