Dr. Can Van Luc speaks at the workshop. Screenshot
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10 Risks and Challenges in the Corporate Bond Market Today
At the workshop on “Developing the corporate bond market towards professionalism and sustainability” held on August 16, Dr. Can Van Luc discussed the risks and challenges facing the market. He pointed out that the first issue is trust, which needs time to recover after serious violations in the market.
Secondly, the issuance recovery has been uneven. Credit institutions and real estate businesses account for 90% of the issuance, while other sectors have a very limited share as of the first seven months of 2024.
Thirdly, corporate bond delinquencies as of July 2024 are estimated at nearly VND 210 trillion, accounting for 21% of the total corporate bond market outstanding balance. The real estate sector accounts for 68% of this figure, excluding cases where issuers negotiated to reschedule or repurchase bonds before maturity in the past.
Fourth, the risk of contagion and interconnectedness between the banking, securities, and real estate markets remains latent. While this interconnectedness has been recognized and steps have been taken to control it, there is still much to be done.
Fifth, the market size is still small and cannot meet the medium- and long-term capital needs of the economy. Vietnam’s corporate bond outstanding balance is equivalent to 10% of GDP, while the average in ASEAN is 25-30%, and in Korea, it is 97% of GDP, indicating significant room for growth in Vietnam.
Sixth, private placements still account for over 90% of total issuances, leading to potentially higher risks due to the quality of both investors and bonds. There is a need to encourage enterprises to issue more publicly to ensure fairness, transparency, and professionalism, especially by reducing individual investors.
Seventh, the investor structure is imbalanced. Credit institutions remain the main buyers, while other institutional investors have a small share. It is necessary to streamline regulations to allow open-ended funds to participate in the corporate bond market in the coming time.
Eighth, the institutional framework and policies are not yet complete. The stricter regulations of Decree 65/2022/ND-CP have not been evaluated and reviewed.
Ninth, the market infrastructure is inadequate, especially regarding databases, information, credit ratings, and financial statements. While the private placement bond trading platform has been operational since July 2023 and has improved liquidity, transparency, and disclosure, further enhancements are needed to provide better data for the market.
Tenth, investors’ understanding and knowledge of the market are limited, while inspection and supervision resources are scarce.
How to Develop and Improve the Health of Vietnam’s Corporate Bond Market
To develop and improve the health of Vietnam’s corporate bond market, Dr. Luc proposed several solutions, both short-term and long-term.
In the short term, the government and relevant ministries and sectors should promptly resolve violations in corporate bond issuances; reform procedures and conditions to encourage enterprises to issue bonds to the public; review and amend Decree 65 to ensure its practicality; and implement policies to encourage enterprises to obtain credit ratings and disclose their ratings. Additionally, a green classification system should be promulgated to facilitate the development of green securities, bonds, and credit.
Enterprises should also proactively restructure, allocate resources to repay bond principal and interest as committed, and cooperate with authorities and investors to return money to bondholders.
In the long term, Dr. Luc suggested effectively implementing the Finance Strategy by 2030 (issued on February 21, 2022) and the Securities Market Development Strategy by 2030 (issued on December 29, 2023). This should be coupled with a focus on institutional completion, including the improvement of the securities market infrastructure, such as credit rating organizations, centralized trading systems, information and data foundations, and financial reporting standards.
It is also crucial to expand and enhance the quality of investors, including individual and institutional investors, especially investment funds, pension funds, and insurance companies. Completing the institutional framework and policies, such as amending the Securities Law and Enterprise Law, and enhancing market management and supervision capabilities are essential. Vietnam should also prioritize implementing measures to upgrade the securities market as planned.
Systemic financial risk management, including interconnected risks between banking, securities, insurance, and real estate, deserves attention. Enterprises and issuers should diversify their capital sources, manage risks proactively, voluntarily obtain credit ratings, improve corporate governance capabilities, conduct financial statement audits, and embrace green growth, green finance, circular business models, and digital transformation.
Investors, on their part, need to enhance their knowledge of the financial market and personal financial management skills. They should also thoroughly research issuers to make informed and suitable investment decisions.
Key Points to Consider in Decree 65
Regarding bond maturities, Dr. Luc noted that the corporate bond market has overcome its most challenging period, which was in June, July, and August of the previous year, before the issuance of Decree 08. He attributed the real estate market’s resilience to this decree, stating that it helped the industry navigate through the third quarter of 2023.
In 2024, the corporate bond outstanding balance stood at approximately VND 213 trillion, with the real estate sector accounting for 37%. The first positive sign is that enterprises have negotiated with bondholders, and about 60% of the bonds have been extended for another two years, with the new maturity falling in June 2025. Secondly, enterprises have proactively repurchased bonds, amounting to VND 60-70 trillion in the first seven months. Thirdly, enterprises have started issuing new bonds to refinance their debt.
Additionally, investors have regained some confidence, allowing enterprises to negotiate for more time. Concerning enterprise bankruptcy, Dr. Luc stated that bankruptcy is already challenging for regular enterprises, and it becomes even more complex when corporate bonds are involved.
He emphasized that the critical question now is whether Decree 65 will allow enterprises to negotiate debt rescheduling after Decree 08 expires, and the management agency must provide an answer to this.
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