Corporate bond market shows signs of recovery amidst challenges

The Finance Ministry informed that in the first seven months of this year, there were 183 successful private bond issuances, raising a total value of VND174 trillion (US$6.97 billion), a 2.78-fold increase compared to the same period last year.

In the corporate bond issuance sector, credit institutions have strongly attracted capital. Among them, banks accounted for the largest proportion of bond issuance value in the first seven months of this year with a total value of VND136.5 trillion ($5.47 billion), accounting for 68.2 percent of the total issuance value in the market. The interest rate of corporate bonds issued by commercial banks with a term of 5-10 years also reached 6-7 percent per year, and even bonds of BVBank with a term of 6 years had an interest rate of up to 7.9 percent per year.

FiinGroup experts believe that corporate bonds issued by banks “have low risks and are highly valued by the market.” This is because most commercial banks have plans to increase their capital to meet the demand for credit growth of 14-15 percent this year, or to meet capital safety regulations.

Banks are financial institutions. Whether the purpose of issuing bonds is to restructure existing debt to optimize capital structure, or to support businesses in restructuring debt or new lending, the quality of loans is still well controlled.

Head Tran Phu Viet of the Research and Product Development Department at FiinGroup's Financial Data Division forecasts that in the coming time, bank bonds will remain the dominant group leading the market, accounting for about 70 percent of the issuance value in the second half of 2024.

The real estate sector comes second in the list of corporate bond issuance from the beginning of the year, reaching VND32.6 trillion ($1.31 billion), comprising about 21 percent of the total issuance value. The interest rate of corporate bonds in the real estate sector was also the highest in the market, averaging 12 percent per year with an average term of 2.7 years. Vingroup alone issued corporate bonds worth VND10 trillion ($400 million) with an interest rate of 12.5-15 percent per year, which doubles the one of bank deposits with a term of over 12 months.

Commenting on the sky-high interest rate of real estate corporate bonds, MBS Securities said that because they could not access bank credit, real estate enterprises resorted to issuing corporate bonds with high interest rates to attract capital, even though the output was still facing many difficulties. The ability of real estate enterprises to repay bonds, however, remains unpromising due to poor business results and weak cash flow.

According to statistics from securities companies, the total value of corporate bonds with overdue payments is estimated at about VND209.9 trillion ($8.4 billion), accounting for 21 percent of the total outstanding corporate bonds in the market, 68 percent of which belongs to the real estate sector.

To ensure investor safety, experts suggest that credit ratings should be strengthened. The Bond Market Association reported that of the VND168 trillion ($6.7 billion) of private corporate bonds issued to the public, only 7 percent of the value had been credit rated. In a context where the proportion of individual investors is high and institutional investors are not diversified, such a tiny minority of corporate bonds being rated in the market poses many risks for investors.

General Director Nguyen Quang Thuan of Fiin Ratings noted that although Vietnam has been gradually forming a credit rating culture, it is still a new concept and has not been fully appreciated. Meanwhile, the credit rating industry in the world has existed for over 100 years.

Vietnamese enterprises, if they want to mobilize capital from the international market, must have a credit rating. Auditing is the past, while credit rating is the future. Currently, many pension funds and mutual funds are interested in the Vietnamese corporate bond market but cannot invest due to the requirement for credit ratings.

Therefore, to attract investors, especially institutional investors, a hard infrastructure such as policies, legal frameworks, and transparency is important, but soft infrastructure such as trading on listed exchanges and credit ratings must follow international practices.

From the perspective of the state management agency, Vice Chairman Hoang Van Thu of the State Securities Commission said that after a period of stagnation, with the guidance of the Government, relevant ministries, and state management agencies, the corporate bond market has operated stably.

However, managing the corporate bond market tightly in a sustainable manner and creating conditions for economic organizations to mobilize capital is a difficult problem. In addition to the management agency, other market participants such as issuers, service providers, consultants, and investors also need to improve their professionalism.