New signals expected in the corporate bond market

Delegates cut the ribbon for the launching of Việt Nam Investors Service in Hà Nội on Friday. Photo courtesy of the firm

HÀ NỘI - The corporate bond market has entered a new cycle when the value of high-risk bonds would be gradually decreased over the next 12-18 months.

Trần Lê Minh, General Director of Việt Nam Investors Service (VIS Rating), made the statement at a conference to update fluctuations in the Vietnamese corporate bond market and credit rating activities held in Hà Nội on Friday.

In the fourth quarter of 2022, the value of high-risk bonds was VNĐ19 trillion. The value would be reduced to VNĐ9 trillion in the last quarter of 2024. The size of the corporate bond market began to stabilise since last July.

“All regulations in Decree 65, with more restrictions on investor status, issuance purpose, and principles for using bond capital which will take effect from the beginning of 2024, will establish stricter discipline for relevant parties, restore market confidence and pave the way for the market to move to a new and more sustainable cycle,” Minh said.

He added that the market might enter a new cycle. However, the quality of newly issued bonds would need to be carefully observed, especially companies established solely for the purpose of raising capital.

Simon Chen, VIS’s Managing Director said: “2024 is the theme where we think that in Việt Nam, the corporate bond market will be entering a new phase of development. I think this is a very important inflection point for the corporate bond market. Basically, in our report, we highlighted three key expectations, the first expectation is that in 2024 the pace of new defaults in the corporate bond market to slow down. We also think that market discipline, across issuers, investors and intermediaries, will see improvements. We will see a gradual recovery in confidence in the corporate bond market.”

He added that there would be a recovery in new issuances. A lot was driven by the lowest interest rates this year.

"We think that the rates will continue to stay low next year. A lot of Government policies have been introduced this year, and these policies take some time to come into effect.

“We think 2024 will be a year where we will see the effects coming through and that will support business conditions for many of the sectors that are in need of bond financing. The accumulation of these factors will improve the business conditions. For many bond issuers cash flows will stabilise and this will help support their debt servicing capacity, and we think pay for new defaults will go into liquid form,” he added.

In addition, recent market changes helped investor sentiment gradually improve. The banking sector would be the driving force for new issuance to the market as the issuance volume was always large, accounting for about 30-40 per cent of the market.

VIS establishment

On the same day, Việt Nam Investors Service (VIS Rating) officially came into operation.

The company was established by founding shareholders Moody's (49 per cent of shares) and leading financial institutions in Việt Nam such as ABCS, NamABank, Vndirect, Dragon Capital and VPS, based on initiatives from the Việt Nam Bond Market Association (VBMA).

VIS Rating's goal is to ensure that corporate bonds truly become an important tool in attracting capital for businesses, while making an important contribution to the development of the Vietnamese economy.

To achieve this goal, the company aims to become the most chosen rating company in the market, based on ensuring rating quality, independence, objectivity and high responsibility.

“We pledge to dedicate ourselves to ensuring that VIS Rating operates with transparency, accuracy and independence. VIS Rating will provide honest information and assessments about issuers, debt instruments or corporate bonds, helping investors have more basis to make accurate decisions, and helping enterprises have reliable capital raising channels,” Phạm Phú Khôi, Chairman of the Board of Directors of VIS Rating, said.

Wendy Cheong, Managing Director-Regional Head of Asia Pacific for Moody's Investors Service and a member of VIS’s Board of Directors, said that strong economic growth and increasing integration into the global economy brought enormous opportunities and challenges.

The value of Việt Nam's outstanding corporate bonds reached about 13 per cent of GDP by the end of August 2023, this showed the strong growth potential of the debt market. As Việt Nam's domestic bond market develops, credit ratings and research would play an increasingly important role by helping companies access new capital, building funding strategies, demonstrating transparency and maintaining investor confidence during times of market stress, she added.