Legal basis for corporate bond issuance important for real estate sector

Hanoi - Building a solid and long-term legal basis for corporate bond issuance is an urgent solution to build a capital market for the real estate sector.

Promoting credit rating for real estate firms is important to ensure a healthy corporate bond market. - File Photo

Nguyen Trong Dieu, President of the Vietnam Private Business Association, said that the real estate market was falling into stagnation with the slow implementation of property projects and high pressure from interest rates on enterprises.

He added that most capital channels for real estate enterprises, including banking credit, and bond issuance, had been almost blocked since the second quarter of this year, putting significant pressure on construction enterprises and real estate developers.

Le Xuan Nghia, a member of the National Advisory Council on Finance and Monetary Policy, said that about VND112 trillion worth of bonds would mature by the end of this year. Of VND1.4 quadrillion outstanding bonds, more than half were of real estate enterprises, around VND700-800 trillion.

The sluggish corporate bond market had made many enterprises unable to repay bonds that were about to mature, Nghia said, adding that, in other words, a large part of real estate enterprises faced the risk of corporate bond default.

According to a recent corporate bond insight report of FiinRatings / FiinGroup, the issuance of the real estate and construction industry declined significantly in the first half of this year.

“Especially in the second quarter, there were no enterprises in the construction industry to issue corporate bonds,” it said.

FiinGroup observed that new issuances in recent months were solely from large and listed developers, while most companies had difficulties mobilising capital from this channel.

In addition, corporate bond redemption increased significantly in the first half of this year to VND72.29 trillion, up 22 per cent over the same period in 2021, the report wrote, adding that concerns over the Tan Hoang Minh event in April also forced some real estate businesses to redeem bonds ahead of time at the request of bondholders.

According to the report, the redemption activities made it difficult for many businesses to continue implementing projects.

The report pointed out that the maturity value of real estate bonds at the end of 2022 would reach about VND37 trillion, of which unlisted companies accounted for the majority, with 84 per cent of the total value compared to 16 per cent of listed companies.

“Moreover, repayment pressure continues to increase significantly from 2023 to 2024, making it an urgent issue to secure capital for debt refinancing.”

FiinGroup said that real estate developers should diversify financing sources from customers and clients and enhance the transparency of credit profiles in the capital market.

Real estate developers could take advantage of customer capital channels by completing legal procedures and project implementation progress to open for sale and receive down payments.

“Building and improving credit profile in the capital market is the fundamental solution towards an optimal capital strategy, besides considering using credit rating and enhancing information and risk transparency to both domestic and foreign markets, ” the report wrote.

“The promotion of credit rating will help individual investors and commercial banks in selecting, evaluating, and lending credit in line with risk appetite and the State Bank’s directive: strictly control real estate credit risks.”

According to Nghia, it was necessary to speed up the appraisal process of Decree 153/2020/NĐ-CP about corporate bond issuance, an essential tool to recover the sluggish corporate bond market undermined by the complicated procedures and investor confidence decline.

Real estate developers should also register for credit rating to enhance transparency as a premise for issuing a corporate bond, Nghia said.

According to Can Van Luc, a member of the National Advisory Council for Financial and Monetary Policies, Vietnam still had room to develop the capital market for the real estate sector, including credit for segments which were in a supply shortage, stock market and corporate bond market.

Luc estimated that Vietnam needed around VND700 billion to VND1 quadrillion capital in the medium and long term, besides banking credit.

“It is important to develop a more balanced and harmonious financial market together with risk control, directing the capital flow, not blocking with the focus on regulating the supply and demand of the real estate market,” he said.

He stressed that the regulation of credit rating for real estate companies was also needed.

“It’s time Vietnam seriously thought about developing a separate financial institution for housing development such as a housing development fund,” Luc said.

Diversifying capital raising channels was a solution for real estate developers, Luc said, adding that besides banking credit, enterprises should flexibly raise capital for other media such as bond issuance, stake offering and investment funds.

FiinGroup expects that the corporate bonds market will rebound at the beginning of the fourth quarter of this year when the amendment to Decree 153 is issued and officially comes into effect.

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Careful bond maturation action urged The last few months of this year will witness a bumpy road for real estate businesses with heavy mature bond burdens.