VN's bond market needs good credit rating agency

Thursday, Apr 30, 2015 09:05

A good credit rating system will attract more investment to the corporate bond market in Viet Nam. ─ Photo
HA NOI (Biz Hub) ─With the capital market growing rapidly, many enterprises are issuing bonds to boost financial capability, but the lack of a good credit rating service has slowed down issuance.

According to the Ministry of Finance's (MoF's) data, the total value of corporate bond issues in 2014 reached about VND22.922 trillion (US$1.07 billion), reflecting a year-on-year decrease of 33.4 per cent and accounting for less than 1 per cent of the country's GDP.

Meanwhile, government bond issues climbed 37 per cent from 2013, totalling more than VND248 trillion ($11.6 billion) last year, which was equivalent to 6.24 per cent of the GDP.

Outstanding corporate bonds were a mere 2.5 per cent of the GDP, while the number of government bonds was pegged at 12.84 per cent.

For a wider comparison, the Vietcombank Securities Company (VCBS) analysed that the corporate bond market had grown strongly in advanced financial markets in the world, such as the United States, Europe, Singapore and Hong Kong, in terms of size and liquidity, which was even higher than the share market.

In Southeast Asia, local bond markets in countries, such as Malaysia, Thailand, Philippines and Indonesia were also very developed. As of September 2014, the total value of corporate bonds issued by these countries touched $136 billion, $69.5 billion, $16.5 billion, and $18 billion, respectively. They were much higher than the $0.56 billion worth of bonds issued by Vietnam.

VCBS said a lack of transparency caused by a low credit rating in the country was the reason for this. It had made it difficult for corporates to issue bonds and also made such bonds unattractive for investors.

According to local bonds experts, credit ratings have a strong influence on the success of the bond issue, especially when issuing bonds abroad. It also affected bond interest, known as the higher credit rating and the lower interest bonds, and vice versa.

It would also help investors; especially institutional investors have a basic rating vis-à-vis their choices for buying bonds. They could use a credit rating of bonds issued to decide whether they should include the stock of that company in their portfolio or not.

In Viet Nam, there are three organizations currently according credit ratings, of which one is a state-owned organisation, and the others are BIDV and Techcombank, but none of them are internationally recognized. Besides, they do not function as a proper organization that assesses credit ratings either.

New Government decision to help

On April 17, Prime Minister Nguyen Tan Dung had issued a decision, which regulated that the issuance of corporate bonds had to be credit rated from 2020.

The decision on the development plan for credit rating services by 2020 and the vision for 2030 would result in a major change in the bond market.

The decision also appointed the local Ministry of Finance to review and grant certification to a maximum of five best organisations that would provide credit rating services in Viet Nam by 2030.

The decision was aimed at supporting the stock and bond markets, improve transparency, promote the mobilization of capital and to better protect the rights and interests of investors.─VNS

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