Corporate bond issuance rises in eight months, transparency still biggest concern

Cash notes being counted in exchange for bond notes. Commercial banks were still the biggest corporate bond issuers, raising total VNĐ56 trillion, 47.9 per cent of the total recorded in the first eight months of the year. - Photo vietnambiz.vn

The figure means the successful issuance rate in the first eight months was 90.8 per cent and the value of the corporate bond market was equal to 10.2 per cent of Viet Nam’s total gross domestic product (GDP), SSI Retail Research estimated.

The total value of corporate bond offered in the first eight months was estimated at VND129 trillion, the SSI unit estimated upon information disclosed on the stock exchanges and companies’ websites.

According to the Ministry of Finance, a total of VND224 trillion worth of corporate bond notes was raised in 2018, up 94.5 per cent year on year. The value of the market last year was VND474.5 trillion, equalling 8.6 per cent of the total GDP and higher than the 6.19 per cent in 2017.

Commercial banks were still the biggest issuers, raising total VND56 trillion – 47.9 per cent of the total. Banks were followed by property developers, which raised nearly VND37 trillion – 31.5 per cent of the total, infrastructure constructors (VND9.2 trillion, 7.9 per cent), and non-banking financial firms (VND4.42 trillion, 3.8 per cent).

Though realty firms ranked second in the list of top issuers, the successful issuance rate of the sector was 77.3 per cent – the lowest among those mentioned. Forty-four property firms opened 139 placements to offer VND47.8 trillion worth of bond notes.

Banks’ bond yield rates were the lowest, fixed and annually-paid. Average per-annum bank bond yield rate was 6.75 per cent and average maturity was 3.3 years.

On the contrary, realty bond yield rates were the highest at a per-annum average of 10 per cent, which was followed by infrastructure (9.79 per cent) and financials (8.64 per cent).

According to SSI Retail Research, Decree 163/2018/ND-CP dated December 4, 2018 opened the corporate bond market for the business community by reducing the ratio of short-term capital spent on medium- and long-term lending.

The increase of the risk ratio in bank loans for real estate projects motivated companies to raise capital via bond issuance from making bank loans.

In addition, the transparency of information disclosure and more active participation of middle stakeholders like banks and brokerages made corporate bonds more attractive.

However, there are still risks with the local corporate bond market despite good growth in recent years, according to Nguyen Viet Cuong, vice director of analysis centre at Vietinbank Securities Co.

“The biggest risk now is information transparency. In other markets, the role of credit rating firms is quite clear and important because they have various rankings for various types of corporate bond and investor appetite,” he said.

“Therefore, Viet Nam will soon have to make space for business credit rating institutions to make the corporate bond market more transparent” and make it a good source of capital for companies beside bank loans, Cuong said.

Though the Vietnamese corporate bond market has made big improvements, it should be noted that commercial banks are still the biggest bond buyers, especially in the real estate sector, while the identity of buyers should be public, Nguyen Duc Hung Linh, director of individual customer analysis and consultancy at SSI Securities Corp, said.

If the role of credit rating firms remained vague, bond buyers, especially individuals, would not be able to find the appropriate yield rates, he said, adding investor protection policies must be improved in the future.

According to economic specialist Bui Quang Tin, CEO of Bizlight Business School, bondholders may face higher risks when they purchase corporate bonds because they have no collateral from the companies.

"The higher the yield rates are, the higher the risks," he said, adding "the major risk lies in true information of firms, which cannot be found publicly and is sometimes hidden from individual investors".

Purchasing corporate bonds may sometimes mean all-in for investors, according to Tin. If the company declares bankruptcy, investors may lose everything so there must be a policy to protect bond buyers from such risk.