Risks failing to stem bond issuance

In December 2020, there were 98 registrations of bond issue with a total registered value of 75.35 trillion VND, 4.2 times higher than the previous month. (Photo: vietnambiz.vn)

The Hanoi Stock Exchange last week announced the results of Tiki’s private bond issuance. The e-commerce group has just completed issuance to raise VND1 trillion ($43.47 million) of non-convertible bonds, without warrant and secured with collateral assets with a fixed interest rate of 13 per cent per year.

Tiki has issued 2.1 million shares as collateral for the bond batch, increasing the total number of shares outstanding to 23 million. After adjustment, Tiki shares last week were valued at nearly VND603,000 ($26.21) apiece, corresponding to the value of collateral assets at VND1.3 trillion ($56.51 million). Following the deal, Tiki is approximately valued at VND13.8 trillion ($600 million).

The majority of bond buyers are professional individual investors in Vietnam. In addition, two local and two foreign organisations also scooped up Tiki bonds.

The group will use the fresh funds to increase its operation scale and implement investment projects such as expanding its warehouses, investing in its subsidiaries as well as sponsoring marketing and advertising campaigns. With a capital cost of up to 13 per cent, Tiki’s bond batch is one of the highest yielding issuances in the market.

E-commerce players are burning money to grab a slice of the lucrative market, resulting in mounting losses. Vietnamese tech company VNG’s financial report showed that the firm incurred losses of $7.77 million and $12.4 million from its investment in Tiki in both 2016 and 2017. VNG’s losses in the e-commerce venture skyrocketed to $32.59 million in 2018 and $13.91 million in 2019.

However, sceptical experts are of the view that loss-making businesses like Tiki bear the great risks in their bond issuance, particularly when Tiki and other e-commerce players are still ineligible for listing on the Vietnamese stock market due to such large losses.

Likewise, Vietnam Construction and Import-Export JSC (Vinaconex) also announced its private placement plan in 2021. The company will issue a value of VND2.5 trillion ($109 million) in non-convertible bonds without warrants but secured by collateral. It is a 36-month period with interest rate of 10.5 per cent per year for the first period, which will be adjusted periodically each period. The private placement plan aims to increase the company’s operation and carry out other investment project.

Dat Xanh Group, on the other hand, is tapping into international debts as the real estate developer has issued $300 million worth of bonds in Singapore.

Other companies also follow suit, as corporate bonds in Vietnam posted growth of 3.3 per cent on-quarter in the second quarter of 2021, lifting the total outstanding amount to $12.8 billion at the end of March.

Hoang Thi Minh Huyen, financial analyst at Bao Viet Securities, noted, “We believe that the demand for corporate bond issuance of domestic companies will decrease, and insolvency risk may occur in a number of businesses in 2021.”

“Vietnam’s lack of transparency and independent credit rating agency makes the task of re-evaluating the corporate bonds’ safety much harder,” Huyen added.

The increase, however, was slower compared to the growth of 13.5 per cent on-quarter in the previous quarter. The slowdown in growth can be traced to lower issuance volume from the corporate sector due to regulations that raised standards for corporate bond issuance to promote transparency and fairness in the market.

According to the Asian Development Bank (ADB), the aggregate bonds outstanding of the top 30 local currency yields corporate issuers amounted to $8.7 billion, or 68.1 per cent of the total corporate bond market, at the end of March.

The top 30 corporate issuers were mostly from the banking sector with cumulative outstanding bonds equal to VND107 trillion ($4.7 billion), or more than half of the top 30’s outstanding bonds. Property developers were the next most prolific issuers with VND44.7 trillion ($194.3 million) in bonds outstanding, or 22.4 per cent of the top 30’s total debt.

In the first quarter of 2021, state-owned bank BIDV was the single-largest issuer with outstanding debt of VND22 trillion ($95.7 million). Issuance from the corporate sector amounted to VND18.6 trillion, down from VND45.6 trillion in the fourth quarter of 2020.

Debt issuance from property developers dominated the list of new corporate bonds with sales amounting to VND12.8 trillion ($55.7 million), which accounted for about 70 per cent of total issuance. There were 32 corporate bond issuers, 17 of which are property players. Notable bond issuances during the quarter were mainly from the property sector, such as at Novaland, Phat Dat Real Estate, and Dat Xanh Group. Vingroup is the leading issuer with cumulative issuance of VND4.4 trillion ($19.1 million) from three tranches of 3-year bonds.

Last month, the State Bank of Vietnam issued Official Dispatch No.3029/NHNN-TTGSNH to credit institutions and foreign bank branches, instructing them to implement strict control over the quality of credit in sectors with potential risks such as real estate and securities. High-risk credit areas include investments in corporate bonds, securities credit, real estate, build-operate-transfer projects, and consumer loans.

“For corporate bonds, issuance from the country’s real estate sector has rapidly increased in volume, with almost none having any collateral. This risks the formation of a property bubble that could inflict huge losses on investors when the bubble bursts,” the ADB emphasised.