Impressive 2020 for Vietnam’s corporate bond market

Hoang Thi Minh Huyen Analyst, Bao Viet Securities

Notably, the total issuance volume in August accounted for over 25 per cent of the total corporate bond issuance volume in 2020. The issuance volume that month broke the record with over VND100 trillion ($4.35 billion) in corporate bonds.

Enterprises issuing bonds before September 1, 2020 – the effective date of Decree No.81/2020/ND-CP on amendments to Decree No.163/2018/ND-CP dated December 4, 2018 on issuance of corporate bonds – might explain the uprising corporate bond issuance volume.

Decree 81 was issued to raise the standards on corporate bond issuance, limit private issuance to minimise the risks for individual investors, and also increase the responsibility of parties participating in the process of issuing corporate bonds. Accordingly, during the last four months of 2020, the total issued value dropped significantly to a monthly average of below VND25 trillion ($1.09 billion).

In terms of sectors, albeit a decline in the last quarter of 2020’s issuance volume, real estate groups witnessed the largest corporate bond issuance volume in 2020 of over VND140 trillion ($6.09 billion), accounting for over 35 per cent of total issuance value at an average coupon rate of 10.52 per cent.

Next was the banking sector, accounting for nearly 30 per cent, with an average coupon rate of 6.69 per cent, lower than 7.06 per cent in 2019. Elsewhere, other industries such as power, water, petroleum, and natural gas had their corporate bond issuance accounting for nearly 7 per cent, with an average coupon rate of 10.5 per cent, inching up from 2019 (10.2 per cent).

Enterprises with a large total issued value in 2020 included state-owned lender BIDV at more than VND21 trillion ($913 million), Sovico Holdings JSC at VND18 trillion ($783 million), Masan Group Corporation with over VND17 trillion ($739 million), privately-held lender HDBank at about VND14 trillion ($609 million), and VIB also reaching $609 million.

Regarding 2021’s outlook, corporate bond issuance volume is expected to decline, from our viewpoint.

Moreover, a credible local rating agency is a key missing ingredient in Vietnam’s corporate bond market. The Ministry of Finance has repeatedly raised its concern on high risks associated with high yield corporate bonds. Bondholders, on the other hand, might be left empty-handed if the companies fail to pay back the debt.

On December 31, 2020, the government issued Decree No.153/2020/ND-CP, regulating the offering and transactions of corporate bonds through private placement in the domestic market and the offering of corporate bonds to foreign markets, to replace Decree 163 and Decree 81. This new decree, which became effective on January 1, continually tightens regulations on the issuance of corporate bonds with more specific provisions.

Notably, Decree 153 only grants corporate bond purchase permit to professional securities investors (as prescribed under the securities law provisions) and strategic investors, on a case-by-case basis, to participate in the purchase of corporate bonds. This is one of the government’s efforts in minimising the risks of mass issuance of corporate bonds as in the past year for investors (especially individual investors) and the economy.

As a result, some businesses may find it challenging to raise capital through bond issuance, forcing them to borrow money through banks. In addition, while the economy is on the road to recovery from the COVID-19 pandemic, interest rates are forecast to remain at the current low level and credit growth should increase – we estimate at around 12-14 per cent.

Due to this, we believe that the demand for corporate bond issuance of domestic firms will also decrease, and insolvency risk may occur in a number of businesses in 2021. However, we believe that this risk is unlikely to spread and negatively affect the financial system.