Real estate firms switch to bonds due to less bank loans

Bond issuance is proving an effective channel and is forecast to become a major tool for real estate firms to raise capital in 2019.- VNA/VNS Photo

Raising capital by issuing bonds is a new option for property enterprises at a moment when they have to look beyond banks for funds, said financial expert Bui Quang Tin at a workshop held by online news portal Bizlive in HCM City early this week.

According to Le Hoang Chau, chairman of the HCM City Real Estate Association, property developers were still mainly raising capital from banking loans and from customers, with payment following construction progress.

However, bond issuance is proving an effective channel and is forecast to become a major tool for raising capital as in 2019, several policies meant to restrict lending to risky sectors like real estate have or will come into force.

The central bank has increased the risk weighting of real estate loans from 200 per cent to 250 per cent in 2019, which is a significant disincentive for banks to provide loans to the property sector since their minimum capital requirement is a ratio of their risk-weighted assets under the Basel norms.

Meanwhile, the SBV’s regulation on reducing the maximum quantity of short-term deposits that can be used for medium- and long-term loans from 45 per cent to 40 per cent will reduce banks’ liquidity.

To that end, realty enterprises need to count on other sources of funds.

However, according to economist Dinh The Hien, to raise capital by issuing bonds, firms need to have a good brand name, reputation and prestige.

Besides, bond issuers are required to meet more criteria than share issuers, including transparency, Hien said.

According to the HCM City Real Estate Association, businesses operating in the fields of property, construction and infrastructure development issued bonds worth more than VND16.2 trillion (US$690 million) during January-May, or 27 per cent of the total value of bonds which have been already put up for sale.

Phat Dat Real Estate Development Corporation (PDR) has recently announced the successful issue of VND150 billion worth of one-year bonds at a per-annum yield rate of 14 per cent. This is the fourth bond issuance so far this year for the firm. Earlier, it put up for sale VND850 billion worth of bonds at interest rates of 14.45 per cent, 12 per cent and 10.5 per cent.

Dat Xanh Group also successfully made a sale of VND234 billion worth of five-year bonds, offering an annual yield rate of 7 per cent.

Positive growth

Notable real estate stocks recorded positive growth in the first half of this year and offered promising opportunities for market players, said Lai Duc Duong, head of Department of Real Estate Sector Analysis at Viet Dragon Securities Company.

Real estate giant Vingroup (VIC), the largest listed company in Viet Nam by market capitalisation, has sky-rocketed by 23 per cent since early this year.

Its real estate arm, Vinhomes Joint Stock Company (VHM), the second-largest listed company by market capitalisation after Vingroup, has also soared 17 per cent since early this year.

According to Duong, VIC and VHM have huge land funds, spreading over large cities and provinces throughout the country.

"This year, VHM has set a business target which is pretty high compared to not only its pals in the real estate industry but also to itself. In the first six months of the year, it almost reached 50 per cent of the yearly plan,” Duong said.

“VIC and VHM are temporarily the most outstanding names in the real estate sectors and are highly valued, but this does not mean all investors will choose them,” said Truong Hien Phuong, senior director of KIS Viet Nam Securities Corporation.

“I would prefer looking for opportunities in some other potential names such as Novaland (NVL), Hung Thinh Land JSC (HTN), FLC Faros Construction Joint Stock Company (ROS), Dat Xanh Real Estate Service and Construction Corp (DXG), and Nam Long Investment Corporation (NLG),” Phuong said.

They invest in high-end apartment projects in big cities with prime locations, large scale resort projects in the coastal regions, Phuong said, adding that these stocks also provided promising investment opportunities.

Foreign direct investment (FDI) into the real estate market in the first six months reached more than $225.9 million, accounting for 43 per cent of the total FDI pumped into Viet Nam.

“If we don't enhance the transparency of the real estate market, FDI flow into the sector may stop. Viet Nam has signed a lot of FTAs, which means that we must adjust the law to suit the integration process, ensuring the attraction of capital inflows into real estate, from both foreign investors and home buyers,” financial expert Bui Quang Tin said.