Improvement in bond market seen in H2 of 2023, but challenges loom for 2024 issuances

According to the Bond Market Association (VBMA), as of December 22, 2023, the total recorded value of issued corporate bonds reached nearly VNĐ274 trillion, of which 90.1 per cent were privately issued. — VNA/VNS Photo

The bond market experienced a noticeable improvement in the latter half of 2023, but businesses still face challenges when it comes to issuing bonds in 2024.

The corporate bond market in 2023 saw a clear differentiation. In the first half of the year, this capital mobilisation channel was almost frozen. In the first quarter, the market had almost no issuance of corporate bonds, and the amount of corporate bonds issued in the first six months of the year only reached about VNĐ43 trillion.

However, in the last six months of 2023, the market recovered quite clearly. The total amount of corporate bonds issued was nearly six times the amount issued in the first half. Banks were the largest issuers in the market (accounting for about 54 per cent of total issuance value), while real estate is the second largest industry group.

According to VBMA data, as of December 22, 2023, the total value of bonds bought back by businesses before maturity reached more than VNĐ231 trillion, an increase of 8.5 per cent year on year, equal to nearly 85 per cent of issuance value. Banks were the largest repurchasers of corporate bonds, accounting for nearly half of the total value of premature repurchases.

Another highlight was that the separate corporate bond trading floor officially came into operation. According to HNX statistics, by the end of December, 2023, the registered trading volume reached nearly 717 million bonds, and the transaction value reached more than VNĐ208 trillion.

According to Nguyễn Quang Thuân, chairman of FiinGroup, the corporate bond market in 2023 was still the main ‘playground’ of financial institutions, as issuers and buyers are mainly commercial banks. Meanwhile, individual investors have not yet returned to this channel. According to a report from the Ministry of Finance, in 2023, individual investors only bought 6.8 per cent of the total amount of corporate bonds issued.

Cấn Văn Lực, chief economist at BIDV, said that the clear recovery of the corporate bond market in the last six months of 2023 showed that the recent groups of policies on the corporate bond market have been effective, especially Decree 08/2023/NĐ-CP.

The introduction of these unprecedented policies, particularly the mechanisms allowing for bond debt extensions and money-goods swaps (converting corporate bonds into real estate), has provided significant assistance to issuing businesses seeking an escape route, Lực said.

Challenges of new regulations

According to Trần Phú Việt, head of Research and Product Development Department, Financial Information Division (FiinGroup), the amount of corporate bonds due in 2024 (both principal and interest) is about VNĐ380 trillion, of which 70 per cent is concentrated in two groups, being real estate and banking. The amount of mature real estate corporate bonds alone is more than VNĐ110 trillion.

This is a big challenge for real estate businesses in the context that many businesses are still "flooded" with bond debt. According to MBS statistics, as of December 22, 2023, there were about 103 businesses late in paying bond principal and interest, accounting for nearly 19 per cent of the total outstanding debt of the entire market, 70 per cent of which belonged to the group of real estate businesses.

In addition to the large maturity amount, in 2024, issuing businesses may face strict regulations because some extension regulations of Decree 08 will expire.

At the recent conference of the Ministry of Finance, Deputy Prime Minister Lê Minh Khái requested that the Ministry of Finance soon report to the Government on whether or not to continue extending some provisions of Decree 08, and at the same time, there is a need to have solutions to diversify products, targeting professional investors and institutional investors.

The Ministry of Finance needs to review the solvency of businesses with bonds due in 2024. From there, it will contribute to ensuring safety and security of the financial and monetary market, enhancing investor confidence.

Despite the challenges, there are several positive aspects for the corporate bond market in 2024. Experts predict that decreasing interest rates in the US and Europe may lead to capital inflows into resilient developing countries like Việt Nam. Additionally, domestic interest rates are forecast to remain low, providing strong support for corporate bond issuances.

According to Lê Xuân Nghĩa, an economic expert, the corporate bond market is entering a new phase of sustainable growth. This can be attributed to lower interest rates, policies supporting economic recovery, a more transparent market, and improved regulations. Stricter regulations and enhanced investor sentiment contribute to this positive outlook.

While there are still businesses with delayed payment obligations, many issuers have maintained timely payments, establishing credibility within the market. This increased transparency and improved investor confidence are crucial factors in the market's recovery.

To ensure the sustainable development of the corporate bond market, Cấn Văn Lực suggests creating a favourable investment environment, maintaining consistent and stable policies, and avoiding unnecessarily stringent business regulations.

Furthermore, an effective inspection and supervision mechanism should be established from the initial document submission and issuer screening stages. Consideration should also be given to relaxing conditions for public bond issuances and expediting the approval process.

Additionally, upgrading information technology infrastructure, increasing the number of credit rating organisations, and accelerating the progress of stock market upgrades are essential. Developing an individual corporate bond trading system would further enhance the market's growth. — VNS