As the corporate bond market has shown signs of fast growth, this capital mobilisation channel will be closely inspected and controlled this year.
The corporate bond market has flourished with an estimated annual issuance value of over VND500 trillion (US$21.9 billion) in 2021, bringing the total value of recent outstanding corporate bonds to nearly VND1.2 quadrillion, accounting for about 11.4 per cent of the total credit outstanding of the whole economy and accounting for about 14.5 per cent of 2021 GDP.
In the context of banks tightening credit growth, corporate bonds have become an increasingly important medium and long-term capital channel for businesses. In the residential real estate sector, corporate bonds even account for nearly half of the total loan balance.
As the corporate bond market has shown signs of rapid growth, the loopholes of the market are becoming more obvious. Due to easy issuance conditions, a series of loss-making businesses have still successfully mobilised thousands of billions of dong. Most corporate bonds on the market are unsecured. The rest are secured mainly by future projects or by stocks. In other words, if a business collapses, investors are left empty-handed.
The risks have made market regulators start to inspect the market. At the end of 2021, a series of bond issuers were sanctioned by the State Securities Commission for violating the provisions of the law.
In a recent announcement, the State Securities Commission said that it would continue to closely inspect and control the issuance of corporate bonds in the future. In addition, the State Bank has also issued Circular No 16/2021/TT-NHNN, tightening of corporate bond trading activities of credit institutions.
Dinh Trong Thinh, an economist, told Dau Tu (Vietnam Investment Review) Newspaper that it was necessary to “purge the corporate bond market to avoid collapse”.
“Only a few issuers violating the law would make investors lose confidence in the whole corporate bond market,” he said.
“Although the corporate bond market is in its early stages of development, its recent scale has greatly reduced the credit pressure for banks. However, if a spillover effect occurs, the entire national financial system will be thrown into turmoil,” he said.
Maturity dates
While corporate bond issuance activities are tightened, the maturity dates of most of the bonds in the market are close.
Nguyen Quang Thuan, Chairman of the Board of Directors of FiinGroup, said that out of a total of nearly VND1.2 quadrillion of recent outstanding corporate bonds, up to 40.7 per cent will hit their maturity dates in 2022 and 2023.
The outstanding value of corporate bonds in the non-financial sector currently totals VND780 trillion, accounting for nearly 69 per cent of the total value. In the next three years, businesses (excluding banks, securities companies and financial companies) are under pressure to pay their investors more than VND500 trillion in debt.
The Ministry of Finance is drafting a Decree amending and supplementing a number of articles of Decree No 153/2020/ND-CP dated December 31, 2020 stipulating the private placement of corporate bonds in the domestic market and international market. Accordingly, the conditions for the placement will be tightened and enterprises will face many difficulties in raising capital to pay debts when the bonds reach their maturity dates.
In order to ensure the source of debt repayment, experts said businesses must standardise their operations to meet the conditions for issuing bonds. Enterprises must also consider other sources of capital to pay debts to investors.
Both securities and corporate bonds are medium and long-term capital mobilisation channels for the economy, it is necessary to facilitate their development to reduce the capital dependence of enterprises on the banking system, Dao Minh Tu, Deputy Governor of the State Bank of Viet Nam, said.
“However, corporate bonds are only good for the economy if this market develops transparently,” he said.
The State Securities Commission is urgently building a secondary bond trading floor and tightening the conditions for issuing corporate bonds. Amendments to Decree No 153 is expected to be officially issued in 2022. Under the amendments, enterprises without collateral, doing business at a loss will not be eligible to issue bonds on the floor.
Vu Thi Thuy Nga, Deputy General Director of the Ha Noi Stock Exchange (HNX), said this secondary bond trading floor will be launched by the end of 2022, contributing to increasing liquidity and reducing the risk for investors. VNS