Latent bond market yet to deliver

Bond issues have been robust but they still offer more potential

“Together with credit, corporate bonds are an increasingly important channel for firms to raise capital,” stated the latest report of the Ministry of Finance’s (MoF) Banking and Finance Department.

By December 11, registered corporate bond volume reached VND52.2 trillion ($2.48 billion), with VND33.6 trillion ($1.6 billion) worth of corporate bonds issued this year.

This is 17 per cent higher than the issued volume in 2012 and 1.8 per cent higher than the total volume of issued corporate bonds during the entire 2006-2010 period, according to the report.

From 2006 until present, $900 million in overseas bonds have been issued by firms as diverse as Masan, Vingroup and Vietinbank. BIDV is expected to issue $500 million bonds on the international markets in the near future.

Ngo Ha Quan, head of capital markets at Standard Chartered Bank, said six foreign banks had participated in the domestic bond market and five state-owned banks were also major investors.

He added that only five of the country’s 20 insurers in Vietnam were active in the bond market. In general, most investors focused on five-year term bonds. The corporate bond market in Vietnam featured the participation of 17 corporate entities at the end of the third quarter. Real estate company Hoang Anh Gia Lai Group led the market with VND3 trillion ($142.85 million) in bonds, according to the latest report of the Asian Development Bank’s (ADB) Asia Bond Monitor publication.

However, the MoF’s Banking and Finance Department said that corporate bond market value was still modest and most corporate bond issuers were household names in Vietnam.

One of reasons for the modest returns is that the corporate bond market’s infrastructure still lacks credit agencies, secondary transaction systems and a bond yield curve.

The tight bond issue criteria, especially the regulation that only profitable firms can issue corporate bonds, was also a big obstacle for many enterprises, said the department.

In November, the Vietnam Prosperity Bank (VPBank) and state-run mining group Vinacomin successfully issued VND2.5 trillion ($119 million) and VND5 trillion ($238 million) worth of long-term bonds respectively. Vinacomin’s issue is the biggest dong-denominated bond issue by a state-owned business group so far.

In late August, state-owned bank BIDV sold over VND3.1 trillion ($147.6 million) worth of 10-year bonds that carry an annual coupon of 10.5 per cent in the first five years and 11 per cent for the remainder of the term. Hoang Anh Gia Lai has also issued bonds.

Other large enterprises, state-owned groups and corporations also have plans to issue bonds. State power generator Electricity Vietnam is preparing to issue VND10 trillion ($476 million) worth of bonds.

“Besides commercial banks, state-owned groups and insurance companies, it is necessary to encourage institutional investors such as securities funds, bond funds or voluntary pension funds into the market,” stated the department.

Vinacomin chairman Tran Xuan Hoa said given the problems with the global economy, corporate bond issues on the domestic market were a good way of addressing capital shortfalls for many Vietnamese enterprises.