Corporate bond: Headwinds on the road

Corporate bond offerings slumped to VND26.9tn, -53% mom, down 3.2% YoY in November. 

Bond issuance retreated in November

Corporate bond offerings slumped to VND26.9tn, -53% mom, down 3.2% YoY in November. The pullback was seen remarkably across all the corners but mildly in Financials (down 5.8% mom). Financials and Real Estate sectors were still the two largest constitutes with 33.2% and 58.1% in November. Of note, CTG was the biggest issuer with VND6.5tn, followed by the Vinhomes with VND2tn. Overall, bond underwriting recorded VND547.2tn, up 52.1% YoY in 11M21. Financials posted a VND201tn value, equal to 69.1% YoY, and accounted for 37%, up 7% YoY. 

Commercial banks and security firms subscribed 27.4%/36.3% in Nov, and 28%/42% in 11M21. Individual bondholders made up 5.9% and corporate lenders occupied 22.6% in 11M21. However, when examining the bond exposure of commercial banks and brokering firms, Kis Vietnam sees a large mismatch between actual subscription in the primary market vs the ending balance as of end-3Q21, implying that bankers and individual clients invested heavily from the securities’ re-transfers in the secondary markets.

Circular 16 drags the bond issuance down

State Bank of Vietnam released Circular No. 16/2021/TT-NHNN to monitor the bond investment by commercial banks. One key point must be taken noted that commercial banks are not allowed to buy bond issuance with following purposes: 

First, for refinancing, this point was not new to the market as it was mentioned in Circular No. 15/2018/TT-NHNN which bans the bank’s subscription on bond offerings to help issuers to pay the debts. 

Second, SBV extends the ban by preventing commercial banks to help borrowers who are going to use the receipt to invest or buy stakes in other businesses. 

Third, for businesses in need to meet their fund demand, they could not sell to banks.

Fourth, commercial banks are banned to do the Repo within 12 months of the transactions. 

Since commercial banks constituted 33% of total Real Estate bond subscription and 70% of total Real Estate bond offerings aimed at refinancing leveraged buyout, and expansion, Kis Vietnam estimated a 20-21% of total bond issuance could be hit by Circular No. 16/2021/TT-NHNN.

More stringent legal framework on secondary trading

The Minister of Finance (MoF) is currently composing a draft to adjust some conditions for offering corporate bonds based on Decree No. 153/2020/ND-CP and planning to take private bonds to be listed in VSD in which the bonds must acquire these 6 below standards: (1) It must be non-convertible bonds, without warrants. (2) Issuers have paid-in charter capital at the time of the transaction above VND30bn based on the latest audited FY financial statements. (3) Issuers make a profit and no accumulated loss based on the audited financial statements of the latest year. (3) Non-public issuers must offer collateral or guarantee payment of all principal and interest upon maturity. (4) Bonds have been centrally registered at Vietnam Securities Depository and Clearing Corporation (VSD). (5) Bonds issued meet the conditions of offering as prescribed in Decree 153/2020/ND-CP.