Concerns about credit ratings for corporate bond

Only real estate bonds are expected to account for 54.2 percent of total bond issuance value in 2021.

Experts did not warn of the weaknesses of corporate bonds in Vietnam until the case of the Tan Hoang Minh group's bond batches being canceled. The 2021 corporate bond market study from SSI Securities Company paints a bleak picture. Only real estate bonds are expected to account for 54.2 percent of total bond issuance value in 2021, with 172,500 billion dong in bonds without collateral or partially or fully secured by shares. Because up to 33 trillion dong of real estate bonds have been issued without information on collateral, the real total could be higher.

The Ministry of Finance supplemented regulations on credit ratings for some types of corporate bonds in the Draft Decree amending and supplementing a number of articles of Decree No. 153/2020/ND-CP on the private placement of corporate bonds in Vietnam and the offering of corporate bonds to the international market, which was published nearly half a year ago.

Despite the planned credit ratings regulation, Vietnam's bond market may remain chaotic. After all, the ultimate decision maker is still an investor who, based on his expertise, will have risk tolerance when purchasing corporate bonds, regardless of their credit ratings. In other words, bonds issued by low-credit corporations, where credit ratings are simply one aspect of the bond issuing process, and bond investors make the final decision.

Mr. Do Ngoc Quynh, General Secretary of the Vietnam Bond Market Association (VBMA), has remarked that a company's credit rating does not ensure that its project will be successful 100 percent of the time. Credit ratings are based on current facts, and no one can guarantee their long-term viability.

As a result, bond investors should keep in mind that if there is a credit rating regulation for corporate bonds, it is simply for reference and not as a basis for bond purchases.

Important information about corporate bonds that investors should be aware of includes the issuer's commitment to the bond, the issuance term, and the manner of repayment of principal and interest. Furthermore, investors should be aware that a securities firm, bank, or financial institution is just a service provider of bond distribution and receives service fees from the issuer without being liable for the issuer's decision to repay the bond's principal and interest at maturity.

Besides, investors should purchase listed companys’ corporate bonds because they will have a more solid financial capacity, and investors will be able to track their business performance via their stock prices on the trading floor.