Liquidity risk topping realty concerns

Don Lam, general director of VinaCapital Group, said at the fifth Vietnam Economic Forum in Hanoi on December 17 that Vietnam’s financial and real estate markets are experiencing instability.

“The bond market abruptly dropped, with issuance down around 50 per cent from the previous year, and real estate is almost frozen owing to liquidity issues. Currently, the VN-Index is down almost 30 per cent, mostly owing to the steep decline in real estate stock values,” Lam said.

This change, according to Lam, is due to the fact that the State Bank of Vietnam (SBV) tightened monetary policy to limit inflation and that the government has stepped up its treatment of a number of instances of breaches of the rules on bonds and capital mobilisation.

“The favourable economic progress of Vietnam is negated by these issues,” Lam added, noting that it impacts economic development in 2023 and Vietnam’s standing in the eyes of investors.

Real estate groups with maturing debts may encounter cash flow issues in 2023, photo Le Toan

Numerous securities firms’ most recent reports indicate that a substantial number of real estate firms’ bonds have matured. According to VNDirect, the entire value of maturing real estate bonds is estimated at over $849 million alone in Q4.

The entire value of real estate bonds due in 2023 and 2024 in Vietnam is $5.09 billion and $5.12 billion, respectively, according to KB Securities Vietnam statistics.

With the gloomy trend of the real estate market, the group of small- and medium-sized enterprises (SMEs) carries the greatest danger owing to their excessive debt, poor quality, and lack of sales capacity, according to KB Securities. From now through to the end of 2024, real estate companies with maturing debts in this country may have cash flow issues.

KB Securities also cautions that the danger of default on real estate bonds is increasingly increasing for certain SMEs with poor asset quality. Due to the effects of the economic slump and the difficulties in obtaining bank loans, restrictive bond issuance, and poor absorption of the real estate market in 2023-2024, it will be challenging for them to get revolving capital.

A huge land bank, collateral assets for bank loans, eligibility to issue new bonds, and the capacity to borrow foreign bonds lessen the burden on a broad group of larger real estate enterprises in Vietnam, the securities group added.

Dinh The Hien, chairman of the Representative Board at Manulife Investment Management, segmented the Vietnamese bond marketplace into two groups: listed companies with low risk and interest rates of 8-9 per cent per year, and private issuers with high risk and interest rates of 12-14 per cent per year.

According to Hien, the group’s debt repayment ability is not particularly high, but this is not uncommon on the capital market.

“Money is the most pressing issue affecting real estate enterprises today. Businesses may obtain cash in three ways when the real estate market is robust: by issuing new bonds, borrowing from banks, or collaborating with brand new partners. However, drawing money from these sources is quite tough,” he said.

In the next six months, according to Hien, enterprises that issue real estate bonds may have liquidity issues, at least until investors recover their composure and the government acts against corporations that breach bond issuance restrictions.

Currently, the cost of sub-prime capital-seeking real estate bonds issued by private issuers is borne by real estate bonds issued by companies with strong ideas and long-term development goals.

Numerous economists at the forum believed that the tightening of monetary policy exacerbates the challenges of developing countries, such as Vietnam, in the setting of relatively large oscillations in the global economy, as China, Europe, and the United States are experiencing a time of recession.

Several industry insiders also said that Vietnam should manage its currency rate flexibly, coordinate its monetary and fiscal policies, and also address the myriad of liquidity issues in the banking and real estate sectors.

To mitigate the various risks and also restore investor trust, Vietnam must bolster its debt monitoring and settlement regulatory frameworks.

Lam of VinaCapital believes that “partial guarantees of corporate real estate bonds” could revitalise Vietnam’s corporate bond market. According to him, the VND has risen substantially, and inflation is gradually being brought under control; these conditions would allow the SBV to ease monetary policy.

“Long-term, Vietnam should tax real estate transactions for final purchasers as opposed to firms paying a predetermined charge; enhance laws on investor protection; and simultaneously change the legal framework for bond trustees,” Lam added.

“Vietnam must enhance the capability of credit rating organisations and mandate the rating of all bonds in order to boost bond capital’s contribution to GDP from 11 per cent to 25 per cent by 2050.”

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