Lethargic opening to 2024 bond market poses questions for challenging outlook

The rules within Decree 65 are expected to affect private corporate bond issuances this year

Data from the Hanoi Stock Exchange and the State Securities Commission indicates a conspicuous absence of new bond issuances through January 24, contrasting sharply with the active buyback of bonds by companies, totalling approximately $181.4 million.

Looking ahead, the landscape for bond issuances remains murky. A limited number of companies, primarily banks such as Vietcombank and VietCapital, have disclosed their 2024 bond issuance plans.

Analysts anticipate a market pattern akin to the previous year: a sluggish first half, with expectations of picking up pace later. Contributing to this cautious outlook are persistent business challenges, a lacklustre real estate sector, and a gradual recovery of investor confidence.

A significant regulatory overhaul is set to impact the market, however. The reinstatement of Decree No.65/2022/ND-CP from 2022 on amending private placement and trading of privately placed bonds, following a temporary relaxation under Decree No.08/2023/ND-CP from March 2023, presents a near-term challenge.

Nguyen Ba Khuong, analyst at VNDirect Securities, believed that Decree 65’s stringent conditions, which require investors to hold a minimum portfolio of listed securities valued at around $84,500 for at least 180 days to qualify as professional investors, pose a barrier for individual investors.

“Previously, individual investors were pivotal to the corporate bond market’s growth, accounting for one-third of its purchasing power,” Khuong said. “But following incidents like the Tan Hoang Minh case and introduction of stricter regulations, their participation has markedly decreased. In 2023, they accounted for just 6.8 per cent of the value of corporate bond transactions.”

Khuong also projected a substantial maturity wall in 2024, with private corporate bonds due for redemption valued at approximately $8.73 billion. Notably, real estate enterprises represent 59 per cent of this figure.

“Given the continued slowdown in the real estate market and delays in legal clearances for projects, the sector’s business operations are expected to face ongoing challenges next year,” he added. “This scenario puts a considerable strain on cash flows and heightens the maturation pressure of corporate bonds for real estate firms.”

However, as 2024 unfolds, a potential deceleration in the issuance of private corporate bonds is anticipated, largely due to the activation of Decree 65 from the start of 2024.

“Decree 65’s stringent rules will likely affect private corporate bond issuances in 2024. We predicted a possible upturn towards the end of the year as market players adjust to the new regulations and as business capital needs grow in a reviving economy,” Khuong explained.

Meanwhile, the Vietnamese Bond Market Association expects that in 2024, the total value of maturing bonds nears $11.76 billion, with real estate and banking sectors representing 41 and 20 per cent of these impending maturities, respectively. This looming maturity burden weighs heavily on businesses amidst an already challenging market environment.

Nguyen Quang Thuan, chairman of FiinRatings, noted that Vietnam’s corporate bond market is relatively small scale compared to the ASEAN average.

“A striking 95 per cent of the current issuance and circulation value is attributed to privately issued bonds, which inherently bear the characteristics of project financing,” he said. “Publicly issued bonds, expected to be of higher quality and transparency, represent a mere fraction of the market, less than 5 per cent of the total issuance volume. This concentration, particularly in real estate which accounts for over half of the total issuance value, poses significant concentration risks for the market and investors,” Thuan added.

FiinRatings’ calculations suggest that the total value of maturing private corporate bonds in 2024 could reach approximately $12.15 billion, with 2025 seeing maturities around $8.18 billion.

The Ministry of Finance has yet to announce any extension to Decree 08, which amends and suspends certain provisions regarding the issuance and trading of private corporate bonds, both domestically and internationally.

Meanwhile, many experts support tightening the base of individual investors while opening mechanisms to draw in more institutional investors into the corporate bond market.

Nguyen Ngoc Anh, CEO of SSI Asset Management, said, “Tight control over corporate bond sales to individuals is essential due to their inherent risk. However, in parallel, it’s imperative to establish a dedicated trading channel for institutional investors and investment funds, offering more flexibility to enhance market liquidity. Currently, mechanisms to attract domestic investment funds are limited.”

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