Peak of the corporate bond market
Statistics show that in recent years, the corporate bond market has a concentrated issuer structure, mainly banks and real estate companies. Of the total value of individual bonds in circulation of 923,000 billion VND at the end of August 2023, the value of bonds issued by banks has a scale of 304,000 billion VND (accounting for 33%), real estate bonds reached 347,000 billion VND (accounting for 37.6%), and the remaining over 271,000 billion VND belongs to companies in other fields such as energy, construction, production, and services.
Meanwhile, looking back at the issuance structure of the peak three years of corporate bond issuance from 2019-2021, up to about 80% of issuers were non-listed companies, most of which were project companies or newly established companies that have difficulty accessing credit from banks, especially in the context of the State Bank of Vietnam’s tightening of real estate credit control in recent years.
With the significant impact of the real estate industry on the corporate bond market, the peak maturity date in 2024 of the corporate bond market is also the peak debt of the real estate industry corporate bonds, with companies having to focus on debt restructuring to calculate appropriate financial solutions to repay principal and interest, as well as to orient development while the market is facing many difficulties.
According to calculations, the pressure to repay both principal and interest from corporate bonds of real estate companies in the 12-24 month period ahead is very high, with a forecasted total value of 275.7 trillion VND. This figure shows significant challenges for the payment capacity of real estate industry companies.
In addition, the market is also expecting the revision of Circular 02 and Decree 08 to have a positive impact on the corporate bond market. However, the cross-impact on the commercial banking system is not insignificant, especially for banks with low reserve capital or poor bad debt coverage ability.
Need to be more open for quality issuers
In the context of improving legal regulations towards building a professional corporate bond market, one of the solutions to promote this market is to expand the channels for public offering of corporate bonds instead of focusing on private placement. In particular, the disclosure regulations should be further standardized and the approval procedures simplified.
Specifically, according to experts, the disclosure of information for bond offerings should be improved by supplementing evaluation information on debt servicing capability instead of mainly historical information like the current market’s white paper on bond offerings. In addition, publicly offered bonds should be independently credit-rated as in the practice of some more developed bond markets in the region.
In particular, according to the proposal of analysts from FiinRatings, for publicly offered bonds issued by listed companies and having a high credit rating, experts propose that the regulatory agency should consider applying the fast approval method or deemed approval method. Along with that, maintaining post-approval monitoring to limit violations.
For private placements, individual professional investors have been narrowed down according to the new regulations in Decree 65. However, if the bonds are only privately placed to institutional investors including commercial banks, investment funds, insurance companies, pension funds,… licensed by the regulatory agency, they can consider simplifying procedures regarding the proxy mechanism.
Attracting financial institutions
In addition to simplifying the issuance regulations, experts also believe that a comprehensive solution should soon be developed to remove legal barriers to the development of investor bases. The reality shows that the majority of bond-issuing companies in the past have chosen private placement methods with main investors being commercial banks and individual professional investors. Institutional investors including insurance companies and bond investment funds are still participating very limitedly.
Meanwhile, recently, after unfavorable developments in the market, many commercial banks have gradually taken steps to limit investment in corporate bonds according to NHNN’s regulations to control credit risks and system safety, and insurance companies have been restricted from investing in corporate bonds to restructure debts according to the new Insurance Business Law coming into effect at the beginning of 2023.
Together with the violations in the corporate bond market and policies to standardize the conditions for private placement, policy changes at the investor level have caused a sharp decline in private bond market.
Therefore, according to experts, to develop the corporate bond market into an important capital raising channel for companies besides credit, according to international practices in the medium and long term, Vietnam needs to consider evaluating and reviewing regulations to be more appropriate to attract the participation of institutional investors.
In addition to the above-mentioned investors, experts also believe that there is a need to strengthen the participation of other financial institutions such as pension funds, investment funds, and the group of investors managed by the government including Vietnam Social Security and state capital management units such as SCIC,… as this model has had many successful experiences internationally that Vietnam can consider learning from.
