Putting corporate bond market in the right track

A huge amount of money was poured into the corporate in the first six months of the year

According to statistics by Pham The Anh, chief economist at the Vietnam Institute for Economics and Policy Research (VEPR), in the first six months this year, businesses conducted 306 bond issuances, including 293 private placements with a total value of VND176.828 trillion ($7.7 billion), a more than 8 per cent jump compared to the same period last year, and 13 issuances to the public earning VND15.375 trillion ($668.5 million), equivalent to 50.3 per cent of the public issuance volume in 2020 (not including the issuance of international bonds by some major players like Vingroup or BIM Group).

Commercial banks took the lead with a total issuance value of VND68.113 trillion ($2.96 billion); real estate came second in issuance volume, but the value dropped by a sharp 12 per cent compared to the same period in 2020, to just VND61.988 trillion ($2.7 billion).

The Anh added that the volume of bonds issued to the public, albeit still modest compared to private placements, has reached 8 per cent of the total volume of bonds issued, higher than the 6 per cent in 2020.

Businesses are showing more willingness to issue bonds to the public to raise capital. This is a good signal and will help increase transparency and reduce risks, he added.

Meanwhile, Nguyen Hoang Duong, deputy director of the Finance and Banking Department under the Ministry of Finance (MoF) said that since the beginning of 2021, new regulations related to corporate bond issuance have had a strong impact on the market by restricting small and individual retail investors from buying privately issued corporate bonds as well as by reducing the proportion of bonds issued through private placements and increasing public issuances.

Duong noted that since 2021, the public issuance of corporate bonds must be licensed by the the State Securities Commission when enterprises meet the set requirements, such as having a credit rating for high-value issuances, and after issuance, enterprises must list their bonds on the stock market.

Although rules have been tightened for bond issuances through private placement, looking at the corporate bond market in the first six months of the year, many experts shared that a huge chunk of money is still being poured into this market, including bank loans.

The Anh argued that although the vast majority of enterprises faced difficulties due to COVID-19 and the demand for loans decreased sharply, in the first six months of this year, credit growth reached 5.47 per cent, more than 2.2 times higher than in the same period in 2020. Meanwhile, State Bank of Vietnam figures mirror a low growth in credit volume earmarked for securities and real estate. This means a large amount of money has been pouring into privately-issued corporate bonds.

Senior finance-banking expert Nguyen Tri Hieu assumed that as there is a huge amount of money pouring into the corporate bond market, lax management would pose risks to the financial market and cause economic uncertainties.

“The market contains many potential risks, the MoF and the SBV therefore need to strictly control corporate bond issuance activities," Hieu proposed.

Duong from the MoF said that according to regulations, enterprises raise capital through issuing bonds on the principle of self-borrowing, self-paying, and self-responsibility for capital efficiency and debt repayment ability.

Issuing large volumes of bonds with high interest rates but inefficiently using capital sources or facing difficulties in production and business activities would lead to a failure in returning bond principals and interests to investors, negatively affecting the bond market and the general financial market.

“Investors need to be aware that high interest rates will come with high risks, so they must be very cautious and carefully evaluate the risks before deciding to buy bonds. Investors need to request the bond issuers and brokerage organisations to provide full information such as which bonds are issued by which enterprises, the purpose of issuance, whether there is collateral, and more,” said Duong.

He added that investors should pay special attention not to buy bonds through lucrative offers by service providers, often banks or securities companies, without carefully understanding the financial situation of the enterprise in question, as well as the terms and conditions of the bonds.